Fresh guidance sparking more dialogue on special purpose credit

Department of Housing and Urban Development

For years, many credit unions and other financial institutions shied away from special purpose credit programs (SPCPs). SPCP is a provision within the Equal Credit Opportunity Act (ECOA) and Regulation B that allows lenders to target economically disadvantaged consumers within their community.

In the past, concerns over the regulatory and legal risks had a chilling effect on credit unions utilizing this provision to further their financial inclusion efforts. Questions on whether the SPCP violated the Fair Housing Act (FHA) and how regulators viewed this rarely used provision lingered in compliance conversations.

Now, however, with clearer guidance and recent commentary from regulators and administrators, like the US Department of Housing and Urban Development (HUD), the Consumer Financial Protection Bureau (CFPB) and the National Credit Union Administration (NCUA), credit unions are taking a second look at the possibilities.

Within the last year, HUD issued a statement clarifying that SPCPs generally do not violate the FHA.

For its part, NCUA issued an interagency statement to “remind creditors” of the permissibility and availability of SPCPs. Among the key takeaways in the NCUA’s statement, this one stood out: “Credit unions can use SPCPs to foster greater financial inclusion and ensure that the cooperative nature of the credit union system lives up to its mission of meeting the credit needs of consumers, including underserved populations, communities of color, and those of modest means.”

In July, the CFPB acknowledged in a blog post that “historic and ongoing discrimination, such as redlining, has exacerbated the racial wealth divide and continues to leave many communities shut out from and underserved by lenders.” The same post encouraged lenders to create programs that work to serve communities that have historically been socially or economically disadvantaged.

While regulatory expectations, such as an analysis of who the SPCP will serve and a written plan with procedures and standards, must still be met, creating a targeted lending program is worth considering. Guidance like the CFPB’s Advisory Opinion has helped lenders reduce their regulatory risk when creating SPCPs.

The credit union compliance teams we’ve talked with over the past several months are open to revisiting their assumptions about SPCPs and evaluating internal proposals for these types of programs as the recent commentary continues to build clearer guidance.

Meeting the nuanced financial needs of people who have been impacted by lending discrimination, systemic racism and fewer economic opportunities drives right at the mission of the credit union movement. It’s terrific to see regulators play an active role in encouraging more lenders to consider the power they have to strengthen their communities. With increased guidance and commentary, now is a great time to examine the regulatory tools available to broaden access to financial services.