What Is the Equal Credit Opportunity Act (ECOA)?
The Equal Credit Opportunity Act (ECOA) is a federal civil rights law that forbids lenders to discriminate against loan applicants for any reason other than their ability to repay. Specifically, ECOA protects consumers from discrimination based on race, color, religion, national origin, sex, marital status, age, eligibility for public assistance, or the exercise of any rights under the Consumer Credit Protection Act.
- The Equal Credit Opportunity Act (ECOA) was signed into law in 1974 and prohibits lending discrimination in all aspects of a credit transaction.
- ECOA makes it illegal for lenders to discriminate based on race, color, religion, national origin, sex, marital status, age, the receipt of public assistance, and the applicant's exercise of specific consumer protection laws.
- The Department of Justice can file lawsuits under ECOA (and the Fair Housing Act, if the discrimination involves home mortgage loans or home improvement loans) where there is a pattern or practice of discrimination.
- Various federal agencies enforce ECOA. The Consumer Financial Protection Bureau (CFPB) enforces ECOA for banks, savings associations, and credit unions holding more than $10 billion in assets.
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 be evaluated only using factors directly related to their creditworthiness. It prohibits creditors and lenders from considering factors that are unrelated to creditworthiness—specifically, the following protected classes:
- National origin (the country where you or your ancestors were born)
- Sex (including gender, sexual orientation, and gender identity)
- Marital status
- Age (provided the applicant is old enough to enter into a contract)
- Participation in a public assistance program, such as the Supplemental Nutrition Assistance Program (SNAP) or Social Security Disability Insurance (SSDI)
- The good faith exercise of any right under the Consumer Credit Protection Act
On March 9, 2021, the Consumer Financial Protection Bureau clarified that the prohibition against sex discrimination in ECOA and Regulation B encompasses sexual orientation discrimination and gender identity discrimination, including discrimination based on an applicant's nonconformity with sex-based or gender-based stereotypes.
ECOA prohibits discrimination in all aspects of a credit transaction and applies to any organization that extends credit—including banks, small loan and finance companies, retail stores, credit card companies, and credit unions. It also applies to anyone involved in the decision to grant credit or set credit terms.
ECOA covers various types of credit, including personal loans, credit cards, home loans, student loans, car loans, small business loans, and loan modifications. And it's not limited to just consumer loans: ECOA applies to any extension of credit, including those made to small businesses, corporations, partnerships, and trusts.
When a borrower applies for credit, the lender may ask about some of the personal facts that ECOA prohibits. While these questions can't be used to make lending decisions—and answering them is optional—the information does help federal agencies enforce anti-discrimination laws.
Another aspect of ECOA allows each spouse in a marriage to have a credit history in their own name. Still, if a borrower has any joint accounts with their spouse, the accounts will appear on both credit reports. That means a spouse’s financial behavior can positively or negatively impact an individual borrower’s credit score.
If you were turned down for a loan or a line of credit, the lender must tell you in an Adverse Action Notice the specific reasons your application was rejected or disclose that you have the right to request the reason for denial within 60 days of receiving the creditor's notification.
While ECOA prohibits lenders from basing their decisions on marital status, some loans, such as mortgages, require a borrower to disclose if they are relying on alimony or child support income as a basis for obtaining the credit. However, a borrower can't be denied a loan simply because they are divorced.
Your Equal Credit Opportunity Rights
When you apply for a loan or line of credit, ECOA gives you certain rights:
- When considering your credit application or setting terms for a loan, creditors can only consider relevant financial factors—your credit score, income, and credit history, including your existing debt load.
- You are entitled to have credit in your birth name (Kim Jones), your first name and your spouse's last name (Kim Smith), or your first name and a combined last name (Kim Jones-Smith).
- You have the right to keep your own accounts after changing your name, marital status, reaching a certain age, or retiring unless the creditor can prove you're unwilling or unable to pay.
- The creditor must tell you whether your application was accepted or rejected within 30 days of filing a complete application.
