What Is the Equal Credit Opportunity Act?

The Equal Credit Opportunity Act (ECOA) is a federal regulation enacted in 1974 to prevent lenders from discriminating against loan applicants based on personal criteria. The law ensures that creditors’ decisions are based strictly on financial factors such as income, debt, and credit history. Additionally, the act requires lenders who deny credit to disclose their reasons for doing so.

Rights Protected by the Equal Credit Opportunity Act

The ECOA makes it illegal for any creditor to discriminate against an applicant based on race, color, religion, national origin, sex, marital status, age, usage of public assistance, or good faith exercise of any rights under the Consumer Credit Protection Act. The ECOA also entitles applicants to receive an explanation when a creditor denies their credit.

Under the ECOA, a lender may not discriminate against any of the protected characteristics above when making loan or credit decisions. For example, a creditor may not deny credit, require a cosigner, or charge higher interest rates based on the above reasons. The act applies to consumer, business, and commercial lending decisions.

Factors That Creditors Can Legally Consider

While lenders and creditors can’t base lending decisions on personal criteria like race, sex, or religion, they can—and do—consider your credit and financial information, such as:

• Credit scores: Your credit score is a three-digit number based on the information contained in your credit report. Your score, which usually ranges from 300 to 850, gives an idea of the risk you present as a borrower, with higher scores representing lower risk.
• Payment history: Your credit report lists the past and current credit accounts you’ve handled. Lenders review your payment history to see how long you’ve managed credit and whether or not you make your monthly payments on time.
• Income: Lenders must assess your ability to repay any credit or loan you apply for. As such, lenders typically review your income to ensure it’s sufficient to continue paying your bills and any new credit.
• Debt-to-income ratio (DTI): Your debt-to-income ratio is the amount of your monthly debt obligations compared to your gross monthly income. Generally, your DTI should be less than 50% to get approved for credit or a loan, although mortgage lenders often require a DTI ratio of 43% or less.
• Employment history: Lenders can legally consider your job history because it helps them judge your financial ability to repay the debt. For example, if you’ve worked several years at the same company, a lender is likely to view you as less risky than a newly hired applicant.

What to Do if You Feel a Lender Has Violated the ECOA

If you suspect a lender or financial institution is discriminating against you and violating the ECOA, you can contact the lender to resolve the matter. Additionally, you can take any of the following actions:

• Submit a complaint to the Consumer Financial Protection Bureau (CFPB). The agency says most companies respond to complaints within 15 days.
• Contact your state’s attorney general’s office to determine if the lender has violated any state laws.
• Report the matter to the Office of the Comptroller of the Currency.
• Consult an attorney who can advise you if you have a legal discrimination case against the lender or financial institution.

FAQ

What’s Protected Under the Equal Credit Opportunity Act?

The ECOA protects against discrimination based on race, color, religion, national origin, sex, marital status, age, usage of public assistance, or good faith exercise of any rights under the Consumer Credit Protection Act.

Who Enforces the Equal Credit Opportunity Act?

The ECOA is enforced by various federal agencies, including the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC).

What Are Signs of Credit Discrimination?

Signs of credit discrimination include being denied credit despite having similar qualifications as others who were approved, being offered less favorable terms, or being discouraged from applying for credit.

What’s the Penalty for Violating ECOA?

Penalties for violating the ECOA can include fines, damages, and other legal consequences. Lenders found guilty of discrimination may also face reputational damage and loss of business.

Shore Up Your Credit

Undoubtedly, the Equal Credit Opportunity Act has helped curb instances of credit discrimination. However, it’s wise to take action if you feel your credit is unfairly denied or you received less favorable terms than someone with the same qualifications. In that case, contact the CFPB online or call the agency at 855-411-2372 to file a complaint (or refer to your other options above).

While you’re at it, consider reviewing your credit report and credit score for free with Experian. Doing so can help you spot any potential issues that could hurt your credit approval odds or ability to obtain the best terms. Look for erroneous or fraudulent information on your reports, which could be harming your score. Remember, you have the right to dispute any mistakes on your report.