Equal Credit Opportunity Act (ECOA)

The Equal Credit Opportunity Act (ECOA) is a federal law that prohibits discrimination in credit transactions. Enacted in 1974 and implemented through Regulation B, ECOA requires creditors to evaluate applicants only on factors related to creditworthiness and ensures equal access to credit for individuals and businesses.

Key takeaways

• ECOA bans discrimination in any aspect of a credit transaction based on protected characteristics.
• Protected bases include race, color, religion, national origin, sex (including sexual orientation and gender identity), marital status, age (if old enough to contract), public assistance income, and the exercise of rights under the Consumer Credit Protection Act.
• ECOA applies to all creditors and to credit for consumers and small businesses.
• Multiple federal agencies enforce ECOA, notably the Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ).
• Creditors must give timely notices when they take adverse actions on applications.

What ECOA covers

ECOA applies to any person or organization that extends credit, including:
* Banks, savings associations, and credit unions
Finance companies, retail stores, and credit card issuers
Lenders making consumer, mortgage, student, auto, small-business, and other credit extensions
It also covers anyone involved in credit decision-making or setting credit terms.

Protected classes

Credit decisions must not be based on:
* Race or color
Religion
National origin (including country of birth)
Sex (including gender, sexual orientation, and gender identity)
Marital status
Age (if the applicant is old enough to enter a contract)
Receipt of public assistance (e.g., SNAP, SSDI)
* The exercise of rights under the Consumer Credit Protection Act

How ECOA works

• Creditors may evaluate applicants only using relevant financial factors such as income, assets, credit score, employment, and debt load.
• Regulation B sets rules for permissible inquiries and recordkeeping to allow enforcement and monitoring.
• In 2021, the CFPB clarified that prohibitions on sex discrimination include sexual orientation and gender identity and protect against stereotyping.

Special considerations

• Lenders may ask optional demographic questions for monitoring compliance. Answering is voluntary but helps enforcement.
• Spouses can have separate credit histories; joint accounts appear on both reports. One spouse’s credit behavior can affect the other’s scores.
• Some loans (e.g., mortgages) may require disclosure if the borrower is relying on alimony or child support as qualifying income, but marital status alone cannot be a basis for denial.
• Adverse action rules:
• Creditors must notify applicants of approval or denial within 30 days for most applications.
• If denied, the creditor must provide specific reasons or tell the applicant they can request the reasons within 60 days.

Rights under ECOA

Applicants are entitled to:
* Evaluation based only on relevant credit factors (credit score, income, debt).
Use of their chosen name on accounts and continuation of accounts after name or marital-status changes unless inability to pay can be shown.
Equal treatment of public-assistance income when it is used to qualify for credit.
* Protection against different terms, higher rates, or higher fees based on prohibited characteristics.

Signs of potential credit discrimination

Watch for patterns such as:
* Different treatment in-person versus online or by phone.
Discouragement from applying despite eligibility.
Derogatory comments about a protected characteristic.
Denial despite meeting advertised criteria.
Offers with higher rates or worse terms without explanation.
Failure to give a reason for denial or to provide information about how to inquire further.
Pressure or coercion to sign.

What to do if you suspect discrimination

1. Contact the creditor and request reconsideration or an explanation.
2. Check state consumer protection or attorney general resources for state-law options.
3. File a complaint with the Consumer Financial Protection Bureau (CFPB).
4. Use the creditor’s adverse action notice to find the federal agency contact information.
5. Consider private legal action; successful suits can yield actual and, in willful cases, punitive damages.
6. The DOJ can bring pattern-or-practice lawsuits, and other federal agencies can pursue enforcement actions.

Enforcement and penalties

• Enforcement is shared among the CFPB, DOJ, FDIC, OCC, NCUA, and Federal Reserve, depending on the type of institution.
• Remedies can include consumer compensation, civil penalties, and injunctive relief. Class actions and DOJ pattern-or-practice suits have produced large settlements in high-profile cases.

Notable enforcement actions (examples):
* Wells Fargo (2012): settlement exceeding $175 million for discriminatory mortgage practices.
JPMorgan Chase (2017): $53 million settlement for racial and national-origin discrimination in mortgage lending.
Citibank (2023): CFPB ordered a $24.5 million civil penalty for discriminatory credit card practices against applicants of Armenian national origin; consumer relief and corrective measures required.

Applicability

ECOA applies to all creditors and to all stages of a credit transaction. Loan officers and employees cannot act in ways that would discourage a reasonable person from applying based on a prohibited basis.

Conclusion

ECOA is a fundamental consumer protection law that requires credit decisions to be based on creditworthiness, not personal characteristics unrelated to repayment ability. Consumers should know their rights, monitor for signs of discrimination, and report suspected violations to enforce fair access to credit.