Equal Credit Opportunity Act - ECOA

AAA

DEFINITION of '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. Individuals cannot be discriminated upon via factors that are not directly related to their creditworthiness.

INVESTOPEDIA EXPLAINS 'Equal Credit Opportunity Act - ECOA'

For example, individuals cannot be discriminated on the grounds of their racial background, religious background, sex and/or marital status.

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.

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 organization's net worth.

RELATED TERMS
  1. Debt-To-Income Ratio - DTI

    A personal finance measure that compares an individual's debt ...
  2. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  3. Income

    Money that an individual or business receives in exchange for ...
  4. Consumer Advisory Council - CAC

    A legislative body established by Congress in 1976. The Consumer ...
  5. Debt

    An amount of money borrowed by one party from another. Many corporations/individuals ...
  6. Combined Loan To Value Ratio - ...

    A ratio used by lenders to determine the risk of default by prospective ...
Related Articles
  1. Credit & Loans

    Take Control Of Your Credit Cards

    The plastic in your wallet doesn't have to hurt your finances. Learn how to manage it responsibly.
  2. Budgeting

    The Beauty Of Budgeting

    Make it to the end of the month, before you run out of money.
  3. Budgeting

    Are You Living Too Close To The Edge?

    If a missed paycheck will make your finances cave in, you must learn how to make proper supports.
  4. Credit & Loans

    How is my credit score calculated?

    The credit score, commonly referred to as a FICO score, is a proprietary tool created by the Fair Isaac Corporation. This is not the only way to get a credit score, but the FICO score is the ...
  5. How high a credit score do you need to get a home mortgage or buy a car? Read on for some actual numbers.
    Credit & Loans

    How High Is A 'Good' Credit Score?

    How high a credit score do you need to get a home mortgage or buy a car? Read on for some actual numbers.
  6. There are two types of credit inquiries, but only one can lower your credit score. Learn the difference and act accordingly.
    Credit & Loans

    Do Credit Inquiries Hurt Your Credit Score?

    There are two types of credit inquiries, but only one can lower your credit score. Learn the difference and act accordingly.
  7. Credit & Loans

    Can I get a balance transfer if I have bad credit?

    Transferring funds from one credit card to another is often possible with bad credit, but it will likely cost you in interest rates.
  8. Credit & Loans

    Is it better to get a balance transfer or a personal loan to pay off my credit card debt?

    Find out what you should consider before deciding to pay off your credit card debt by taking out a personal loan or using a balance transfer to another card.
  9. The credit crunch and recession caused financial fear, so it's no great shock that our borrowing habits have changed from less than a decade ago.
    Credit & Loans

    How Our Borrowing Habits Have Changed In A Decade

    The credit crunch and recession caused financial fear, so it's no great shock that our borrowing habits have changed from less than a decade ago.
  10. Credit & Loans

    How do balance transfers affect my credit score?

    Learn the ways a balance transfer can negatively and positively affect your credit so you can pay off debt while maintaining a good credit score.

You May Also Like

Hot Definitions
  1. Christmas Tree

    An options trading strategy that is generally achieved by purchasing one call option and selling two other call options at ...
  2. Christmas Club

    A short-term savings account that usually pays out the full account balance to its account holders once each year, right ...
  3. Boston Snow Indicator

    A market theory that states that a white Christmas in Boston will result in rising stock prices for the following year. For ...
  4. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  5. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  6. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
Trading Center