The CFPB has issued a new bulletin (Bulletin 2014-03) that is intended “to remind creditors” of their ECOA/Regulation B obligations with respect to consideration of public assistance income and relevant standards and guidelines regarding verification of Social Security Disability Insurance and Supplemental Security Income (together, Social Security disability income).

Based on an accompanying CFPB blog post, the bulletin appears to have been triggered by reports to the CFPB from consumers alleging that lenders were not complying with applicable rules. While the CFPB’s blog post and bulletin are focused on mortgage lending, it is important to note that similar fair lending concerns apply to non-mortgage consumer credit.

The bulletin recites the ECOA and Reg B ‎rule that prohibits creditors from discriminating in any aspect of a credit transaction because all or part of an applicant’s income derives from a public assistance program, such as Social Security income. The bulletin also notes that Reg B permits creditors, in a judgmental system of evaluating credit, to consider whether an applicant derives income from public assistance for purposes of determining a pertinent element of creditworthiness. Accordingly, a creditor can consider how long an applicant will likely remain eligible to receive public assistance income.

The bulletin warns that fair lending concerns may arise if a creditor requires documentation beyond that required by applicable agency or secondary market standards and guidelines to demonstrate that Social Security disability income is likely to continue, such as the nature of an applicant’s disability or a letter from the applicant’s physician. According to the CFPB, prohibited disparate treatment can exist if a creditor imposes documentation requirements on public assistance recipients beyond those it imposes on other applicants. The CFPB further comments that disparate impact liability can arise if an income verification standard has a disproportionately negative impact on applicants receiving public assistance income.

The bulletin discusses the consideration of Social Security disability income for purposes of the Regulation Z ability-to- repay/qualified mortgage rule. It references Appendix Q which allows for verification of such income by means of a Social Security Administration benefit verification letter and states that a creditor can consider such income as “effective and likely to continue” if the letter does not give a defined expiration date within three years of loan origination.

The bulletin also discusses relevant HUD and VA standards for, respectively, FHA-insured and VA-guaranteed mortgage loans, and Fannie Mae and Freddie Mac guidelines for mortgage loans eligible for purchase.