WASHINGTON - Though the Federal Reserve Board's latest interpretation of the Equal Credit Opportunity Act isn't receiving much attention, some industry experts claim the central bank is quietly trying to go beyond the law's intent.
The Fed published its revised commentary to Regulation B, which implements the fair-lending law, on Dec. 29. Only 12 companies responded by the Feb. 16 deadline for comments.
Some lawyers said the Fed is trying to redefine key fair-lending terms such as "business necessity."
The new definition, experts said, will make it harder for a bank to prove it has a business purpose for a policy that inadvertently disadvantages a particular group of people.
"In the absence of any statutory changes, the Fed is attempting to create new law," said Robert H. Ledig, a lawyer with Fried, Frank, Harris, Shriver & Jacobson in Washington.
Mr. Ledig claims that the new "business necessity" standard is much stricter than the "legitimate business need" guideline that courts have been relying on since 1990, when the Fed issued its original Reg B commentary.
The new business-necessity standard would be harder to meet, because a bank may have to prove that its policies are essential to good business. Under current rules, a bank can defend itself if it can prove its policies have a business purpose.
For example, a bank may have to argue that a minimum loan requirement is essential to its business.
"This is going to increase significantly the burden on lenders to defend their lending practices," Mr. Ledig said.
Agreeing with Mr. Ledig's theory, a lawyer with a West Coast firm said it will be almost impossible to meet the new standard.
The lawyer, who asked not to be named, said the new Reg B commentary will provide plenty of work for lawyers defending bankers.
"It's going to be a bonanza for plaintiff lawyers," he said.
Although respondents to the proposal did not share these lawyers' concerns, they did ask for more clarification on definitions involving fair-lending.
In his comment letter, Carl Edwin Spradlin, vice president for corporate compliance at Comerica, asked the Fed to better define special-purpose credit programs. For example, he asked if a loan made in connection with a federal program such as an empowerment zone would be designated "special purpose."
Thomas E. Embree, vice president of Fairwinds Federal Credit Union, Orlando, criticized the commentary's statement on credit scoring, a system used to evaluate potential borrowers' creditworthiness.
Though the Fed's proposal encourages banks to use statistically sound credit scoring programs, it also warns that overriding the statistical analysis with a judgment call can lead to trouble. If, for example, those judgments resulted in fewer loans for minorities, a bank might be accused of lending discrimination.
The bank trade associations missed the deadline for filing comments, but representatives of the American Bankers Association and the Independent Bankers Association of America said they were working on letters.
Nessa Feddis, senior counsel at the ABA, said it will ask for changes to several parts of the proposal, including credit scoring.
Ms. Feddis compared the complicated Reg B proposal with rules implementing the Community Reinvestment Act. "If you get too much guidance, it's restrictive," she said, "but if you don't get enough, it's not clear."