Equal Credit Opportunity Act (ECOA), 15 U.S. Code § 1691

The Equal Credit Opportunity Act (the “ECOA,” 15 U.S.C. §§ 1691-1691f, as amended) 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. 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.

Whether you’re applying for credit cards, personal loans, home mortgages, auto financing or any other type of credit, you should know that creditors cannot not discriminate against you. The following list outlines items that creditors are NOT allowed to consider when deciding whether to grant or deny you credit!

  1. Discrimination is not allowed
  2. Credit Laws that Apply
  3. Creditors look for specific creditworthiness indicators
  4. Creditors cannot use this information
  5. Special credit application rules
  6. Credit discrimination against women
  7. What to do if your credit application has been turned down

If you think you are dealing with or have dealt with a creditor that has illegally denied you credit, find out if you are entitled to cash compensation and other relief.

1. Discrimination
Creditors are not allowed to discriminate against you on the basis of:

  • Race;
  • Color;
  • Religion;
  • National origin;
  • Sex;
  • Marital status;
  • Age (provided you have the capacity to enter into a binding contract);
  • All or part of your income derives from any public assistance program;
  • You have, in good faith, exercised any right under the Consumer Protection Act.

2. What credit laws apply?
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. The law also 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. ECOA requires that all credit applicants be considered on the basis of their actual qualifications for credit and not be turned away because of certain personal characteristics. If you think a creditor violated your rights under this federal law when granting or denying your credit application contact us today.

3. What do creditors look for on credit applications
They look for the ability to repay debt and a willingness to do so, and sometimes for a little extra security to protect their loans, they speak of the three C’s of credit . . . Capacity, Character, and Collateral.
Capacity. Creditors want to know if you can repay the debt so they ask for:

  • Employment information
  • Occupation and how long you’ve worked,
  • How much you earn.
  • Monthly Expenses
  • Number of dependents
  • Whether you pay alimony or child support, and
  • Amount of other obligations.

Character To see if you will you repay the debt, creditors will look at:

  • Credit history: see Credit Reports
  • How much you owe;
  • How often you borrow
  • Whether you pay bills on time, and
  • Whether you live within your means.

They also look for signs of stability: how long you’ve lived at your present address, whether you own or rent, and length of your present employment.

Collateral. Is the creditor fully protected if you fail to repay? Creditors want to know what you may have that could be used to back up or secure your loan, and what sources you have for repaying debt other than income, such as savings, investments, or property.
Creditors use different combinations of these facts in reaching their decisions. Some set unusually high standards and other simply do not make certain kinds of loans.

Creditors also use different kinds of rating systems. Some rely strictly on their own instinct and experience. Others use a “credit-scoring” or statistical system to predict whether you’re a good credit risk.

They assign a certain number of points to each of the various characteristics that have proved to be reliable signs that a borrower will repay. Then, they rate you on this scale.

And so, different creditors may reach different conclusions based on the same set of facts. One may find you an acceptable risk, while another may deny you a loan.

4. Information the Creditor Cannot Use
The Equal Credit Opportunity Act does not guarantee that you will get credit. You must still pass the creditor’s tests of creditworthiness.

But the creditor must apply these tests fairly, impartially, and without discriminating against you. Also, if you exercise your rights under Federal credit laws such as filing a billing error notice with a creditor, the creditor may not use this as grounds to:

  • Discourage you from applying for a loan;
  • Refuse you a loan if you qualify; or
  • Lend you money on terms different from those granted another person with similar income, expenses, credit history, and collateral.

5. Special Credit Rules
Age. In the past, many older persons have complained about being denied credit just because they were over a certain age. Or when they retired, they often found their credit suddenly cut off or reduced.

So the law is very specific about how a person’s age may be used in credit decisions. A creditor may ask your age, but if you’re old enough to sign a binding contract (usually 18 or 21 years old depending on state law), a creditor may not:

  • Turn you down or offer you less credit just because of your age;
  • Ignore your retirement income in rating your application;
  • Close your credit account or require you to reapply for it just because you reach a certain age or retire; or
  • Deny you credit or close your account because credit life insurance or other credit-related insurance is not available to persons your age.
  • Creditors may “score” your age in a credit scoring system, but, if you are 62 or older you must be given at least as many points for age as any person under 62.

Because individuals’ financial situations can change at different ages, the law lets creditors consider certain information related to age–such as how long until you retire or how long your income will continue.

An older applicant might not qualify for a large loan with a 5 percent down payment on a risky venture, but might qualify for a smaller loan–with a bigger down payment–secured by good collateral.

Remember that while declining income may be a handicap if you are older, you can usually offer a solid credit history to your advantage. The creditor has to look at all the facts and apply the usual standards of creditworthiness to your particular situation.
Public Assistance. You may not be denied credit just because you receive Social Security or public assistance (such as Aid to Families with Dependent Children).

