Consumer Legal Rights under the Equal Credit Opportunity Act

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When applying for credit or a loan, every consumer is at the mercy of a combination of factors, reflected in credit reports and collectively known as creditworthiness. But under the Equal Credit Opportunity Act (ECOA), all consumers also have legal rights. There are no laws, however, stating that every application must be approved despite the contents of the would-be borrower’s credit report. This might explain the popular advertising tactic used most often by car dealerships. Banners, commercials, and other advertisements may state: “No credit application refused.” All this is indicating is that applications will be accepted; but there is still no guarantee those applications will be approved.

The ECOA & Credit Discrimination

If a consumer’s credit report does not reflect that they meet certain credit requirements related to their ability or intent to repay borrowed funds, it is perfectly legal for a company to deny credit. But when a company sets up internal policies to discriminate against certain people or use certain demographic red flags in processing, they are in violation of the Equal Credit Opportunity Act. The Federal Trade Commission (FTC), the nation’s foremost consumer protection agency, enforces the ECOA. The general sweep of the ECOA is to eradicate credit discrimination on the basis of race, color, religion, national origin, sex, marital status, or age. It is important to understand that while creditors can, under limited circumstances, ask for some of this otherwise restricted information, they may not use restricted data when making a decision as to whether or how to grant credit.

The purpose of the ECOA is to make sure individuals and companies that extend credit do so in accordance with law. Banks and credit unions, loan and finance companies, retail stores, and credit card companies are required to process credit and loan applications without regard to race, color, religion, national origin, sex, marital status, or age. Professionals that do business with these entities must also comply with ECOA. This often includes real estate brokers.

There are two broad areas of regulation under the ECOA - applying for credit and basis for granting credit - that the following applies to.

    • When processing an application for credit, creditors cannot consider race, color, religion, national origin, sex, marital status, or age.
    • Creditors may consider immigration status.
    • Creditors may not ask if consumers are widowed or divorced.
    • “Community property” states DO allow creditors to ask limited questions about marital status. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
    • In general, creditors may not ask for information about your spouse, unless your spouse is applying for credit on the same account.
    • In extending credit, lenders generally cannot consider age unless it is to your benefit. Lenders may consider age, though, to determine certain aspects of your creditworthiness if you are over 62 years of age. In addition, creditors can consider age when it automatically prohibits the applicant from entering into a contract. This is usually the case when an applicant is under the age of 18.
    • Creditors must inform the consumer of their decision in writing within 30 days of the application. If denied credit, the creditor must state the reason for the decision.

Be Prepared Before Filing a Complaint

Before contacting legal sources, be certain you have complied with the requirements of the creditor. When it comes to settling differences, courts want private parties to try resolving problems on their own before turning to the courts. As a result, courts are likely to treat premature complaints dismissively. If you feel that your complaint is valid, be sure to keep all correspondence and evidence intact.

In addition to federal laws, there are also some potential state remedies. Your state attorney general has consumer protection offices that can inform you of any state protections that may exceed the safeguards of the ECOA. Visit the National Association of Attorneys General (NAAG) website here to locate your local office.  

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