November 10, 1999

Revisions to Federal Reserve Board Regulation B Implementation of the Equal Credit Opportunity Act

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Revisions to Regulation B (Docket No. R-1008)

Stated Purpose:

"Major proposed revisions include removing the general prohibition against noting information about applicant characteristics such as national origin or sex, although such information still generally may not be considered in extending credit; requiring creditors to retain records for certain prescreened credit solicitations; and extending the record retention period for most business credit applications."

Summary of RSP Comment:

The Regulatory Studies Program at the Mercatus Center of George Mason University is pleased to offer the following analysis and comment on the Federal Reserve Board's proposed modifications to its Regulation B, which implements the Equal Credit Opportunity Act (ECOA). Our analysis suggests that the Board's proposed modifications offer little substantive benefit; while at the same time they impose additional costs on banks and credit consumers.

The evidence we have been able to uncover suggests there is no pattern of widespread or pervasive discrimination in the application for or availability of credit in the United States. To be sure, individual cases of discrimination do indeed still occur, but the incidence of such discrimination is rare. The apparent intent of the proposed revisions to Regulation B is to enhance the federal financial regulatory agencies' ability to search for cases of discrimination. However, the proposed changes raise costs for everyone-a relatively small amount for most creditors but perhaps a considerable amount for some.

In particular, we estimate the on going costs of the proposed modifications to Regulation B to range from $500,000 to $2,100,000 annually. Moreover, OMB's standard discount rate of seven percent produces a present value of these cost estimates that ranges between $7.1 million and $30.0 million. Such costs ultimately are borne by American borrowers. A pivotal question therefore is whether the proposed revisions enhance regulators' ability to detect and ultimately discourage discrimination sufficiently to justify additional regulatory costs. Our analysis suggests that they do not. We therefore urge the Board to abstain from further changes to Regulation B.