The Equal Credit Opportunity Act – (15 U.S.C. §§ 1691-1691f, as amended)
What is required?
The Equal Credit Opportunity Act (ECOA) prohibits discrimination in credit transactions on the basis of race, color, religion, national origin, sex, marital status, age, receipt of public benefits (such as Social Security), or because a person exercises his or her rights under a consumer protection statute. ECOA applies to both the original extension of credit and to actions taken after the credit is extended, such as the termination of an account.
Who is regulated?
ECOA applies to any entity which regularly extends credit, such as a bank, mortgage lender, or finance company. It also applies to an individual or entity which regularly arranges for the extension of credit, such as a mortgage broker or car dealership.
When does the law apply?
ECOA applies when a lender or broker takes an application for credit and makes a decision as to whether or not to extend credit to the applicant.
- If a consumer applies for credit and that credit is denied, the creditor must provide the applicant with a notice giving the reason for the credit denial.
- In certain circumstances, if a credit card company cancels a credit card account, it must send the cardholder a notice giving the reason for terminating the card.
- If a consumer requests an increase in a credit limit on a credit card or other type of loan and is denied, the lender must send a notice giving the reason for denying the request.
- If a consumer applies for credit, a creditor cannot ask for more information from the consumer than it would ask from any other consumer solely because this consumer is, for example, African-American or elderly.
- A creditor cannot request the race, color, religion or national origin of the applicant, except for monitoring purposes for home loan applications.
- If an applicant applies for individual, unsecured credit, a creditor may not ask about the applicant’s marital status unless:
- The applicant resides in a community property state;
- The credit involves a regulated utility company, such as an electric or gas company;
- The information is sought solely to determine eligibility and premium rates for insurance, or;
- The creditor is asking solely to determine the applicant’s eligibility for a special credit program.
- A creditor cannot require a spouse to be a co-signer on an application for credit.
- If an applicant applies for credit to purchase a house or to refinance a house, the creditor must provide the applicant with a notice of the applicant’s right to receive an appraisal report on the house that is being purchased or refinanced.
Is there a solution?
If a creditor violates ECOA, a consumer may be entitled to actual damages and punitive damages up to $10,000. In addition, ECOA contains a “fee-shifting” provision which may require the defendant to pay the plaintiff’s attorney fees and court costs.
The ECOA prohibits creditors from discriminating against credit applicants on the basis of:
- Natural origin;
- Marital status;
- Age (provided that the applicant has the capacity to enter into a binding contract);
- All or part of the applicant’s income derives from any public assistance program;
- The applicant has in good faith exercised any right under the Consumer Protection Act. Read the full ECOA.
The Housing Financial Discrimination Act of 1977 requires that all lenders provide a “Fair Lending Notice” with the following information:
It is illegal to discriminate in the provision of or in the availability of financial assistance because of the consideration of:
Trends, characteristics or conditions in the neighborhood or geographic area surrounding a housing accommodation, unless the financial institution can demonstrate in the particular case that such consideration is required to avoid an unsafe and unsound business practice.
Race, color, religion, sex, marital status, national origin, or ancestry. It is illegal to consider the racial, ethnic, religious or national origin composition of a neighborhood or geographic area surrounding a housing accommodation or whether or not such composition is undergoing change, or is expected to undergo change, in appraising a housing accommodation or in determining whether or not, or under what terms and conditions, to provide financial assistance.
These provisions govern financial assistance for the purpose of the purchase, construction, rehabilitation or refinancing of one to four unit family residences occupied by the owner and for the purpose of the home improvement of any one to four unit family residence. As part of processing a real estate loan application, lenders may request a credit report about your creditworthiness, credit standing and credit capacity.
For additional reference: Fair Credit Reporting Act