The Equal Credit Opportunity Act (ECOA) is a law passed in 1974 that prohibits creditors from discriminating against an applicant on grounds relating to race, color, religion, national origin, gender, marital status, age, or participation in public service programs. Criteria that creditors can use in making decisions are financially based, such as your income, debt, recurring expenses, and credit history.
The ECOA is enforced by the Federal Trade Commission (FTC) and other federal agencies. In addition to forbidding creditors – and those who set credit terms such as real estate agents – from engaging in discriminatory practices against protected groups, the ECOA gives consumers additional rights during the credit application process.
This is how the Equal Opportunities Act works
According to the ECOA, creditors must not prevent a consumer from applying for a loan because they belong to a protected group. They are also not allowed to use protected categories as a decision criterion for lending and not offer any other conditions to consumers within a protected group.
This law applies to a wide variety of creditors, including:
- Traditional and local banks.
- Credit unions.
- Online lender.
- Retail and department stores.
- Other finance companies.
- Other companies involved in the decision-making or granting of loans.
In some situations, these believers may be able to ask for information such as your race, gender, or religion. This information is voluntary and is reviewed by federal agencies to hold creditors accountable for anti-discrimination practices. This information should not be used in determining whether to approve a line of credit or to determine the terms of an approved loan.
While the law makes it clear which factors creditors should not consider when deciding on an application, they are allowed to ask consumers for certain information that could relate to a protected category:
- Age: Age is specifically identified as a category that believers cannot discriminate against. However, in certain situations they may be allowed to ask this question to determine if, for example, you are of legal age to enter into a contract, or if a specialized financial product, for example, would favor an applicant aged 62 or over.
- Income: All types of reliable income are to be considered equally. This means that the law does not allow creditors to refuse you credit or offer different terms based on the nature of your income. Social assistance, child benefit, maintenance and income from part-time employment are to be treated equally. However, creditors may request evidence that you are receiving this income on a regular basis and may request pay slips or receipts.
- Marital status: Creditors are not allowed to ask about an applicant’s marital status or spouse’s details when the applicant applies for a loan on a single unsecured account. The exception is if the name of the spouse is on the application, if it is a joint account, if the account is secured or if the main applicant is dependent on the spouse’s income or the maintenance or maintenance payments of a former spouse. Consumers may also be asked for their spouse’s information if the applicant lives in a jointly owned state. Commonly owned states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Equal Credit Opportunity Act consumer rights
Another part of the ECOA mentions consumer rights when applying for a loan. The law states that loan applicants have the right to obtain loan under their maiden name, a married name that takes the last name of a spouse, or a combined surname.
Consumers also have the right to opt out of adding a co-signer to their application if they meet the obligee’s requirements. Applicants are not limited to having a spouse act as a co-signer.
With regard to ECOA rights after a credit decision, creditors are required by law to:
- In any case, inform the applicant of his decision within 30 days.
- If asked, give a specific reason for a rejected application within 60 days.
- Provide a specific reason for less favorable conditions within 60 days (only if the applicant rejects the offer).
- Provide a specific reason for closing an active and current account.
Example of an equal opportunity law
Lenders evaluate the income as part of the loan approval process to ensure that the borrower has sufficient income to repay the loan. According to the ECOA, however, the lender may not refuse to include social assistance, alimony or child support as income as long as the borrower can demonstrate that the payments are reliable and consistent. All types of income must be considered equally, including social security, pensions or annuities.
Although lenders are not allowed to use non-financial factors to approve or decline a loan, they can consider factors such as age. This means that as long as the borrower is old enough to sign a contract, they cannot refuse a loan based on age alone. However, you can check to see if an applicant nearing retirement age is facing a significant drop in income making it difficult for the borrower to make payments on time.
Similarly, the lender can check the borrower’s immigration status to see if they can legally reside in the country during the life of the loan. However, if the applicant’s immigration status is impeccable throughout the repayment period and the consumer meets all of the lender’s lending standards, he cannot be denied credit based on his national origin alone.
The bottom line
The federal government has banned discriminatory lending practices among creditors for decades. If you think you have been discriminated against based on race, color, religion, national origin, gender, marital status or age, or because you are receiving public support, help is available:
- Appeal the application decision. Quote the ECOA and ask the lender to reconsider your creditworthiness.
- Submit a complaint to the Consumer Financial Protection Bureau (CFPB). The CFPB is one of the many law enforcement agencies for this federal law. You can easily file a complaint online.
- Contact your attorney general. Your office can help stand up for you and determine if the creditor has violated equality laws in your state too. Here is a list of attorneys general.
- Get legal advice. If you want to continue taking action against the creditor for discrimination, a lawyer can help you with the next steps in a lawsuit.
Access to credit opens up many financial opportunities to help you achieve personal goals – be it a mortgage loan for a first home home or a 0 percent APR balance transfer card for debt consolidation. When you know your rights under the ECOA, you have a fair and equal chance of getting a loan.