Equal Credit Opportunity Act (ECOA)
The Equal Credit Opportunity Act (ECOA) was implemented by Regulation B and enacted in 1974. It applies to all creditors and prevents them from discriminating based on factors which aren’t related to the applicants credit worthiness.
Creditors May NOT Use The Following Information In Their Lending Decisions…
- National Origin
- Because the applicant receives part or all of their income from government assistance
- Because the applicant has exercised any of their rights under the consumer protection act
- Racial composition of the neighborhood where an applicant wants to buy, refinance or improve a house they are borrowing money for
^Creditors may consider your age if you are: to young to sign contracts (generally under 18), you’re over the age of 62 and the creditor will favor you because of your age, age is used to determine other factors important to creditworthiness (e.g if your income is about to drop due to retirement), it’s used in a valid credit scoring system that favors applicants 62 and older.
Creditors May Use The Following Information In Their Lending Decisions…
- Factors that determine an applicants credit worthiness, e.g:
- Payment history
- Credit utilization
- Length of credit
- Recent searches for new credit
- Types of credit used (e.g installment/revolving)
- Employment status & history
- Immigration status. They may also ask if an applicant is legally able to stay in the country long enough to pay off their debts.
- Martial status. Only if the applicant is applying for a joint account, or an account secured by property. They can also ask for this information this information if the applicant lives in “community property and lives in any one of the following states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin
What Should An Applicant Do If They Believe A Creditor Has Violated ECOA?
- Make a formal complaint with the creditor. This can sometimes make a creditor reconsider their lending decision.
- Contact their local state Attorney General’s office. They’ll help check to see if any state laws have been broken.
- Contact an attorney to help file suit in the Federal District Court. If an organization is found guilty of violating ECOA they are liable for punitive damages ($10,000 for individual actions and the lesser of $500,000 or 1% of a creditors net worth for class actions).
- Report the violations to the appropriate government agency. Creditors must inform applicants of the relevant agencies if they deny them for credit. If a creditor fails to provide this information, contact the FTC immediately.
Other Consumer Protections Under ECOA
The ECOA also provides the following rights for individuals:
- To have credit in their birth names, first name and spouse’s last name, or first name and combined last name.
- Get credit without a cosigner (as long as they meet the creditors standards)
- Have a cosigner other than their spouse (e.g a parent or guardian, if one is necessary)
- To keep their own accounts after a change of a change of name, martial status, reach a certain age or retire.
- Know whether their application was accepted or rejected within 30 days of filing a completed credit application.
- Know why an application was rejected. This must be a specific reason (e.g “applicant has too much debt” or “applicant’s income was too low” are both acceptable reasons. “Minimum standards not meet”, “not within our lending criteria” are both unacceptable reasons.
- Know why they were offered less favorable terms than they applied for. Creditors must only provide this if the applicant rejects these terms. This must be a specific reason (see above for examples).