What Is the Equal Credit Opportunity Act?

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Women's Equality Day is August 26, commemorating the passage of the 19th Amendment to the Constitution in 1920, which granted women the right to vote. The Equal Credit Opportunity Act (ECOA), which became law in 1974, was created to ensure women and other protected classes receive equal lending opportunities.

ECOA is a federal regulation that forbids lenders from discriminating against loan applicants based on personal criteria including sex, race, marital status, religion, national origin, age, and receipt of public assistance. Additionally, it requires lenders who turn you down credit applications to disclose their reasons for doing so.

Roots in the Women's Movement

The original incarnation of the ECOA targeted lending practices that discriminated against women applying for credit and loans. Banks and other lenders routinely charged higher interest rates to women vs. men with comparable incomes and financial means.

Lenders also required women borrowers to put down larger down payments than their male counterparts. The argument for doing so, which lenders made no effort to conceal, was a belief that income-earning women would eventually (if not inevitably) give up their careers to start families.

The ECOA was expanded in 1976 to forbid discrimination on ethnic and religious grounds. It also forbids denying loans to individuals whose income source is a reliable form of public assistance, such as Social Security retirement benefits or disability payments. (Any person may be denied credit based on insufficient income, but if income is sufficient to qualify for credit, the source of that income cannot be used as a basis for denying credit.)

Rights Guaranteed Under the ECOA

Under the terms of the ECOA, lenders are forbidden from engaging in the following practices:

  • Discouraging or denying loan applications based on of your race, color, religion, national origin, sex, marital status, age, or because you receive public assistance.
  • Considering your race, sex, or national origin, when making lending decisions. (Lenders may ask you to disclose this information voluntarily; they report it to federal agencies to help with tracking and enforcement of anti-discrimination laws.) Lenders also may consider your immigration status and deny a loan if there's reason to believe you will not able to stay in the country long enough to repay the debt.
  • Imposing higher fees, interest rates, or down-payment requirements based on your race, color, religion, national origin, sex, marital status, age, or because you receive public assistance.
  • Asking if you are widowed or divorced.
  • Inquiring about your marital status if you're applying for an individual loan or credit card account. Lenders may ask for this information if:
    • You live in a "community property" state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin) in which married persons are automatically considered joint owners of certain marital assets.
    • Lenders in any state may ask about marital status if you apply for a joint account or one secured by property owned jointly with a spouse.
  • Asking anything about your spouse, unless:
    • You live in a community property state.
    • You and your spouse are applying for credit jointly.
    • Your spouse will be an authorized user of a credit card or other loan account.
    • You declare income from your spouse, or alimony or child support from a former spouse, as all or part of your income for purposes of a loan application. (If you receive alimony or child support, you must be given the option of using income exclusive of those payments for purposes of your credit application; if you do so, the lender cannot ask about alimony, child support, or your former spouse's income.)

Required Notifications About Lending Decisions

With respect to the loan application process, the ECOA requires lenders to keep you informed of their decisions and to be specific about their reasons for turning down a loan application or charging you a higher interest rate than the best one available at the time your application is accepted.

More specifically, lenders must:

  • Inform you whether your application was accepted or rejected within 30 days after you complete all the paperwork on the application.
  • Tell you specifically why your application was rejected, or advise you that you have the right to learn why if you ask within 60 days.
  • Give a specific reason you were offered less favorable terms than you applied for if you reject these terms. If a lender offers you a lower credit limit or loan amount that you applied for or offers you a higher interest rate, you may accept the offer, but if you don't accept the offer, you have the right to know why those terms were offered.
  • If they change your payment terms or interest rate or close your account for reasons other than failure to make agreed-upon payments, the lender must explain why.

The ECOA has many additional specific protections; a more comprehensive summary of its provisions is available at the Consumer Financial Protection Bureau (CFPB) website, and you can read the full text of the regulation here.

Credit Scoring and the ECOA

When the FICO credit scoring model debuted in the late 1980s, a major contributor to its adoption by lenders was built-in compliance with ECOA provisions. Generic credit scoring tools such as the FICO model generate three-digit scores based on information found in loan applicants' credit reports at the three national credit bureaus (Experian, Equifax, and TransUnion).

Credit reports summarize consumers' total debt and history of borrowing and repaying loans. Credit scoring models assign higher scores to individuals whose credit reports reflect experience handling a variety of credit types (e.g., a mix of credit card accounts and installment loans such as mortgages or car loans) and that show patterns of timely loan repayment.

Scoring models assign lower scores to consumers with credit reports that reflect late, missed or delinquent payments, and still-lower scores to people with credit reports listing bankruptcy or loans that have been turned over to collections.

While credit reports sum up individuals' debt histories, they do not, with one exception, contain any personal information of the sort that's excluded from consideration under the ECOA. (The exception is age; your credit report includes your date of birth and your Social Security number as personal identifiers, so it indirectly reflects your age.)

Credit scoring models do not consider age when generating scores, however, and they can't consider race, ethnicity, religion, sex, marital status or source of income, because none of that information appears in your credit report.

Lenders seldom issue credit cards or loans based solely on credit scores, but they may specify a minimum credit score you must have to qualify for a particular loan or credit card. If your credit application is denied because of your credit score, you will receive an explanation, called an adverse-action notice, which explains why. Under provisions of the ECOA, the notice must tell you:

  • The credit score used in the decision.
  • Which credit scoring model was used to determine that score.
  • The range of scores possible under that model (e.g. the FICO score generates scores from 300 to 850).
  • At least the top three reasons you did not get the highest score available under the model.

If You Feel a Lender Has Violated the ECOA

If you feel you have been subject to lending discrimination, you can take action. Responsibility for enforcing the ECOA is shared by a number of federal agencies that regulate various types of lending institutions. The Consumer Financial Protection Bureau (CFPB) is a good place to start seeking information. You can submit a complaint to the CFPB here.

The attorney general in your state is also an excellent resource. Their office can help direct you to the agencies with authority over a given lender. They may also have records of additional complaints against the lender, and they may be able to advocate on your behalf to correcting discriminatory behavior.

Finally, as a last resort, you may want to consult an attorney about the possibility of bringing suit against the lender. If you do so successfully, the lender will have to pay your legal costs in addition to rectifying any unfair lending practices.