We believe that the compliance examiner is mistaken; denying a loan application or offering less favorable terms based on an applicant’s age likely would violate Regulation B.

The general rule under Regulation B is that a creditor may not treat one applicant less favorably than other applicants on the basis of age. There is an exception when age is used to determine a “pertinent element of creditworthiness” in your underwriting process. One of the examples provided in the Official Interpretations for Regulation B state that a creditor may consider whether “the cost of realizing on the collateral could exceed the applicant’s equity” if the term of a loan exceeds the applicant’s life expectancy.

Here, the cost of realizing on the collateral would not exceed the applicant’s equity. Consequently, we do not believe that you could consider the applicant’s age when evaluating this loan application. Of course, you may consider other elements of creditworthiness, such as the applicant’s debt-to-income ratio and other issues.

For resources related to our guidance, please see:

• Regulation B, 12 CFR 1002.4(a) (“A creditor shall not discriminate against an applicant on a prohibited basis regarding any aspect of a credit transaction.”)

• Regulation B, 12 CFR 1002.2(n) (“Discriminate against an applicant means to treat an applicant less favorably than other applicants.”)

• Regulation B, 12 CFR 1002.2(z) (“Prohibited basis means race, color, religion, national origin, sex, marital status, or age (provided that the applicant has the capacity to enter into a binding contract). . . .”)

• Regulation B, 12 CFR 1002.6(b)(2)(iii) (“In a judgmental system of evaluating creditworthiness, a creditor may consider an applicant’s age or whether an applicant’s income derives from any public assistance program only for the purpose of determining a pertinent element of creditworthiness.”)

• Regulation B, 12 CFR 1002.2(y) (“Pertinent element of creditworthiness, in relation to a judgmental system of evaluating applicants, means any information about applicants that a creditor obtains and considers and that has a demonstrable relationship to a determination of creditworthiness.”)

• Official Interpretations, Regulation B, 12 CFR 1002, Paragraph 6(b)(2), Comment 3 (“In a judgmental system, defined in § 1002.2(t), a creditor may not decide whether to extend credit or set the terms and conditions of credit based on age or information related exclusively to age. Age or age-related information may be considered only in evaluating other ‘pertinent elements of creditworthiness’ that are drawn from the particular facts and circumstances concerning the applicant. For example, a creditor may not reject an application or terminate an account because the applicant is 60 years old. But a creditor that uses a judgmental system may relate the applicant’s age to other information about the applicant that the creditor considers in evaluating creditworthiness. As the following examples illustrate, the evaluation must be made in an individualized, case-by-case manner: . . . (ii) A creditor may consider the adequacy of any security offered when the term of the credit extension exceeds the life expectancy of the applicant and the cost of realizing on the collateral could exceed the applicant’s equity. An elderly applicant might not qualify for a 5 percent down, 30-year mortgage loan but might qualify with a larger downpayment or a shorter loan maturity.”)