[Code of Federal Regulations]
[Title 12, Volume 2]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR202.2]

[Page 19-22]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 202--EQUAL CREDIT OPPORTUNITY (REGULATION B)--Table of Contents
 
Sec. 202.2  Definitions.

    For the purposes of this regulation, unless the context indicates 
otherwise, the following definitions apply.
    (a) Account means an extension of credit. When employed in relation 
to an account, the word use refers only to open-end credit.
    (b) Act means the Equal Credit Opportunity Act (title VII of the 
Consumer Credit Protection Act).
    (c) Adverse action. (1) The term means:
    (i) A refusal to grant credit in substantially the amount or on 
substantially the terms requested in an application unless the creditor 
makes a counteroffer (to grant credit in a different amount or on other 
terms) and the applicant uses or expressly accepts the credit offered;
    (ii) A termination of an account or an unfavorable change in the 
terms of an account that does not affect all or a substantial portion of 
a class of the creditor's accounts; or
    (iii) A refusal to increase the amount of credit available to an 
applicant who has made an application for an increase.
    (2) The term does not include: (i) A change in the terms of an 
account expressly agreed to by an applicant.
    (ii) Any action or forbearance relating to an account taken in 
connection with inactivity, default, or delinquency as to that accounnt;
    (iii) A refusal or failure to authorize an account transaction at a 
point of sale or loan, except when the refusal is a termination or an 
unfavorable change in the terms of an account that does not affect all 
or a substantial portion of a class of the creditor's accounts, or when 
the refusal is a denial of an application for an increase in the amount 
of credit available under the account;
    (iv) A refusal to extend credit because applicable law prohibits the 
creditor from extending the credit requested; or
    (v) A refusal to extend credit because the creditor does not offer 
the type of credit or credit plan requested.
    (3) An action that falls within the definition of both paragraphs 
(c)(1) and (c)(2) of this section is governed by paragraph (c)(2) of 
this section.

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    (d) Age refers only to the age of natural persons and means the 
number of fully elapsed years from the date of an applicant's birth.
    (e) Applicant means any person who requests or who has received an 
extension of credit from a creditor, and includes any person who is or 
may become contractually liable regarding an extension of credit. For 
purposes of Sec. 202.7(d), the term includes guarantors, sureties, 
endorsers and similar parties.
    (f) Application means an oral or written request for an extension of 
credit that is made in accordance with procedures established by a 
creditor for the type of credit requested. The term does not include the 
use of an account or line of credit to obtain an amount of credit that 
is within a previously established credit limit. A completed application 
means an application in connection with which a creditor has received 
all the information that the creditor regularly obtains and considers in 
evaluating applications for the amount and type of credit requested 
(including, but not limited to, credit reports, any additional 
information requested from the applicant, and any approvals or reports 
by governmental agencies or other persons that are necessary to 
guarantee, insure, or provide security for the credit or collateral). 
The creditor shall exercise reasonable diligence in obtaining such 
information.
    (g) Business credit refers to extensions of credit primarily for 
business or commercial (including agricultural) purposes, but excluding 
extensions of credit of the types described in Sec. 202.3 (a), (b), and 
(d).
    (h) Consumer credit means credit extended to a natural person 
primarily for personal, family, or household purposes.
    (i) Contractually liable means expressly obligated to repay all 
debts arising on an account by reason of an agreement to that effect.
    (j) Credit means the right granted by a creditor to an applicant to 
defer payment of a debt, incur debt and defer its payment, or purchase 
property or services and defer payment therefor.
    (k) Credit card means any card, plate, coupon book, or other single 
credit device that may be used from time to time to obtain money, 
property, or services on credit.
    (l) Creditor means a person who, in the ordinary course of business, 
regularly participates in the decision of whether or not to extend 
credit. The term includes a creditor's assignee, transferee, or subrogee 
who so participates. For purposes of Secs. 202.4 and 202.5(a), the term 
also includes a person who, in the ordinary course of business, 
regularly refers applicants or prospective applicants to creditors, or 
selects or offers to select creditors to whom requests for credit may be 
made. A person is not a creditor regarding any violation of the act or 
this regulation committed by another creditor unless the person knew or 
had reasonable notice of the act, policy, or practice that constituted 
the violation before becoming involved in the credit transaction. The 
term does not include a person whose only participation in a credit 
transaction involves honoring a credit card.
    (m) Credit transaction means every aspect of an applicant's dealings 
with a creditor regarding an application for credit or an existing 
extension of credit (including, but not limited to, information 
requirements; investigation procedures; standards of creditworthiness; 
terms of credit; furnishing of credit information; revocation, 
alteration, or termination of credit; and collection procedures).
    (n) Discriminate against an applicant means to treat an applicant 
less favorably than other applicants.
    (o) Elderly means age 62 or older.
    (p) Empirically derived and other credit scoring systems--(1) A 
credit scoring system is a system that evaluates an applicant's 
creditworthiness mechanically, based on key attributes of the applicant 
and aspects of the transaction, and that determines, alone or in 
conjunction with an evaluation of additional information about the 
applicant, whether an applicant is deemed creditworthy. To qualify as an 
empirically derived, demonstrably and statistically sound, credit 
scoring system, the system must be:

