Equal Credit Opportunity Act - ECOA

What is the 'Equal Credit Opportunity Act - ECOA'

A regulation created by the U.S. government that aims to give all legal individuals an equal opportunity to apply for loans from financial institutions and other loan granting organizations. The Equal Credit Opportunity Act (ECOA) states that individuals cannot be discriminated upon via factors that are not directly related to their creditworthiness. It prohibits creditors and lenders from considering a consumer’s race, color, national origin, sex, religion or marital status in deciding whether to approve their loan or credit application. Financial institutions also cannot deny credit based on age, as long as the applicant is of legal age and has the mental capacity to enter into a contract, nor can they deny credit because the applicant is receiving public assistance.

BREAKING DOWN 'Equal Credit Opportunity Act - ECOA'

When you apply for a mortgage, the lender will ask you about some of these facts under federal requirements that are supposed to help prevent discrimination, but you are not required to respond. The only accepted factors that can be used to determine whether or not an individual is acceptable for a loan are relevant financially related information such as one's credit score, income and existing debt load.

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

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

Organizations found in violation of this act could potentially face class-action suits. If found guilty, the offending organization could have to pay out punitive damages totaling up the lesser of $500,000 or 1% of the creditor's net worth.

RELATED TERMS
  1. Credit Rating

    An assessment of the creditworthiness of a borrower in general ...
  2. Regulation B

    A regulation intended to prevent discrimination against applicants ...
  3. Credit Mix

    The types of accounts that make up a consumer’s credit report. ...
  4. Trade Line

    Credit account records that are provided to credit reporting ...
  5. Negative Information

    Data in a consumer’s credit report that lowers his or her credit ...
  6. Risk-Based Pricing

    The offering of different interest rates and loan terms to different ...
Related Articles
  1. Credit & Loans

    How To Apply For a Personal Loan

    Learn about different avenues for applying for a personal loan, and learn valuable tips to help you get your personal loan application approved.
  2. Credit & Loans

    5 Tips For Getting Your Bank Loan Approved

    Find out how to present the perfect, complete package for your lender and increase your chances of gettinga loan approved.
  3. Credit & Loans

    Give Yourself Some Credit

    You need a loan during a market downturn but lenders are not co-operating. Don't give up; follow this guide to become an ideal borrower.
  4. Credit & Loans

    Before you Buy that Home: Shop for the Best Loan

    Before even starting to search for a home, the first thing you need to do is get pre-qualified for a home mortgage.
  5. Credit & Loans

    When Are Personal Loans a Good Idea?

    You never want to borrow money for frivolous reasons, but these five circumstances might warrant it.
  6. Savings

    Teaching Financial Literacy To Teens: Credit And Debt

    It is important to teach teens about how credit works, why it is important and how they can build their credit scores.
  7. Credit & Loans

    Have Bad Credit? 6 Ways to a Personal Loan Anyway

    It'll cost you more, but borrowing is definitely doable. Here's how to proceed.
  8. Credit & Loans

    Student Loans: Private Loans

    While federal loans should always be your first borrowing choice, they may not cover your full tuition – never mind lab fees, books, and room and board. That's where private loans come ...
  9. Home & Auto

    5 Steps To Scoring A Mortgage

    Find out what you can do to polish up some of the common flaws that put off lenders.
  10. Credit & Loans

    The 5 Biggest Factors That Affect Your Credit

    Credit companies rely on these factors to determine whether to lend to you and at what rate.
RELATED FAQS
  1. Does marrying someone with bad credit affect my credit score?

    A credit rating is an assessment of an individual's creditworthiness. This evaluation is based on an individual's history ... Read Answer >>
  2. How can I improve my credit score?

    If you are looking to take out a loan or apply for a credit card, then it will be very important for you to have a good credit ... Read Answer >>
  3. What is the difference between bad credit and no credit?

    The answer to this question will depend on what information (if any) is found on your credit report, such as any bankruptcy ... Read Answer >>
  4. What is the difference between a loan and a line of credit?

    Learn to differentiate between lines of credit and standard loans, and determine when you are likely to use each method of ... Read Answer >>
  5. How does applying for student loans hurt my credit score?

    Discover whether shopping for student loans negatively impacts your credit score, and how concentrating your applications ... Read Answer >>
  6. Are personal loans bad for your credit score?

    Discover how taking out a personal loan can affect your credit score, and learn how a personal loan can help your overall ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center