October 20, 1997
Bonlar Loan Co., Inc., a Chicago-based finance company that makes small loans to low income consumers who often have poor credit histories, has agreed to settle Federal Trade Commission charges that it systematically violated requirements of the Equal Credit Opportunity Act (ECOA) and its implementing Regulation B and the Fair Credit Reporting Act (FCRA) when taking and processing consumer loan applications. The settlement prohibits Bonlar from violating the ECOA and FCRA in the future and requires payment of a $40,000 civil penalty.
According to the FTC, Bonlar failed to provide consumers who were denied loans with written notice of adverse action, such as denial, and their right to receive in writing the specific reasons for such action, as required under the ECOA and Regulation B. In addition, the FTC alleged that Bonlar failed to inform consumers that a credit report influenced its decision to deny the loan, and failed to provide consumers with the name and address of the consumer reporting agency that furnished the credit report, in violation of the FCRA. These alleged practices deny consumers information crucial to detecting possible discrimination, correcting erroneous reasons for denial, and ensuring credit history accuracy. Bonlar also allegedly violated Regulation B by asking an applicant’s marital status in impermissible circumstances and using impermissible terminology.
According to the FTC, Bonlar also violated the requirement that an application use only gender-neutral terms by requesting information regarding an applicant’s “wife” on the application form. The ECOA and its implementing Regulation B prohibit discrimination against an applicant for credit on the basis of race, color, religion, national origin, age, sex, marital status, or source of income.
The ECOA and Regulation B also require that denied loan applicants receive notice of adverse action as a tool to detect such discrimination. An adverse action notice informs consumers of their rights under the ECOA and the name and address of the agency charged with enforcing this law — here, the FTC. The notice also provides consumers with the right to receive in writing the specific principal reasons for denial, which could reveal inaccuracies in their credit histories and signal possible discrimination. The FCRA requires a lender to inform loan applicants if their application was rejected based in whole or in part on a report from a credit reporting agency and to provide the name and address of the agency.
The FTC’s complaint detailing the allegations named Bonlar Loan Co., Inc. and its president, Larry Metnick, (together “Bonlar”) and charged them with violating the ECOA by:
- failing to notify applicants, in writing, of adverse action taken on their
applications for credit; and
failing to disclose the specific reasons for adverse action taken on such
applications or the applicant’s right to request such reasons.
The FTC alleged that Bonlar routinely asked applicants their marital status in impermissible circumstances, when such information was not necessary for evaluating the loan application. According to the complaint, Bonlar’s application form used impermissible terms in asking about marital status, such as “comm. law,” “single,” “divorced,” and “widowed.” The FTC also alleged that Bonlar’s application form used gender-specific terms inquiring not only about the applicant, but also about the applicant’s “wife.” Each of these practices, according to the FTC, violated Regulation B.
The complaint further charged that Bonlar violated the FCRA by failing to notify loan applicants that their application was rejected based, in whole or in part, on information from a consumer reporting agency, and failing to provide the applicant with the name and address of the consumer reporting agency that provided the report.
Under the settlement, the defendants must pay a $40,000 civil penalty. The consent decree also prohibits the defendants from violating the ECOA, Regulation B, or the FCRA in the future. Specifically, Bonlar is prohibited from:
- failing to notify each applicant in writing within 30 days of adverse action taken
on an application;
failing to provide the applicant with the specific reasons for the adverse action or a
disclosure of the applicant’s right to a statement of such reasons;
failing to inform the applicant when adverse action was taken because of
information contained in a consumer report from a consumer reporting agency and
to supply the name and address of such reporting agency;
requesting information on marital status in impermissible circumstances;
requesting information on marital status using terms other than “married,”
“unmarried,” and “separated;”
using an application form that contains terms that are not gender-neutral; and
failing to comply in any other respect with the ECOA, Regulation B, or the