What is the Equal Credit Opportunity Act?
The Equal Credit Opportunity Act (ECOA) is a federal civil rights statute that prohibits lenders from discriminating against credit applicants based on factors other than their capacity to repay the loan. ECOA protects consumers from discrimination in lending based on race, colour, religion, national origin, sex, marital status, age, public assistance, or the exercise of any rights under the Consumer Credit Protection Act.
Equal Credit Opportunity Act Definition
The Equal Credit Opportunity Act (ECOA) is a United States law enacted on October 28, 1974, that prohibits any creditor from discriminating against any applicant on the basis of race, colour, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract); the applicant’s use of a public assistance programme to receive all or part of their income; or the applicant’s previous credit history. The law applies to anybody who routinely engages in a credit decision in the ordinary course of business, including banks, retailers, bankcard businesses, financing firms, and credit unions.
Equal Credit Opportunity Act Requirements
Unless specified circumstances apply, provide the applicant with a notification of action taken within 30 calendar days of receiving a completed application. In some circumstances, written notices of actions performed are required, whereas in others, oral notifications are sufficient.
Give the exact reason(s) (or instruct the applicant on how to obtain the reason(s)) why a candidate is denied credit or is granted credit in a manner that differs from the terms under which they applied. If a creditor closes an account, refuses to increase a line of credit, makes a negative change in the terms of the credit but does not make the same change for other customers, or refuses to give credit at the same, or nearly the same, terms as when the credit was first applied for, the same rule applies.
How does the Equal Credit Opportunity Act Work?
Title 15 of the United States Code details the Equal Credit Opportunity Act, which was enacted in 1974. 3 Individuals asking for loans and other forms of credit can only be evaluated using characteristics directly connected to their creditworthiness, according to the legislation, as applied by Regulation B. It forbids creditors and lenders from taking into account non-creditworthy circumstances, including the following protected classes:
- National origin
- Marital status
Who Supervises the Equal Credit Opportunity Act?
The Consumer Financial Protection Bureau (CFPB) develops rules to implement the ECOA and monitors organisations (such as banks and lending companies) to ensure compliance with the law. Several other government agencies are responsible for ensuring compliance, including:
- Federal Deposit Insurance Corporation (FDIC)
- National Credit Union Administration (NCUA)
- Federal Reserve Board (FRB)
- Office of the Comptroller of the Currency (OCC)
The CFPB works with the agencies named above, as well as the Department of Justice and the Federal Trade Commission, to enforce the ECOA.
Financial Consultant and Author