[[Page 21]]

    (i) Based on data that are derived from an empirical comparison of 
sample groups or the population of creditworthy and noncreditworthy 
applicants who applied for credit within a reasonable preceding period 
of time;
    (ii) Developed for the purpose of evaluating the creditworthiness of 
applicants with respect to the legitimate business interests of the 
creditor utilizing the system (including, but not limited to, minimizing 
bad debt losses and operating expenses in accordance with the creditor's 
business judgment);
    (iii) Developed and validated using accepted statistical principles 
and methodology; and
    (iv) Periodically revalidated by the use of appropriate statistical 
principles and methodology and adjusted as necessary to maintain 
predictive ability.
    (2) A creditor may use an empirically derived, demonstrably and 
statistically sound, credit scoring system obtained from another person 
or may obtain credit experience from which to develop such a system. Any 
such system must satisfy the criteria set forth in paragraphs (p)(1) (i) 
through (iv) of this section; if the creditor is unable during the 
development process to validate the system based on its own credit 
experience in accordance with paragraph (p)(1) of this section, the 
system must be validated when sufficient credit experience becomes 
available. A system that fails this validity test is no longer an 
empirically derived, demonstrably and statistically sound, credit 
scoring system for that creditor.
    (q) Extend credit and extension of credit mean the granting of 
credit in any form (including, but not limited to, credit granted in 
addition to any existing credit or credit limit; credit granted pursuant 
to an open-end credit plan; the refinancing or other renewal of credit, 
including the issuance of a new credit card in place of an expiring 
credit card or in substitution for an existing credit card; the 
consolidation of two or more obligations; or the continuance of existing 
credit without any special effort to collect at or after maturity).
    (r) Good faith means honesty in fact in the conduct or transaction.
    (s) Inadvertent error means a mechanical, electronic, or clerical 
error that a creditor demonstrates was not intentional and occurred 
notwithstanding the maintenance of procedures reasonably adapted to 
avoid such errors.
    (t) Judgmental system of evaluating applicants means any system for 
evaluating the creditworthiness of an applicant other than an 
empirically derived, demonstrably and statistically sound, credit 
scoring system.
    (u) Marital status means the state of being unmarried, married, or 
separated, as defined by applicable state law. The term unmarried 
includes persons who are single, divorced, or widowed.
    (v) Negative factor or value, in relation to the age of elderly 
applicants, means utilizing a factor, value, or weight that is less 
favorable regarding elderly applicants than the creditor's experience 
warrants or is less favorable than the factor, value, or weight assigned 
to the class of applicants that are not classified as elderly and are 
most favored by a creditor on the basis of age.
    (w) Open-end credit means credit extended under a plan under which a 
creditor may permit an applicant to make purchases or obtain loans from 
time to time directly from the creditor or indirectly by use of a credit 
card, check, or other device.
    (x) Person means a natural person, corporation, government or 
governmental subdivision or agency, trust, estate, partnership, 
cooperative, or association.
    (y) Pertinent element of creditworthiness, in relation to a 
judgmental system of evaluating applicants, means any information about 
applicants that a creditor obtains and considers and that has a 
demonstrable relationship to a determination of creditworthiness.
    (z) Prohibited basis means race, color, religion, national origin, 
sex, marital status, or age (provided that the applicant has the 
capacity to enter into a binding contract); the fact that all or part of 
the applicant's income derives from any public assistance program; or 
the fact that the applicant has in good faith exercised any right under 
the Consumer Credit Protection Act or any state law upon which an 
exemption has been granted by the Board.
    (aa) State means any State, the District of Columbia, the 
Commonwealth

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of Puerto Rico, or any territory or possession of the United States.

[Reg. B, 50 FR 48026, Nov. 20, 1985, as amended at 54 FR 50485, Dec. 7, 
1989]