Equal Credit Opportunity Act (ECOA)

As to the adverse action issues in offering second-chance checking accounts, the ECOA’s and Regulation B’s notification requirements do not apply to decisions on allowing a customer to open a depositary account. The regulations require notification of an adverse action only when a bank refuses to grant “credit,” which is defined as the right to “defer payment of a debt.” 12 CFR 1002.2(j). Further, Regulation B specifically exempts “incidental credit” from its scope. Incidental credit is: (i) not extended under a credit card agreement, (ii) not subject to a finance charge, and (iii) not payable in more than four installments. 12 CFR 1002.3(c)(1). Most checking accounts, including one which might entail occasional overdraft charges, as you described, do not involve a credit card agreement, do not involve finance charges, and do not involve payments made in more than four installments.

Fair Credit Reporting Act (FCRA)

Although you are not required to send ECOA adverse action notifications, you may have to send FCRA adverse action notifications after rejecting checking account applications, even if you offer customers the alternative of a second-chance checking account. The FCRA defines “adverse action” to include decisions on any transactions initiated by a consumer that are “adverse to the interests of the consumer,” whether the decision is credit-related or not. 15 USC 1681a(k)(1)(B)(iv). Further, there is no counteroffer exemption in Regulation V’s definition of “adverse action” (unlike Regulation B’s definition of “adverse action,” which includes a counteroffer exemption).