Equal Credit Opportunity Act (ECOA)

What Is the Equal Credit Opportunity Act (ECOA)?

The Equal Credit Opportunity Act (ECOA) is a law created by the U.S. government with the aim of giving all individuals an equal opportunity to obtain loans and other types of credit from financial institutions and other lenders.

Understanding the Equal Credit Opportunity Act (ECOA)

The Equal Credit Opportunity Act was enacted in 1974 and is detailed in Title 15 of the United States Code. The act, as implemented by Regulation B, states that individuals applying for loans and other credit can only be evaluated using factors that are directly related to their creditworthiness. It prohibits creditors and lenders from considering consumers’ race, color, national origin, sex/gender, religion, marital status, age (as long as they’re old enough to sign a contract) or their receipt of public assistance for any aspect of lending — from approving the application to setting terms of the loan, such as interest rate or fees. 

The law applies to any organization that extends credit, including banks, small loan and finance companies, retail and department stores, credit card companies, and credit unions. It also applies to anyone involved in the decision to grant credit or set its terms — for example, real estate brokers who arrange financing. 

The ECOA covers various types of credit, including personal loans, credit cards, home loans, student loans, car loans, small business loans and loan modifications.

In July 2020, the Consumer Financial Protection Bureau (CFPB), which takes the lead in supervising compliance and enforcing the ECOA, issued a Request for Information soliciting public comments to identify opportunities for improving what ECOA does to ensure nondiscriminatory access to credit. “Clear standards help protect African Americans and other minorities,” stated Kathleen L. Kraninger, director of the agency, “but the CFPB must back them up with action to make sure lenders and others follow the law.” 

Special Considerations

When a borrower applies for credit, the lender may ask about some of the personal facts that are prohibited by the ECOA for use in making lending decisions. While these questions cannot be part of the analysis for approval — and answering them is optional — this information does help federal agencies enforce anti-discrimination laws.

Another aspect of the ECOA allows each spouse in a marriage to have their own credit history in their own name. That being said, if a borrower has any joint accounts with their spouse, these accounts will appear on both credit reports, so a spouse’s financial behavior can still have a positive or negative impact on an individual borrower’s credit score.

While the ECOA prohibits lenders from basing their decisions on marital status, some loans, such as mortgages, might require a borrower to disclose that they are making required alimony or child support payments. Also, if a borrower receives child support or alimony, and it represents a significant source of income, they might need to disclose it to qualify for a loan. A borrower could be denied a loan if, for example, their child support payments combined with their other financial obligations mean that they don’t have enough money to repay the loan as required. However, a borrower cannot be denied a loan simply because they are divorced.

Your Equal Credit Opportunity Rights

When you apply for a loan or credit card, the ECOA gives you certain rights.

Creditors may not:  

Detecting the Signs of Credit Discrimination

Often, credit discrimination is not obvious, which makes it hard to spot. CFPB advises consumers to be alert to these red flags of ECOA violations: 

Actions to Take When You Suspect Discrimination

If you feel you’ve been treated unfairly in a credit application, there are several steps you can take. 

Equal Credit Opportunity Act (ECOA) Penalties

Lenders found in violation of the ECOA can potentially face class-action lawsuits by the Department of Justice (DOJ) if the DOJ or any affiliate agencies recognize a pattern of discrimination.

The Consumer Financial Protection Bureau seeks to enforce ECOA, along with other federal agencies, such as the Federal Reserve Board, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA). If found guilty, the offending organization could have to pay out punitive damages that can be significant, as well as cover any costs incurred by the wronged party.

Examples of Equal Credit Opportunity Act (ECOA) Enforcement

An all-too-common violation of the ECOA is charging higher rates or fees to minority applicants. That was the issue in these two cases. 

In July 2012, the DOJ reached a settlement of more than $175 million with Wells Fargo Bank for a pattern or practice of discriminatory lending: African-American and Hispanic borrowers who qualified for loans were charged higher fees or rates or were improperly placed into subprime loans, which also are more costly.

In January 2017, a $53 million settlement was made with Chase Bank for lending discrimination. As Preet Bharara, the United States Attorney for the Southern District of New York, stated at the time: “The settlement will compensate thousands of African-American and Hispanic borrowers who paid higher rates and fees on Chase mortgages than similarly situated white borrowers.”