The National Consumer Law Center is asking the CFPB, by way of a petition, for rulemaking that is long on policy arguments but woefully short on legal support, as we note below, to define residential leases as “credit” under the Equal Credit Opportunity Act (ECOA) and landlords as “creditors” for two purposes. One is for purposes of the adverse action notice requirement in the ECOA, and the other is for purposes of the ban against inclusion of medical debt on consumer reports in proposed § 1022.38 of Regulation V, which implements portions of the Fair Credit Reporting Act (FCRA).
“We are thrilled and excited that the CFPB has proposed a rule that would ban medical debt from appearing in credit reports used by creditors,” the NCLC said in the petition submitted to the agency earlier this month. “But we urge the CFPB to go further and extend this ban to credit reports used for tenant screening.”
The NCLC said that if medical debt is not a good predictor of creditworthiness, it is even less likely to be predictive of whether a person will pay their rent. “The fact that someone got sick should never be used to keep them from getting a roof over their heads,” the NCLC said, in its petition.
As required under Section 553(e) of the Administrative Procedure Act, the CFPB has a formal process that allows organizations and individuals to submit petitions asking the agency to address a specific issue.
The NCLC said that there are disparities in medical debt statistics when race and disability status are considered. The group cited its 2022 report that showed that 27.9% of Black households had medical debts, compared to 17.2% of white non-Hispanic households. The group said that the Census Bureau’s 2021 Survey of Income and Program Participation showed that 13% of consumers with disabilities had medical debts, compared with 6% of those without a disability.
“Given that the ECOA is an anti-discrimination statute, it is especially appropriate to prohibit the consideration of medical debt, with its significant disparities by race and disability,” the NCLC said. It is interesting to note that while there are anti-discrimination statutes that expressly include disability or handicap as a prohibited basis of discrimination, the ECOA is not one of them. (However, the ECOA does prohibit discrimination based on the receipt of public assistance, which prohibits discrimination, for example, based on the receipt of Social Security disability income.)
With regard to the adverse action notice request, the NCLC stated, “The purpose of the ECOA is to address financial discrimination in the marketplace. Congress designed the adverse action requirement to fulfill the dual goals of consumer protection and education.”
Consistent with the adverse action notice requirements for credit, the NCLC also asked the bureau to require landlords to provide reasons why an individual is rejected for property rental. The council noted that “There is a troubling lack of transparency in tenant screening regarding screening criteria.”
The NCLC said that aside from subsidized housing providers, there is no federal requirement for providers to provide screening criteria in advance or a statement of reasons when they deny an application. The NCLC asserted that the extension of the ECOA adverse action notice requirements to rental housing leases would provide much-needed transparency in tenant screening.
However, the NCLC’s legal support for the position that such an interpretation would be reasonable strikes us as less than robust. In effect, the NCLC argues that the term of a residential lease should be the controlling factor in the analysis.
The NCLC fails to distinguish a 1985 statement by the Federal Reserve Board, in the preamble to a final rule amending Regulation B, in which the Board stated its belief that “Congress did not intend the ECOA, which on its face applies only to credit transactions, to cover lease transactions unless the transaction results in a credit sale as defined in the Truth in Lending Act and Regulation Z.”
Moreover, the NCLC fails to even mention that the CFPB only recently rejected the argument it makes when it concluded as set in the preamble to its Small Business Lending Data Collection Rule that “[b]ased on its review of business purpose leases and its expertise with respect to the meaning of ‘credit’ … the term credit does not encompass … business leases” regardless of their duration.
Instead, the NCLC relies heavily on an unreported decision by the U.S. District Court for the Northern District of Illinois, Ferguson v. Park City Mobile Homes, holding that certain leases of mobile home lots are subject to the ECOA and Regulation B. But the Ferguson court’s decision is by no means comparable to the existing body of cases to the contrary and its superficial analysis was later rejected by the 7th Circuit in Laramore v. Richie Realty Management Company, holding that apartment leases are not subject to the ECOA and Regulation B and rejecting the argument made by the NCLC that the term of a residential lease should dictate a different result.
Under the circumstances, even if the CFPB were to adopt an amendment to Regulation B purporting to deem residential leases to be extensions of credit, it seems highly unlikely to us, in the wake of Loper Bright and the death of Chevron deference, that any reviewing court would uphold that decision.
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