OCC 95-63
Subject:  Fair Lending                   Description:  Guidance on Age-Split                             
                                                       Credit Scoring Systems

TO:  The Chief Executive Officers of all National Banks, Department and 
     Division Heads, and all Examining Personnel


The Equal Credit Opportunity Act (ECOA) and its implementing Regulation, 
Regulation B, explicitly prohibit lending discrimination on a number of bases, 
including the age of the credit applicant.  The regulation makes clear, 
however, that there are exceptions to its prohibition against age 
discrimination.  One of these exceptions is linked to the use of credit 
scoring systems.  Due to a number of recent inquiries from national banks and 
national bank examiners, the OCC believes it is necessary to reiterate 
Regulation B's  requirements for banks that use credit scoring systems in 
deciding whether to grant credit to an applicant or in deciding how to price 
credit that will be granted to an applicant.
   
Regulation B defines a credit scoring system as "a system that evaluates an 
applicant's creditworthiness mechanically, based on key attributes of the 
applicant and aspects of the transaction, and that determines, alone or in 
conjunction with an evaluation of additional information about the applicant, 
whether an applicant is deemed creditworthy" [12 CFR  202.2 (p)(1)].  Credit 
scoring systems generally fall into one of two categories: those that are 
empirically derived, demonstrably and statistically sound (hereinafter 
referred to as "validated"), and those that are not.  Credit scoring systems 
that are not validated are referred to as "judgmental systems."  The 
regulatory definitions of the two types of credit scoring systems may be 
found at 12 CFR  202.2 (p) and  202.2 (t), respectively.  

Although creditors may use either validated or judgmental credit scoring 
systems to evaluate the creditworthiness of potential borrowers, only 
creditors that use validated systems are permitted to use the age of the 
applicant as a variable to predict creditworthiness.  Furthermore, validated 
systems that take age into account must not, according to Regulation B, 
assign the age of applicants age 62 or older a "negative factor or value" [12 
CFR 202.6 (b)(2)(ii)]. 

Pursuant to discussions with Federal Reserve Board staff, credit scoring 
systems that are "age-split," meaning the system uses different scorecards 
depending upon the age of the applicant, are not exempt from Regulation B's 
requirements.  Since "age-split" credit scoring systems, by definition, take 
the age of  applicants into account, they must be validated in accordance 
with Regulation B's requirements and must treat applicants aged 62 and over 
at least as favorably as they treat applicants under the age of 62.  One way 
that national banks using validated, "age-split" credit scoring systems may be 
assured that their systems do not disfavor applicants aged 62 or older is by 
scoring such applicants with each scorecard used by the system and then 
assigning the elderly applicant the highest score attained.  Federal Reserve
Board staff have indicated that the Board may address "age-split" credit 
scoring systems in amendments to Regulation B that may be proposed next year.  

The OCC believes that national banks that take the age of an applicant into  
account during the credit scoring process, but that have not validated their 
credit scoring systems or that do not treat elderly applicants at least as 
favorably as non-elderly applicants are engaged in a pattern or practice 
violation of ECOA's prohibition against discrimination on the basis of age.  
ECOA requires the OCC to refer such violations to the Department of Justice if 
the violation has resulted in the discouragement or denial of credit [15 U.S.
C.1691e(g)].

Questions on this matter may be directed to the fair lending staff of the 
Compliance  Management Department (202) 874-4446.





                                                
Stephen M. Cross
Deputy Comptroller
  for Compliance Management
Date: November 17, 1995