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Informational Memorandum
Subject:Consumer Credit Protection Act and Fair Lending--Prohibition Against Discrimination in Credit Transactions
Date of Memorandum:06/15/2006
Expiration Date:
Signed By:McKenzie, Thomas
FCA Contact Person:Cohn, Jennifer
Contact Phone:703-883-4028
List of Attachments:7038834020

.Farm Credit Administration 1501 Farm Credit Drive


June 15, 2006

To: Chief Executive Officer
All Farm Credit System Institutions

From: Thomas G. McKenzie, Director and Chief Examiner Thomas G. McKenzie
Office of Examination

Subject: Consumer Credit Protection Act and Fair Lending -- Prohibition Against Discrimination in Credit Transactions

The purpose of this Informational Memorandum (IM) is to remind Farm Credit institutions that the Equal Credit Opportunity Act (ECOA) and its implementing regulation (Federal Reserve Board's Regulation B, 12 C.F.R. Part 202) prohibit discrimination against a consumer in a credit transaction on the basis that the consumer has, in good faith, exercised any right under the Consumer Credit Protection Act (CCPA). The CCPA includes the Fair Credit Reporting Act (FCRA), which was amended to provide many new rights to consumers by the Fair and Accurate Credit Transactions Act of 2003 (FACT Act).

Among the new rights provided by the FACT Act is the right of consumers to place fraud or active duty alerts on consumer reports maintained by consumer reporting agencies. When a user of a consumer report, such as a financial institution considering a consumer's credit application, obtains a consumer report containing such an alert, the user must take steps to verify the identity of the applicant before it may extend credit or take certain other credit-related actions. Recently, the Federal Deposit Insurance Corporation (FDIC) issued a Financial Institution Letter (FIL-22-2006) (attached) stating that it had become aware of situations in which creditors had denied applications for credit, based on the presence of fraud or active duty alerts on the applicants' consumer reports, without taking any steps to attempt to verify the identity of the applicants.

This IM is to remind Farm Credit institutions that denying credit or taking other adverse actions related to credit because of the presence of a fraud or active duty alert constitutes unlawful discrimination based on the exercise of a right under the CCPA, thus violating the ECOA. To avoid a possible ECOA violation, institutions must take reasonable steps to identify applicants when they obtain consumer reports that contain fraud or active duty alerts. Institutions are encouraged to develop and adopt effective procedures to address these responsibilities. Procedures should ensure that every effort is made to contact the consumer, using the information provided by the consumer within the fraud or active duty alert. These procedures will benefit institutions and consumers alike. Institutions will be able to avoid both ECOA violations and losses due to fraud, and creditworthy consumers will have the opportunity to verify that they are in fact applying for credit and to obtain that credit notwithstanding that they have been victimized by, and are trying to prevent, identity theft.

If you have any questions about this IM, please call Jennifer A. Cohn, Senior Attorney, Office of General Counsel, at (703) 883-4020, or e-mail her at


FIL-22-2006, Consumer Credit Protection Act and Fair Lending Prohibition Against Discrimination in Credit Transactions [Double-click on image to launch PDF file].