What is the Equal Credit Opportunity Act?

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The Equal Credit Opportunity Act (ECOA) is legislation passed in 1974 that prohibits creditors from discriminating against an applicant due reasons related to race, color, religion, national origin, sex, marital status, age or participation in public assistance programs. Criteria that creditors can use in their decisions are financially based, like your income, debt, recurring expenses and credit history.

The ECOA is enforced by the Federal Trade Commission (FTC) and other federal agencies. Aside from forbidding creditors — and those who set the terms for credit, like real estate brokers — from using discrimination practices against protected groups, the ECOA grants consumers additional rights during the credit-seeking process.

How the Equal Credit Opportunity Act works

Under the ECOA, creditors aren’t allowed to discourage a consumer from applying for credit because they’re in a protected group. They’re also not allowed to use protected categories as a factor when deciding whether to grant credit, and they can’t offer different terms and conditions to consumers within a protected group.

This law applies to a variety of creditors, including:

  • Traditional and local banks.
  • Credit unions.
  • Online lenders.
  • Retail and department stores.
  • Other financing companies.
  • Other entities who participate in deciding or extending credit.

In some situations, these creditors might be permitted to ask for information like your race, sex or religion. This information is voluntary and is reviewed by federal agencies to keep creditors accountable for anti-discriminatory practices. This information may not be used to decide whether to approve a line of credit or set the terms for approved credit.

Special considerations

Although the law is clear about what kind of factors can’t be used in creditors’ decisions about an application, they’re allowed to ask consumers for certain information that might be related to a protected category:

  • Age: Age is explicitly identified as being a category that creditors can’t discriminate against. However, in certain situations, they might be permitted to ask this question to determine whether you’re of legal age to enter into a contract, or if a specialized financial product would favor an applicant that’s at least 62, for example.
  • Income: All types of reliable income must be considered with equal weight. This means that, by law, creditors can’t deny you credit or offer different terms based on the type of income you receive. Public assistance, child support, alimony and income from part-time employment must be treated the same way. However, creditors are allowed to ask for proof that you’re receiving this income on a regular basis and might ask for pay stubs or receipts.
  • Marital status: Creditors are not permitted to ask about an applicant’s marital status or spouse’s information when the applicant is seeking credit for an individual unsecured account. The exception is if a spouse’s name is on the application, if it’s for a joint account, if the account is secured or if the primary applicant relies on spousal income or a former spouse’s alimony or child support payments. Consumers might also be asked for their spouse’s information if the applicant lives in a community property state. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

Equal Credit Opportunity Act consumer rights

Another part of the ECOA cites consumers’ rights when it comes to a credit application. The law states that credit applicants have the right to have credit under their birth name, a married name that takes a spouse’s surname or combined surnames.

Consumers also have the right to forgo adding a co-signer to their application if they meet the creditor’s requirements. Applicants aren’t restricted to having a spouse act as a co-signer.

With regard to ECOA rights after a credit decision is made, creditors are legally required to do the following:

  • Inform the applicant of their decision, either way, within 30 days.
  • When asked, provide a specific reason for a rejected application within 60 days.
  • Provide a specific reason for less favorable terms within 60 days (only if the applicant rejects the offer).
  • Provide a specific reason for closing an active and up-to-date account.

Equal Credit Opportunity Act example

Lenders evaluate income as part of the loan approval process to make sure that the borrower has sufficient income to repay the loan. Under the ECOA, however, the lender may not refuse to include public assistance, alimony or child support as income as long as the borrower can prove that the payments are reliable and consistent. All forms of income must be considered equally, including Social Security, pensions or annuities.

Although lenders may not use nonfinancial factors to approve or deny a loan, they may consider factors like age. This means that they can’t deny a loan based only on age as long as the borrower is old enough to sign a contract. They can, however, consider whether an applicant nearing retirement age faces a significant drop in income that will make it difficult for the borrower to make timely payments.

Similarly, the lender may look at the borrower’s immigration status to determine whether they can legally stay in the country throughout the loan’s repayment term. However, if the applicant’s immigration status is in good standing throughout the repayment term and the consumer meets all of the creditor’s lending standards, they can’t be denied credit solely based on their national origin.

The bottom line

The federal government has prohibited discriminatory lending practices among creditors for decades. If you believe that you’ve been discriminated against on the basis of race, color, religion, national origin, sex, marital status or age, or for receiving public assistance, there’s help:

  • Contest the application decision. Cite the ECOA and ask the creditor to reconsider your qualifications for credit.
  • Submit a complaint to the Consumer Financial Protection Bureau (CFPB). The CFPB is one of the many enforcement agencies for this federal law. You can easily submit a complaint online.
  • Reach out to your state attorney general. Their office can help advocate for you and identify if the creditor also violated equal opportunity laws in your state. Here’s a list of state attorneys general.
  • Seek legal advice. If you want to take further action against the creditor due to discrimination, an attorney can help you on next steps regarding a lawsuit.

Having access to credit opens many financial opportunities to achieve personal goals — whether that’s a mortgage loan for a first home or a 0 percent APR balance transfer card for consolidating debt. Knowing your rights under the ECOA ensures that you have a fair and equal chance at obtaining credit.

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Written by
Jennifer Calonia
Contributing writer
Jennifer Calonia is an L.A.-based writer and editor. She's covered topics like debt, saving money and credit cards. You can find her work on Business Insider, Forbes and more.
Edited by
Student loans editor