What Is the Equal Credit Opportunity Act (ECOA)? – Rights, Considerations

According to the Equal Credit Opportunity Act (ECOA), the federal government forbids lenders to discriminate against loan applicants for anything other than the latter?s ability to repay. In other words, a lender cannot discriminate against a loan applicant based on race, religion, place of birth, sex, age, marital status, and other similar factors.

In this article, you will learn some of the general details of the Equal Credit Opportunity Act, as well as its applications in practical scenarios. Next up, you will also learn how the ECOA works and what are the rights under the act. Furthermore, we will also discuss some of the special considerations associated with the act. Hence, to learn more about the act, read on through to the end of the article.

What Is The Equal Credit Opportunity Act?

The Equal Credit Opportunity Act 1974 is a federal legislation that prohibits lenders/ creditors from discriminating against a loan application for any reason other than the applicant?s ability to pay back the loan. Other reasons for discrimination for credit can be race, religion, color, sex, age, marital status, participation in public assistance programs, and more.

According to Investopedia.com,

?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.?

However, the law allows creditors to make their decisions based on the finances of the applicant, like debt, income, credit history, and recurring expenses. The act also gives additional rights to consumers during the process of credit seeking to forbid creditors and the setters of the terms of credit from discriminating against protected groups.

How Does The Equal Credit Opportunity Act (ECOA) Work?

You will find the Equal Credit Opportunity Act of 1974 in Title 15 of the United States Code. Here, a creditor also cannot use protected categories as an aspect at the time of making a decision on whether to offer credit to the person or not. In addition to that, the creditor also does not have the right to offer different terms and conditions to consumers belonging to protected groups.

The following are the major types of creditors to whom the Equal Credit Opportunity Act applies:

1. Traditional and local banks
2. Online lenders of credit
3. Other non-banking financial companies
4. Credit unions
5. Retail stores and department stores
6. Other entities and companies who participate in deciding or extending credit

However, the creditors have permission to ask for your race, sex, religion, and other details for recording information. But they cannot discriminate against you based on those factors. The information is voluntary, and the major federal agencies review the information so that they keep creditors accountable for their lending practices and ensure there are no discriminations.

Supervision Of The Equal Credit Opportunity Act

The body that is responsible for the supervision of the Equal Credit Opportunity Act is the Consumer Financial Protection Board (CFPB). They basically write rules and supervise banks and financial institutions for the application of those rules. Some of the other bodies that are associated with the job of supervision include:

1. Federal Reserve Board (FRB)
2. Federal Deposit Insurance Corporation (FDIC)
3. National Credit Union Administration (NCUA)
4. Office of the Comptroller of the Currency (OCC)

In addition to these bodies, the Department of Justice and the Federal Trade Commission are also responsible for enforcing ECOA.

Penalties Associated With The Equal Credit Opportunity Act

There are penalties for the lenders as well if found in violation of the ECOA. In this case, the Department of Justice charges a lawsuit against the lenders. According to Investopedia,

?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.?

Here, you will need to note that the ECOA is applicable for all creditors of all types and in every portion of the United States. Furthermore, lenders or their employees cannot do anything that discourages a reasonable individual applicant from applying for a loan.

Major Rights Offered By The Equal Credit Opportunity Act

The ECOA provides many rights to loan applicants. According to BankRate.com,

?The law states that credit applicants have the right to have credit under their birth name, a married name that takes a spouse?s surname or combined surnames. Consumers also have the right to forgo adding a co-signer to their application if they meet the creditor?s requirements. Applicants aren?t restricted to having a spouse act as a co-signer.?

Here are some of the rights you can be aware of as an applicant:

1. During credit application, you can only consider important factors like credit score, credit history, income, and debts.
2. You can use your birth name, first name, and your spouse?s last name, or your first name and a combined last name.
3. If you are not unable to pay, you can keep your accounts after changing your name or changing marital status, age, and retirement.
4. The creditor must inform you within thirty days whether your application is accepted or rejected, along with reasons (within 60 days after your inquiry).

Some Special Considerations

Here are some considerations:

1. Creditors can ask for your personal facts for documentation but not make lending decisions.
2. The law allows each spouse in a marriage to maintain a credit history separately. Still, if the borrower has a joint account with a spouse, the accounts will appear in separate credit reports.

Wrapping Up

Hope this article was helpful for you in getting a better idea of what the Equal Credit Opportunity Act offers to loan applicants. The law prohibits discrimination in lending when it comes to credit transactions. As per the law, it is illegal for a lender to discriminate against a loan applicant for any reason other than the applicant?s ability to pay the loan.

Various agencies of the federal government can enforce the law in different cases of discrimination against a loan applicant. What do you like the most about the Equal Credit Opportunity Act 1974? Share your thoughts with us in the comments section below.

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