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.

Key Takeaways

  • The Equal Credit Opportunity Act (ECOA), under Title 15 of the U.S. Code, is intended to prohibit discrimination by lenders in any aspect of granting credit to an individual.
  • The act's purpose is to prevent lenders from using race, color, sex, religion, or other non-creditworthiness factors when evaluating a loan application, establishing terms of a loan, or any other aspect of a credit transaction.
  • Organizations that have shown a pattern of discrimination can have lawsuits brought against them by the Department of Justice.
  • The Consumer Financial Protection Bureau supervises compliance and enforces ECOA, joined by other government agencies.

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 are only allowed to consider relevant financial factors—your credit score, your income, and your credit history, including your existing debt load—when considering your credit application or setting terms for the loan.
  • You are entitled to credit in your birth name. 
  • You have the right to keep your accounts after you change your name, marital status, reach a certain age, or retire, unless the creditor has evidence that you’re not willing or able to pay.
  • You must be told whether your application was accepted or rejected within 30 days of filing a complete application.
  • You must be given a specific reason for a rejection or you’re entitled to learn the reason if you ask within 60 days. An acceptable reason might be: “your income was too low” or “you haven’t been employed long enough,” not something general like “you didn’t meet our standards.”

Creditors may not:  

  • Impose different terms or conditions, like 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

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: 

  • You are treated differently in person than on the phone.
  •  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.
  • You are offered credit with a higher rate than the one 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.
  • Your deal sounds too good to be true.
  • You feel pushed or pressured to sign.

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. 

  • First, contact the creditor to complain. Sometimes you’ll be able to persuade them 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 any violation to the appropriate government agency. When you’re denied credit, the required notification from the creditor indicates contact information for a particular government agency, which will depend on the type of loan or credit. 
  • Submit a complaint to the Consumer Financial Protection Bureau. It will work with the creditor to get an answer for the consumer. These complaints also help the Bureau identify cases and patterns of discrimination and fair-lending law violations. 
  • Consumers who have been harmed by a creditor’s actions can sue the creditor in federal court. If you win, you can recover your actual damages and be awarded punitive damages if the court finds the creditor’s actions were willful. Some credit discrimination suits are brought as class-action suits. Seek the advice of an attorney on the best course of action.

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.”