Equal Credit Opportunity Act
The Equal Credit Opportunity Act (ECOA) is a United States law (codified at 15 U.S.C. § 1691 et seq.), enacted in 1974, that makes it unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract); to the fact that all or part of the applicant’s income derives from a public assistance program; or to the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The law applies to any person who, in the ordinary course of business, regularly participates in a credit decision, including banks, retailers, bankcard companies, finance companies, and credit unions.
Failure to comply with the Equal Credit Opportunity Act's Regulation B can subject a financial institution to civil liability for actual and punitive damages in individual or class actions. Liability for punitive damages can be as much as $10,000 in individual actions and the lesser of $500,000 or 1% of the creditor’s net worth in class actions.
Among other things, the ECOA states that it is illegal for creditors to:
- Discriminate based on race, sex, age, national origin, or marital status, or because one receives public assistance.
- Ask about marital status if a candidate is applying for separate, unsecured credit, with one exception: one can be asked about marital status if one lives in a community property state. No matter what the state of residence is, joint credit (credit shared by a married couple) or credit secured with property is exempt from this.
- Ask the candidate if they plan to have children or additional children, but creditors can ask about the number, ages, and financial obligations relating to all existing children.
- Disallow regular sources of income, such as reliable veteran’s benefits, welfare payments, Social Security payments, alimony, child support, etc. Nor may they refuse to consider or discount any income earned from a part-time job, pension, annuity, or retirement benefits program.
The ECOA states that creditors must:
- Inform the candidate if they have been denied or granted credit within 30 days of receiving their completed application.
- Give a specific reason (or tell how to get the reason) why one is denied credit or granted less credit than originally applied for. This same rule applies if a creditor closes the account, refuses to increase a line of credit, makes a negative change in the terms of the credit and doesn’t make the same change for other consumers, or refuses to give credit at the same, or approximately the same, terms as were offered when the credit was initially applied for.
- Dlabay, Les R.; Burrow, James L.; Brad, Brad (2009). Intro to Business. Mason, Ohio: South-Western Cengage Learning. p. 470. ISBN 978-0-538-44561-0. "The Equal Credit Opportunity Act prohibits creditors from denying a person credit because of age, race, sex, or marital satus."
- Regulation B, Equal Credit Opportunity 12 CFR 202.14(b) as stated in Closing the Gap: A Guide to Equal Opportunity Lending, Federal Reserve System of Boston.
- Smith, Arnold (1988). Rebuilding your credit.
- "Equal Credit Opportunity". Facts for Consumers. US Federal Trade Commission. March 1998. Retrieved 2007-04-30.
- Annual Report to Congress on the Equal Credit Opportunity Act – These annual reports by the Board of Governors of the Federal Reserve System discuss actions taken in response to the Equal Credit Opportunity Act.