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.

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.

Additionally,  if a consumer is denied credit, they have a legal right to know why they are denied under ECOA, says Freddie Huynh, a vice president with Freedom Debt Relief.

“The ECOA also ensures that a consumer has the right to have public assistance considered in the same manner as other income,” says Huynh.

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.

Why this act became law

ECOA was implemented to prevent creditors from engaging in any sort of discriminatory practices when reviewing credit applications. Under ECOA, consumers cannot be denied credit based on sex, race, marital status, religion, national origin, age or receipt of public assistance. The law was adopted at a time in this country when there were many historic struggles for equality taking place, says Michael Sullivan, director of education at the financial education non-profit Take Charge America.

“1970 was about the time the legal struggle for equal rights for women began, although the political struggle had been underway for decades. Women were treated differently when it came to financial matters. Some laws codified these differences making discrimination legal. Women usually needed a male cosigner for loans and often could not qualify for credit even if they met the same criteria as men,” says Sullivan. “There were also credit issues for minorities. It was difficult to get a mortgage for a home in a predominantly Black neighborhood and minorities were routinely denied credit.”

The entire nation was engaged in generating legislation and regulations— from local ordinances up to the Equal Rights constitutional amendment—to address these inequalities, says Sullivan. The Equal Credit Opportunity Act was one such piece of legislation.

While the original law that was passed in 1974 prohibited sex-based discrimination, the law was amended in 1976 to prohibit discrimination based on religion, color, age, race, national origin, and more, says debt attorney Leslie Tayne, of Tayne Law Group.

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 non-financial 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.

Who enforces the Equal Credit Opportunity Act

The ECOA is enforced by various federal agencies including primarily the Federal Trade Commission and the Department of Justice (DOJ).

The DOJ gets involved when there appears to be an ongoing pattern or history of discrimation— as opposed to an individual case of disrimination. In cases when there seems to ongoing discrimination the DOJ may file a lawsuit under the act. If the discrimation involves home mortgage loan or home improvement loan applications, the DOJ may pursue a lawsuit under both the ECOA and the Fair Housing Act, which also protects people from discrimination.

In individual cases of discrimination, enforcement varies based on the type of credit application involved, but often typically falls under the Federal Trade Commission. The FTC serves as the enforcement agency in cases involving state chartered banks that have assets of less than $10 billion and are not part of the Federal Reserve System. The FTC is also charged with enforcement for retailers, finance companies, and most creditors.

The Consumer Financial Protection Bureau (CFPB) is the enforcing agency for banks, savings associations and credit unions that have assets of more than $10 billion. When it comes to mortgage brokers, mortgage originators, mortgage services, lenders of private student loans and payday lenders of any size, both the CFPB and the Federal Trade Commission (FTC) are charged with enforcement.

The Comptroller of Currency (OCC) has enforcement authority over national banks, federal savings associations, and federal branches of foreign banks.

For smaller financial institutions, those with assets of less than $10 billion, the Federal Reserve Board serves as the enforcement agency, except in the cases of national banks and federal branches of foreign banks.

Signs of credit discrimination

While the Equal Credit Opportunity Act has been law for nearly 50 years, there are still plenty of violations of the law. For example, in 2017, JPMorgan Chase paid a $53 million fine for charging higher mortgage rates to Black and Hispanic borrowers. If you are concerned that a lender may be violating the ECOA, here are some telltale signals:

  • A lender representative treats you differently in-person than they do on the phone.
  • Your application is denied even though you meet the requirements./li>
  • You receive an offer with a higher interest rate than advertised, despite having a credit score that should qualify for the best deal.
  • You hear someone in the lender’s office make negative comments about an applicant’s race, country of origin or gender identity.
  • The lender encourages you not to apply for a loan or other financial product.

What to do if you suspect credit discrimination

If you think you may be a victim of credit discrimination, it’s time to act. Here’s a rundown of some of the steps you can take to fight back.

  • 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). 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. If you’re concerned that you don’t have enough money to pay for an attorney, contact the Legal Services Corporation, which is designed to help low-income individuals get the civil legal assistance they need.

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). 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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