Question: The Equal Credit Opportunity Act provides an exemption for special purpose credit programs. What are special purpose credit programs?
Answer: Financial institutions can establish special purpose credit programs to meet special social needs in their assessment areas. Under these programs, classes of transactions are exempt when the record clearly demonstrates that the affected consumers would be denied credit without such a program. These programs generally target classes of individuals based on economic status, not race or national origin. For example, a creditor might design new loan product to reach consumers who would not meet, or have not met, its traditional standards of creditworthiness due to such factors as credit inexperience or the use of credit sources that may not report to consumer reporting agencies.
Question: How would a bank determine if there is a need for a special purpose credit program?
Answer: The financial institution must determine that the program would benefit a class of people who would otherwise be denied credit or would receive it on less favorable terms. For example, a financial institution could review Home Mortgage Disclosure Act data along with demographic data within its assessment area to determine if there is a need for a special purpose credit program.