What is the Equal Credit Opportunity Act (ECOA)?
The Equal Credit Opportunity Act (ECOA) is a federal law passed in 1974. It prevents lenders from discriminating against borrowers based on characteristics like marital status, race, color, religion and other factors.
What you’ll learn:
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The ECOA protects credit applicants from discrimination.
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As part of the ECOA, lenders can only use information related to creditworthiness to evaluate credit applications or set loan terms.
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Businesses and individuals are protected under the ECOA.
What is the purpose of the Equal Credit Opportunity Act?
The ECOA was created to promote fair access to credit for qualified applicants. It says lenders can only use criteria related to an applicant’s creditworthiness, or ability to repay the loan, when making credit decisions and extending credit to borrowers. That means things like credit scores, credit history, income and current debt.
The ECOA applies to all types of credit, including:
- Personal loans
- Credit cards
- Mortgages
- Auto loans
- Commercial or business credit
What’s Regulation B?
Regulation B is the name for the set of individual rules and requirements that make up the ECOA. The Consumer Financial Protection Bureau (CFPB) manages it
Whom and what does the ECOA cover?
The ECOA protects individuals and businesses that apply for or use credit. Its protections apply to every stage of the credit journey, from advertising and applications to terms and servicing.
What are the ECOA protected classes?
The ECOA protected classes are the factors that can’t be taken into account when anyone—an individual or a small business—applies for or receives credit:
- Race
- Religion
- Color
- National origin or ethnicity
- Sex, including gender and sexual orientation
- Marital status
- Age, beyond when someone is legally allowed to apply for a loan
- Whether the applicant or borrower is receiving aid from a public assistance program, such as Social Security Disability Insurance
- Whether the applicant or borrower is exercising consumer protection rights
What are your rights under the ECOA if a credit application is denied?
The ECOA states that lenders must give written notice of their decision within 30 days of receiving a credit application. If the application is rejected, the lender must issue an adverse action notice. It must either explain why the applicant was rejected or let them know they have 60 days to request the reason.
For certain mortgage applications, lenders must also notify applicants of their right to receive free copies of any appraisals or other written valuations.
How can you report an ECOA violation?
To report a suspected ECOA violation, you can contact the lender to seek a resolution. Other options include:
- Submitting a complaint to the CFPB
- Contacting your state attorney general’s office
- Filing a complaint with the Office of the Comptroller of the Currency (OCC)
Key takeaways: Equal Credit Opportunity Act
The ECOA prohibits discrimination based on protected characteristics. It also gives applicants the right to timely credit decisions and explanations for adverse actions.
Once you understand your rights as a consumer, you may be ready to apply for credit. You can check if you’ll be approved before accepting a Capital One credit card offer, with no impact on your credit scores.