- If the creditor denies your application, they must provide a specific reason or disclose that you’re entitled to learn the reason if you ask within 60 days.
Additionally, creditors can't:
- Impose different terms or conditions—such as a higher interest rate or higher fees—if based on your race, color, religion, national origin, sex, marital status, age, or whether you receive public assistance.
- Refuse to consider reliable public assistance in the same way as other income.
- Ask about your marital status if you’re applying for a separate, unsecured account.
- Ask if you’re widowed or divorced.
Detecting the Signs of Credit Discrimination
Credit discrimination is not always clear, which makes it hard to spot. CFPB advises consumers to watch for warning signs of ECOA violations:
- You are treated differently in person than on the phone or online.
- You are discouraged from applying for credit.
- You hear the lender make negative comments about race, national origin, sex, or other protected groups.
- You are refused credit even though you qualify for it based on advertised requirements.
- You are offered credit with a higher rate than you applied for, even though you qualify for the lower rate.
- You are denied credit, but not given a reason or told how to find out why.
- You feel pushed or pressured to sign.
What to Do if You Suspect Discrimination
If you feel you’ve been discriminated against at any point during a credit transaction, there are several steps you can take:
- First, contact the creditor to complain. You may be able to persuade the company to take a second look at your application.
- Check with your state Attorney General’s office to see if the creditor violated any state equal credit opportunity laws.
- Report suspected violations to the appropriate government agency. If you’re denied credit, the creditor must provide contact information for the particular government agency.
- Submit a complaint to the Consumer Financial Protection Bureau. These complaints help the Bureau identify cases and patterns of discrimination and fair-lending law violations.
- Consider suing the creditor in federal district court. If the court finds the creditor’s actions were willful, you could recover actual damages and win punitive damages.
Examples of Equal Credit Opportunity Act (ECOA) Enforcement
An all-too-common violation of the ECOA is charging higher rates or fees to Black, Indigenous, and People of Color (BIPOC) applicants. That was the issue in these two cases.
In July 2012, the Department of Justice (DOJ) reached a settlement of more than $175 million with Wells Fargo Bank for a pattern or practice of discriminatory lending. Black and Hispanic borrowers who qualified for loans were charged higher fees or rates or were improperly placed into subprime loans, which are more costly.
In January 2017, a $53 million settlement was made against JP Morgan Chase for lending discrimination based on race and national origin. The DOJ found that the bank's brokers charged higher interest rates to BIPOC borrowers than White borrowers in the run-up to and during the 2008 financial crisis.
Who Supervises the Equal Credit Opportunity Act (ECOA)?
The Consumer Financial Protection Board (CFPB) writes rules to implement ECOA and supervises institutions (e.g., banks and lending companies) to ensure they follow the law. Several other federal agencies share the job of supervising for compliance, including the:
- Federal Deposit Insurance Corporation (FDIC)
- National Credit Union Administration (NCUA)
- Federal Reserve Board (FRB)
- Office of the Comptroller of the Currency (OCC)
The CFPB enforces ECOA with the agencies listed above, the Department of Justice, and the Federal Trade Commission.
What Is the Penalty for Violating the Equal Credit Opportunity Act (ECOA)?
Lenders found in violation of ECOA can potentially face class-action lawsuits from the Department of Justice (DOJ) if the DOJ or any affiliate agencies recognize a pattern of discrimination.
The Consumer Financial Protection Bureau enforces ECOA with other federal agencies. If found guilty, the offending organization could have to pay out punitive damages that can be significant and cover any costs incurred by the wronged party.
Does ECOA Apply to All Creditors?
Yes. The Equal Credit Opportunity Act applies to all creditors. Financial institutions and other firms engaged in the extension of credit can't discriminate against an applicant based on a prohibited basis during any aspect of a credit transaction. Additionally, lending officers and employees can't do anything that would, on a prohibited basis, discourage a reasonable person from applying for a loan.