Equal Credit Opportunity Act: Legal Protections for Consumers

Credit is used by millions of consumers to finance an education, remodel a home, or get a small business loan. The Equal Credit Opportunity Act (ECOA) ensures that all consumers are given an equal chance to obtain credit. 

This doesn't mean all consumers who apply for credit get it. Factors such as income, debt, and credit history are considerations for an applicant's creditworthiness. Under the ECOA, creditors cannot deny you credit on the prohibited basis of race, color, national origin, religion, sex, marital status, or age. In addition, creditors can't deny someone credit because of their receipt of public assistance.

The law protects you when you deal with any creditor or financial institution that extends lines of credit. This includes banks, small finance companies, credit card companies, and credit unions. Anyone involved in granting credit, such as real estate brokers who arrange financing, is covered by the law. Businesses applying for credit are also protected by the law.

What Is the ECOA?

The ECOA is designed to prevent discrimination of loan applicants in the credit industry. Enacted in 1974, the ECOA emerged as a response to concerns about bias in lending practices based on factors like race, gender, religion, national origin, marital status, age, or receiving public assistance. 

This law aims to ensure that all consumers have equal access to credit opportunities and are treated fairly by lenders. Alongside the ECOA, other consumer protection agencies and laws, such as the Consumer Financial Protection Bureau (CFPB) and the Fair Housing Act, work together to promote fairness and transparency in financial transactions. The CFPB's Regulation B implements the ECOA.

Below is the relevant text of the Equal Credit Opportunity Act, 15 U.S.C. 1691 et seq:

(a) It shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction --

(1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract);

(2) because all or part of the applicant's income derives from any public assistance program.

When Applying For Credit

There are certain things creditors can and can't do when someone applies for credit. These include:​

• Discouraging you from applying because of your sex, marital status, age, race, national origin, or because you receive public assistance income.
• Asking you to reveal your sex, race, national origin, or religion. A creditor may ask you to voluntarily disclose this information, except for religion, if you're applying for a real estate loan. This information helps federal agencies enforce anti-discrimination laws. You may be asked about your residence or immigration status.
• Asking if you're widowed or divorced. When asking about marital status, a creditor may only use the terms married, unmarried, or separated.
• Asking about your marital status if you're applying for a separate, unsecured account. A creditor may ask you to provide this information if you live in a community property state. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. A creditor in any state may ask for this information if you apply for a joint account or one secured by property.
• Requesting information about your spouse, except when:
  • Your spouse is applying with you
  • Your spouse is allowed to use the account
  • You are relying on your spouse's income or on alimony or child support income from a former spouse
  • You reside in a community property state
• Inquire about your plans for having or raising children.
• Ask if you receive alimony, child support, or separate maintenance payments, unless you're first told that you don't have to provide this information if you won't rely on these payments to get credit. A creditor may ask if you have to pay alimony, child support, or separate maintenance payments.

Make sure none of these are applied to you.

When Deciding To Give You Credit 

Once a creditor has moved to deciding whether or not to give you credit, they must avoid doing the following:​

• Considering your sex, marital status, race, national origin, or religion
• Considering whether you have a telephone listing in your name. A creditor may consider whether you have a phone.
• Considering the race of people in the neighborhood where you want to buy, refinance, or improve a house with borrowed money
• Considering your age, unless:
  • You're too young to sign contracts or younger than 18 years of age.
  • You're 62 or older and the creditor will favor you because of your age.
  • It's used to determine the meaning of other factors important to creditworthiness. For example, a creditor could use your age to determine if your income might drop because you're about to retire.
  • It's used in a valid scoring system that favors applicants age 62 and older. A credit-scoring system assigns points to answers you provide to credit application questions. For example, your length of employment might be scored differently depending on your age.

Make sure you take the time to check the behavior of a potential creditor.

When Evaluating Your Income

Methods that are forbidden when a creditor is evaluating an applicant's creditworthiness include:​

• Refusing to consider public assistance income the same way as other income.
• Discounting income because of your sex or marital status. For example, a creditor cannot rate a man's salary at 100% and a woman's at 75%, or assume a woman of childbearing age will stop working to raise children.
• Discounting or refusing to consider income because it comes from part-time employment or pension, annuity, or retirement benefits programs.
• Refusing to consider regular alimony, child support, or separate maintenance payments. A creditor may ask you to prove you have received this income consistently.

Don't hesitate to reach out to the appropriate agency if you feel any of these have been applied to your application.

Your Rights and Your Credit Application

There are things you're entitled to about your credit application. Make sure you're allowed to:​

• Have credit in your birth name (Mary Smith), your first name and your spouse's last name (Mary Jones), or your first name and a combined last name (Mary Smith-Jones).
• Get credit without a cosigner, if you meet the creditor's standards.
• Have a cosigner other than your spouse, if one is necessary.
• Keep your own accounts after you change your name, marital status, reach a certain age, or retire unless the creditor has evidence that you're not willing or able to pay.
• Know whether your application was accepted or rejected within 30 days of filing a complete application.
• Know why your application was rejected. The creditor must give you a notice that tells you either the specific reasons for your rejection or your right to learn the reasons if you ask within 60 days.
• Acceptable reasons include: "Your income was low," or "You haven't been employed long enough." Unacceptable reasons are: "You didn't meet our minimum standards," or "You didn't receive enough points on our credit-scoring system." Indefinite and vague reasons are illegal, so ask the creditor to be specific.
•  Unless you accept, find out why you were offered less favorable terms than you applied for. Ask for details. Examples of less favorable terms include higher finance charges or less money than you requested.
• Find out why your account was closed or why the terms of the account were made less favorable unless the account was inactive or delinquent.

If you feel the creditor is guilty of a violation, consider consulting with a consumer law attorney to protect your rights.

A Special Note To Women

A good credit history showing a record of how you paid past bills is often necessary to get credit. This hurts many married, separated, divorced, and widowed women. There are two common reasons women don't have credit histories in their names:

• They lost their credit histories when they married and changed their names
• Creditors reported accounts shared by married couples in the husband's name only

If you're married, divorced, separated, or widowed, contact your local credit bureau(s) to make sure all relevant information is in a file under your name.

Other Consumer Protection Laws and Agencies

Several other fair lending laws and federal government agencies play crucial roles in safeguarding consumer rights. 

The Dodd-Frank Act, enacted by Congress in 2010, established the Consumer Financial Protection Bureau. The CFPB oversees and enforces fair lending practices and protects borrowers from deceptive financial practices. 

The Federal Trade Commission (FTC) also plays a key role in enforcing consumer protection laws. The FTC ensures fair competition and prevents fraudulent or deceptive practices. 

The Consumer Credit Protection Act, passed by Congress in 1968, encompasses various measures to shield consumers in financial transactions. Most fair lending laws are overseen by the Federal Reserve Board and the Department of Justice.

Legal Help

If you believe you've faced credit discrimination or an unjust credit denial, resources like the CFPB and the Federal Trade Commission can offer assistance. Your state attorney general can also play a role in addressing such issues. 

If these options fail, consider consulting a consumer attorney familiar with state laws on credit discrimination. Seeking legal advice can help navigate potential punitive damages and ensure your rights are protected under the law.