A number of our clients have posed questions regarding how to treat loan applications received pursuant to the Paycheck Protection Program (PPP) for purposes of the Equal Credit Opportunity Act (ECOA). This has become a pressing issue because the PPP has run out of funds for the time being.

PPP lending is subject to the ECOA for purposes of both that statute’s general prohibitions against unlawful discrimination and the requirement to provide notice of credit decisions and adverse action. Regarding the latter requirement, most lenders are inserting a webpage before the Small Business Administration-approved loan application that includes certain disclosures, including the following model language from section 1002.9(b) of Regulation B:¹

Federal Equal Credit Opportunity Act Notice: The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract); because all or part of the applicant’s income derives from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The Federal agency that administers compliance with this law concerning this creditor is the _____________________________________.

Right to Request Specific Reasons for Credit Denial Notice: If your application for business credit is denied, you have the right to a written statement of the specific reasons for the denial. To obtain the statement, please contact: _________________________ or call XXX-XXX-XXXX or write to us at ______________________ within 60 days from the date you are notified of our decision. We will send you a written statement of reasons for the denial within 30 days of receiving your request for the statement. _____________________ Bank, a member of the FDIC, is located at _____________________.

If disclosures similar to the above were given at the time the declined application was submitted for consideration, the creditor satisfied its legal obligation under the ECOA to inform the applicant of its right to receive the specific reasons for the credit denial. Furthermore, in the case of a business applicant, notice of the credit decision may be communicated orally or in writing at the time the action is taken. If the applicant’s annual gross revenue exceeds $1 million, the notice may be provided within a reasonable time. Choosing to comply with the ECOA’s general rule to provide notice within 30 days of the creditor’s receipt of a completed loan application in all instances, regardless of gross revenue size, would avoid any risk of providing tardy notice. Lastly, if notice is given orally, the creditor must disclose the applicant’s right to receive the adverse action reasons in writing within 30 days of its written request for confirmation.

If PPP loans are currently unavailable due to a lack of funding for the program, this fact should be clearly stated on the creditor’s website. Regulation B provides that no unlawful discrimination can result if a creditor does not offer the type of credit plan being requested, which would be the situation regardless of whether PPP lending were temporarily suspended or terminated altogether.

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