Equal Credit Opportunity Act: What Creditors Cannot Do
Written by: Kristy Welsh
Last Updated: November 30, 2017
Whether you’re trying to repair your credit, or maintain the good credit you already have, you need to know your rights when it comes to credit approval. The Equal Credit Opportunity Act is a 1974 law that protects consumers from credit discrimination. It’s pretty straightforward, prohibiting discrimination based on race, color, religion, national origin, sex, marital status, or age. But there’s plenty of fine print that requires a deeper understanding. Here’s a summary of what you need to know.
Who must comply with the ECOA
Generally speaking, any entity or person that extends credit must comply with the Equal Credit Opportunity Act. More specifically, the FTC states that the law applies to "banks, small loan and finance companies, retail and department stores, credit card companies, and credit unions. Everyone who participates in a decision to grant credit or in setting the terms of that credit, including real estate brokers who arrange financing, must comply with the ECOA."
In this article, those who must comply with the ECOA will be referred to as creditors, with the understanding that it refers to all of the specific entities (or individuals) listed above.
What the ECOA says creditors cannot do
Creditors cannot deny you credit — or determine credit terms — based on:
- Your race, color, religion, national origin, sex, marital status, or age (unless you are under 18, as you cannot legally enter into a signed contract)
- The fact that public assistance represents part — or even all — of your income
That said, the ECOA makes clear that these topics are not completely off-limits to creditors, meaning inquiries may still be made under certain circumstances.
In the fine print
Race, sex, and national origin
The FTC says you may be asked your race, sex, and national origin to help the government detect discrimination. However, you are not required to answer and, if you do, this information cannot be used to discriminate against you.
Note, national origin should not be confused with immigration status, as a creditor can use that information to determine whether the length of time you will be in the U.S. will be sufficient to pay off the debt.
The ECOA can ask about marital status if you:
- Apply for a joint account
- Apply for credit secured by property
- Live in a community property state
Note, wording is very important. They cannot ask if you are divorced or widowed; their only options are married, unmarried, or separated. You also cannot lose credit accounts just because your marital status changes.
The ECOA can ask about your spouse if you:
- Are applying for a joint account together
- Want your spouse to be able to use the account
- Depend on your spouse’s income (including alimony or child support from a former spouse)
- Live in a community property state
The ECOA cannot ask about your plans for future children, but can ask about expenses specific to the dependent children you already have.
The ECOA says creditors can ask your age, but may only use it as a determining factor if:
- You are under 18, meaning you are too young to sign contracts
- You are 62 or older and it will mean more favorable credit terms
- You are about to reach retirement age and it will affect your future income
You also cannot lose a credit account just because you reach a certain age or retire.
Obviously, creditors are going to consider your income. But what creditors cannot do is discriminate about the following types of income they will consider.
Creditors cannot refuse to consider income from:
- Public assistance
- Part-time employment
- Social security
Credit assistance programs
Creditors may refuse to extend credit if you are enrolled in a credit assistance program "if such refusal is required by or made pursuant to such program."
What the ECOA says creditors must do
After you submit an application for credit, the creditor must:
- Let you know the status of the application within 30 days
- Provide you with reasons why you are not approved for credit
- Provide you with reasons for why you are offered less than favorable credit terms (note, this does not apply if you accept the terms)
- Provide you with reasons why an existing credit account is cancelled — or terms are downgraded to less favorable terms (note, this does not apply if the account is inactive or you haven’t been making your payments)
- Provide you with an appraisal report (if requested by you) "used in connection with the applicant's application for a loan that is or would have been secured by a lien on residential real property."
You have the right to get credit:
- In your birth name or your married name (which can be just your spouse’s last name or a combination of your birth and spouse’s last name)
- Without a co-signer (if you qualify)
- Using a co-signer who is not your spouse
According to the Consumer Financial Protection Bureau (CFPB), credit discrimination isn’t always easy to spot, or even intentional. But there are red flags that the CFPB says to be on the lookout for:
- 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 why or told how to find out why
- Your deal sounds too good to be true
- You feel pushed or pressured to sign
What creditors can consider
When deciding whether to extend credit to you – and the terms of that credit — creditors can consider your credit, income, expenses, debt, debt-to-income ratio, and whether you have collateral necessary to secure a loan (if applicable).
How to file a complaint
Do you believe a creditor has discriminated against you based on your race, color, religion, national origin, sex, marital status, age, or income source? The FTC and Consumer Financial Protection Bureau want to hear about it. Submit a complaint to the FTC here and the CFPB here.