Equal Credit Opportunity Act

The Equal Credit Opportunity Act (ECOA) is a United States law (codified at 15 U.S.C. § 1691 et seq.), enacted 28 October 1974,[1] that makes it unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract);[2] to the fact that all or part of the applicant's income derives from a public assistance program; or to the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The law applies to any person who, in the ordinary course of business, regularly participates in a credit decision,[3] including banks, retailers, bankcard companies, finance companies, and credit unions.

This article is about the United States law. For the specification for a software framework (ECOA), see European Component Oriented Architecture.

The part of the law that defines its authority and scope is known as Regulation B,[4] from the (b) that appears in Title 12 part 1002's official identifier: 12 C.F.R. § 1002.1(b) (2017).[5] Failure to comply with Regulation B can subject a financial institution to civil liability for actual and punitive damages in individual or class actions. Liability for punitive damages can be as much as $10,000 in individual actions and the lesser of $500,000 or 1% of the creditor's net worth in class actions.[6]

Prohibitions

Among other things, the ECOA states that it is illegal for creditors to:[3][1]

  • Discriminate based on race, sex, age, national origin, or marital status, or because one receives public assistance.
  • Ask about marital status if a candidate is applying for separate, unsecured credit, with one exception: one can be asked about marital status if one lives in a community property state. No matter what the state of residence is, joint credit (credit shared by a married couple) or credit secured with property is exempt from this.
  • Ask the candidate if they plan to have children or additional children, but creditors can ask about the number, ages, and financial obligations relating to all existing children.
  • Disallow regular sources of income, such as reliable veteran's benefits, welfare payments, Social Security payments, alimony, child support, etc. Nor may they refuse to consider or discount any income earned from a part-time job, pension, annuity, or retirement benefits program.

Requirements

The ECOA states that creditors must:

  • Provide the applicant with a notification of action taken within 30 calendar days of receiving a completed application, unless certain exceptions apply. These notifications of action taken are sometimes required to be in writing, while in other cases, oral notification satisfies the Regulation's requirement.
  • Give the specific reason(s) (or let the candidate know how to get the reason(s)) why one is denied credit or granted credit in a way different from the terms under which they originally applied. This same rule applies if a creditor closes the account, refuses to increase a line of credit, makes a negative change in the terms of the credit and doesn't make the same change for other consumers, or refuses to give credit at the same, or approximately the same, terms as were offered when the credit was initially applied for.

Scope additions

When the Banking committee marked up the ECOA, congresswoman Lindy Boggs added the provision banning discrimination due to sex or marital status without informing the other members of the committee beforehand, personally inserting the language on her own and photocopying new versions of the bill.[7] She then told the other committee members, "Knowing the members composing this committee as well as I do, I'm sure it was just an oversight that we didn't have 'sex' or 'marital status' included. I've taken care of that, and I trust it meets with the committee's approval."[7] The committee unanimously approved the bill.[7]

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References
  1. "15 U.S. Code § 1691 - Scope of prohibition". Legal Information Institute. Cornell Law School. Retrieved 6 April 2018.
  2. Dlabay, Les R.; Burrow, James L.; Brad, Brad (2009). Intro to Business. Mason, Ohio: South-Western Cengage Learning. p. 470. ISBN 978-0-538-44561-0. The Equal Credit Opportunity Act prohibits creditors from denying a person credit because of age, race, sex, or marital status.
  3. Larson, Aaron (8 August 2016). "Can Your Spouse Be Required to Cosign or Guarantee Your Loan". ExpertLaw.com. Retrieved 6 April 2018.
  4. "12 CFR 1002.1 - Authority, scope and purpose". law.cornell.edu. Retrieved 2018-04-27.
  5. "Electronic Code of Federal Regulations". ecfr.gov. Retrieved 2018-04-27.
  6. Regulation B, Equal Credit Opportunity 12 CFR 202.14(b) as stated in Closing the Gap: A Guide to Equal Opportunity Lending Archived 2015-04-19 at the Wayback Machine, Federal Reserve System of Boston.
  7. "Former Congresswoman and Ambassador Lindy Boggs Dies at 97". ABC News. July 27, 2013. Retrieved April 15, 2015.

Further reading
  • Annual Report to Congress on the Equal Credit Opportunity Act – These annual reports by the Board of Governors of the Federal Reserve System discuss actions taken in response to the Equal Credit Opportunity Act.
  • Public Law 93-495, 93d Congress, H.R. 11221: An Act To Increase Deposit Insurance From $20,000 To $40,000, To Provide Full Insurance For Public Unit Deposits Of $100,000 Per Account, To Establish A National Commission On Electronic Fund Transfers, And For Other Purposes; Equal Credit Opportunity Act; Fair Credit Billing Act
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