In response to concerns that women and minorities were unfairly discriminated against in applications for loans and credit, Congress enacted the Equal Credit Opportunity Act in 1974 (ECOA) to prohibit discrimination by any "creditor" with respect to any aspect of a credit transaction, including application for a mortgage.
Prohibited Discrimination
As amended by Congress in 1976, the ECOA forbids discrimination based on:
- Race, color, religion, national origin, sex or marital status (except under certain circumstances and in community property law states), or age (provided the applicant is old enough to enter into a contract); the elderly in particular may not be discriminated against because of their age.
- Receipt by the applicant of income from any public assistance program.
- The applicant's exercise of any rights under the Consumer Credit Protection Act.
Consumer Rights Under the ECOA
Protection under the ECOA extends to applications for extension, renewal, or continuation of credit, or for an increase of an existing credit line. "Creditor" is defined broadly to include persons and entities who regularly extend, renew, or continue credit, including assignees of an original creditor. Under the ECOA, applicants cannot be discriminated against for certain group status, and also have additional rights, including the right to:
- Have reliable public assistance, child support, and alimony considered in the same manner as other income, or the applicants may omit such information in the application.
- Be notified by the creditor in writing, within set time limits, if a credit application is denied and be informed of any credit bureaus that were used for evaluation, plus the specific reason(s) for the denial.
- Receive the loan without a co-signor or joint applicant when the applicant's income is adequate for loan approval.
- Women may apply for credit using their maiden or married name, and may not be denied approval simply on the basis of being a homemaker or be asked about marital status (unless the individual resides in a community property state).
Regulation B and the ECOA
The Federal Reserve System's Board of Governors issued Regulation B to ensure that the ECOA is applicable to many types of credit transactions. Among other things, Regulation B gives applicants the right to present to the creditor information they believe more accurately reflects their creditworthiness if they are turned down. Under these circumstances, creditors generally must take such additional information into consideration.
Enforcement and Penalties
Any creditor who fails to comply with any requirement imposed by the ECOA is liable to the aggrieved applicant for:
- Actual damages sustained by the applicant as an individual or member of a class.
- Punitive damages up to $10,000 for an individual applicant or the lesser of $500,000 or 1% of the net worth of the creditor, in the case of a class action.
- Costs and fees for bringing the action, e.g., filing fees and court costs.
- Reasonable attorneys' fees, as determined by the court, added to any damage award.
Suit may be brought either under the ECOA or state law, but not both (there must be an "election of remedies") and in any federal or state court of competent jurisdiction. Such action must be brought within two years from the date of the violation of ECOA, unless the U.S. Attorney General or an administrative agency brings an action against the creditor within two years of the violation. If an action is initiated by the U.S. Attorney General or an administrative agency, the applicant/victim may also bring an action within one year of the date the first action was commenced.
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