What Is the Equal Credit Opportunity Act (ECOA)?

What Is the Equal Credit Opportunity Act (ECOA)?

The Equal Credit Opportunity Act (ECOA) is a federal civil rights law designed to ensure fair lending practices. It prohibits lenders from discriminating against loan applicants, with the sole exception being their ability to repay the loan.

Specifically, ECOA protects consumers from discrimination based on race, color, religion, national origin, sex, marital status, age, eligibility for public assistance, or the exercise of any rights under the Consumer Credit Protection Act. This legislation serves as a vital safeguard against unfair lending practices and aims to promote equal access to credit opportunities for all individuals.

How the Equal Credit Opportunity Act (ECOA) Works

The Equal Credit Opportunity Act was enacted in 1974 and is detailed in Title 15 of the United States Code. The act, as implemented by Regulation B, states that individuals applying for loans and other credit can be evaluated only using factors directly related to their creditworthiness. It prohibits creditors and lenders from considering factors that are unrelated to creditworthiness—specifically, the following protected classes:

• Race
• Color
• Religion
• National origin (the country where you or your ancestors were born)
• Sex (including gender, sexual orientation, and gender identity)
  
• Marital status
• Age (provided the applicant is old enough to enter into a contract)
• Participation in a public assistance program, such as the Supplemental Nutrition Assistance Program (SNAP) or Social Security Disability Insurance (SSDI)
• The good faith exercise of any right under the Consumer Credit Protection Act

ECOA prohibits discrimination in all aspects of a credit transaction and applies to any organization that extends credit—including banks, small loan and finance companies, retail stores, credit card companies, and credit unions. It also applies to anyone involved in the decision to grant credit or set credit terms. 

ECOA covers various types of credit, including personal loans, credit cards, home loans, student loans, car loans, small business loans, and loan modifications. And it's not limited to just consumer loans. ECOA applies to any extension of credit, including those made to small businesses, corporations, partnerships, and trusts.

Special Considerations

When a borrower applies for credit, the lender may ask about some of the personal facts that ECOA prohibits. While these questions can't be used to make lending decisions—and answering them is optional—the information does help federal agencies enforce anti-discrimination laws.

Another aspect of ECOA allows each spouse in a marriage to have a credit history in their own name. Still, if a borrower has any joint accounts with their spouse, the accounts will appear on both credit reports. That means a spouse’s financial behavior can positively or negatively impact an individual borrower’s credit score.

While ECOA prohibits lenders from basing their decisions on marital status, some loans, such as mortgages, require a borrower to disclose if they are relying on alimony or child support income as a basis for obtaining the credit. However, a borrower can't be denied a loan simply because they are divorced.

Your Equal Credit Opportunity Rights

When you apply for a loan or line of credit, ECOA gives you certain rights:

• When considering your credit application or setting terms for a loan, creditors can only consider relevant financial factors—your credit score, income, and credit history, including your existing debt load.
• You are entitled to have credit in your birth name (Kim Jones), your first name and your spouse's last name (Kim Smith), or your first name and a combined last name (Kim Jones-Smith).
• You have the right to keep your own accounts after changing your name, marital status, reaching a certain age, or retiring unless the creditor can prove you're unwilling or unable to pay.
• The creditor must tell you whether your application was accepted or rejected within 30 days of filing a complete application.
• If the creditor denies your application, they must provide a specific reason or disclose that you’re entitled to learn the reason if you ask within 60 days.

Additionally, creditors can't:

• Impose different terms or conditions—such as a higher interest rate or higher fees—if based on your race, color, religion, national origin, sex, marital status, age, or whether you receive public assistance.
• Refuse to consider reliable public assistance in the same way as other income.
• Ask about your marital status if you’re applying for a separate, unsecured account.
• Ask if you’re widowed or divorced.

Detecting the Signs of Credit Discrimination

Credit discrimination is not always obvious, which makes it hard to spot. CFPB advises consumers to watch for warning signs of ECOA violations:

• You notice that you are treated differently when applying for credit in person compared to over the phone or online.
• Lenders discourage you from applying for credit, even when you are interested and eligible.
• You hear the lender making derogatory comments related to race, national origin, sex, or other protected categories.
• You are denied credit even though you meet the advertised requirements for eligibility.
• You are offered credit with a higher interest rate than the one you originally applied for, despite meeting the criteria for the lower rate.
• You are denied credit, but the lender does not provide a reason or offer information on how to inquire further.
• You feel pressured or coerced into signing a credit agreement.

What to Do if You Suspect Discrimination

If you feel you’ve been discriminated against at any point during a credit transaction, there are several steps you can take: 

• First, contact the creditor to complain. You may be able to persuade the company to take a second look at your application.
• Check with your state attorney general’s office to see if the creditor violated any state equal credit opportunity laws.
• Report suspected violations to the appropriate government agency. If you’re denied credit, the creditor must provide contact information for the particular government agency. 
• Submit a complaint to the Consumer Financial Protection Bureau. These complaints help the CFPB identify cases and patterns of discrimination and fair-lending law violations. 
• Consider suing the creditor in federal district court. If the court finds the creditor’s actions were willful, you could recover actual damages and win punitive damages.

Examples of Equal Credit Opportunity Act (ECOA) Enforcement

One common violation of the ECOA is charging higher rates or fees to Black, Indigenous, and People of Color (BIPOC) applicants.

In July 2012, the Department of Justice (DOJ) reached a settlement of more than $175 million with Wells Fargo Bank for a pattern or practice of discriminatory lending. Black and Hispanic borrowers who qualified for loans were charged higher fees or rates or were improperly placed into subprime loans, which are more costly.

In January 2017, a $53 million settlement was made against JPMorgan Chase for lending discrimination based on race and national origin. The DOJ found that the bank's brokers charged higher interest rates to BIPOC borrowers than White borrowers in the run-up to and during the 2008 financial crisis.

On November 8, 2023, Citibank was ordered by the CFPB to pay a $24.5 million civil penalty as a result of Citibank's discriminatory practices against credit card applicants of Armenian national origin between 2015 and 2021.

According to the CFPB, Citibank subjected these applicants to extra scrutiny, negative assessments, and frequent denials. Additionally, the CFPB said that Citibank failed to provide adequate reasons for these actions, violating ECOA and the Consumer Financial Protection Act (CFPA). Citibank is required to compensate affected consumers with $1.4 million and implement measures to prevent future discrimination.

The Bottom Line

ECOA is an important federal law promoting fair lending practices. It bars lender discrimination, and guards against bias related to race, religion, national origin, gender, marital status, age, public assistance eligibility, or consumer protection rights.

ECOA has broad applicability, covering various credit types and creditors. Consumers should be vigilant for signs of discrimination and can respond by contacting creditors, state authorities, government agencies, or pursuing legal action. ECOA enforcement involves multiple agencies, including the CFPB, and penalties for violations can be substantial. ECOA's scope also extends to all creditors, making sure everyone has a fair chance to get credit while stopping unfair treatment in credit transactions.