But–as is the case with age–certain information related to this source of income could clearly affect creditworthiness. So, a creditor may consider such things as:

  • How old your dependents are (because you may lose benefits when they reach a certain age); or
  • Whether you will continue to meet the residency requirements for receiving benefits.

This information helps the creditor determine the likelihood that your public assistance income will continue.
Housing Loans. The Equal Credit Opportunity Act covers your application for a mortgage or home improvement loan.

It bans discrimination because of such characteristics as your race, color, gender, or because of the race or national origin of the people in the neighborhood where you live or want to buy your home.

Nor may creditors use any appraisal of the value of the property that considers the race of the people in the neighborhood.

In addition, you are entitled to receive a copy of an appraisal report that you paid for in connection with an application for credit, if a you make a written request for the report.

6. Discrimination Against Men and Women is Prohibited
Both men and women are protected from discrimination based on gender or marital status. But many of the law’s provisions were designed to stop particular abuses that generally made if difficult for women to get credit.

For example, the idea that single women ignore their debts when they marry, or that a woman’s income “doesn’t count” because she’ll leave work to have children, now is unlawful in credit transactions.

The general rule is that you may not be denied credit just because you are a woman, or just because you are married, single, widowed, divorced, or separated. Here are some important protections:
Gender and Marital Status. Usually, creditors may not ask your gender on an application form (one exception is on a loan to buy or build a home).

You do not have to use Miss, Mrs., or Ms. with your name on a credit application. But, in some cases, a creditor may ask whether you are married, unmarried, or separated (unmarried includes single, divorced, and widowed).

Child-bearing Plans. Creditors may not ask about your birth control practices or whether you plan to have children, and they may not assume anything about those plans.

Income: Child Support & Alimony. The creditor must count all of your income, even income from part-time employment. Child support and alimony payments are a primary source of income for many women. You don’t have to disclose these kinds of income, but if you do creditors must count them.

Telephones. Creditors may not consider whether you have a telephone listing in your name because this would discriminate against many married women. (You may be asked if there’s a telephone in your home.)

A creditor may consider whether income is steady and reliable, so be prepared to show that you can count on uninterrupted income–particularly if the source is alimony payments or part-time wages.

Your Own Accounts. Many married women used to be turned down when they asked for credit in their own name. Or, a husband had to cosign an account–agree to pay if the wife didn’t–even when a woman’s own income could easily repay the loan.

Single women couldn’t get loans because they were thought to be somehow less reliable than other applicants. You now have a right to your own credit, based on your own credit records and earnings. Your own credit means a separate account or loan in your own name–not a joint account with your husband or a duplicate card on his account.
Here are the rules:
Creditors may not refuse to open an account just because of your gender or marital status.

You can choose to use your first name and maiden name (Mary Smith); your first name and husband’s last name (Mary Jones); or a combined last name (Mary Smith-Jones).

If you’re creditworthy, a creditor may not ask your husband to cosign your account, with certain exceptions when property rights are involved.

Creditors may not ask for information about your husband or ex-husband when you apply for your own credit based on your own income–unless that income is alimony, child support, or separate maintenance payments from your spouse or former spouse.

This last rule, of course, does not apply if your husband is going to use your account or be responsible for paying your debts on the account, or if you live in a community property state. (Community property states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.)

Change in Marital Status. Married women have sometimes faced severe hardships when cut off from credit after their husbands died. Single women have had accounts closed when they married, and married women have had accounts closed after a divorce.

The law says that creditors may not make you reapply for credit just because you marry or become widowed or divorced. Nor may they close your account or change the terms of your account on these grounds. There must be some sign that your creditworthiness has changed. For example, creditors may ask you to reapply if you relied on your ex-husband’s income to get credit in the first place.

Setting up your own account protects you by giving you your own history of how you handle debt, to rely on if your financial situation changes because you are widowed or divorced. If you’re getting married and plan to take your husband’s surname, write to your creditors and tell them if you want to keep a separate account.

7. If You’re Turned Down for Credit
Remember, your gender or race may not be used to discourage you from applying for a loan. And creditors may not hold up or otherwise delay your application on those grounds.

Under the Equal Credit Opportunity Act, you must be notified within 30 days after your application has been completed whether your loan has been approved or not. If credit is denied, this notice must be in writing and it must explain the specific reasons why you were denied credit or tell you of your right to ask for an explanation. You have the same rights if an account you have had is closed.

If you are denied credit, be sure to find out why. Remember, you may have to ask the creditors for this explanation. It may be that the creditor thinks you have requested more money than you can repay on your income. It may be that you have not been employed or lived long enough in the community. You can discuss terms with the creditor and ways to improve your creditworthiness.

If you think you have been discriminated against, cite the law to the lender. If the lender still says no without a satisfactory explanation, you may contact a Federal enforcement agency for assistance or to bring legal action.

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