The Equal Credit Opportunity Act (ECOA) is a Federal law (15 U.S.C. § 1691 et seq.) enacted in 1974 to protect potential borrowers from discrimination by creditors during all stages of the credit application process and in connection with all aspects of credit transactions. The ECOA specially protects against discrimination on three categorical bases:

(1) an applicant’s race, color, religion, national origin, sex, marital status, or age (provided the applicant is at least 18 years of age and otherwise has the legal capacity to contract);

(2) the fact that all or part of an applicant’s income derives from a public assistance program; and

(3) an applicant’s good faith exercise of any right under the Consumer Credit Protection Act.

Requirements and prohibitions under the ECOA apply across the board to any person or business that regularly makes credit-lending decisions in the ordinary course of business, including, but not limited to, banks, finance companies, credit unions, bankcard businesses, and even retailers.

The protections afforded under Section (b)—known as “Regulation B”—of the ECOA are enforced by civil liability that may result in actual and/or punitive damages. In an individual action, a financial institution or other credit lender may be subject to as much as $10,000, and its liability in a class action law suit can arise to $500,000 or one-percent of the creditor’s net worth, whichever is less.

The intent of the ECOA is supported by its clearly defined prohibitions and requirements. The primary creditor restrictions under the ECOA include:

• Discrimination based on race, sex, age, national origin, or marital status.
• Discrimination based on an applicant’s use of public assistance.
• Requesting information regarding an applicant’s marital status if a candidate is applying for separate, unsecured credit, unless the applicant resides in a community property state or where the applicant is applying for joint credit (credit shared by a married couple) or credit that is secured with real property.
• Asking about the applicant’s plans to have, or to continue having, children.
• Disallowing regular sources of income, including reliable and predictable income from veteran’s benefits, welfare payments, Social Security payments, alimony, child support, and other comparable sources.
• Refusing to consider or otherwise discounting any income earned from a part-time job, pension, annuity, or a retirement benefits program.

Under the ECOA, creditors are required, with few exceptions, to respond to an applicant within 30 days of receiving a completed application for credit. The response must include notice of the action taken in response to the application, either in writing or orally, depending on the content of the notice.

In responding to an application where the creditor is denying credit to the applicant altogether or approving credit for an amount or on terms that differ from what the applicant requested, a creditor is also required to provide, or enable access to, the specific reason(s) for denying the requested credit to that applicant.

The ECOA mandates similar notice for other types of adverse action taken on a borrower’s account, including when the creditor closes an account, declines a request to increase a line of credit, makes a change to the terms of credit that negatively impacts a single account holder, or refuses to give comparable terms of credit to that originally requested by application.