What is the Equal Credit Opportunity Act?

The Equal Credit Opportunity Act (ECOA) protects individuals from discrimination in lending money or the extension of credit. It covers financial institutions, retail establishments, credit-card issuers, and other credit-granting firms. The ECOA extended the protections from discrimination under Title VII beyond the work environment. It prohibits a lender from discriminating in the extension of credit based upon race, color, religion, national origin, sex, marital status, or age. The ECOA went further to protect against discrimination based upon receipt of public assistance (welfare). Examples of discrimination might include:

• refusing to extend credit;
• discouraging someone from pursuing credit based on a protected characteristics;
• charging a higher rate of interest;
• asking about marital status for a single-borrower loan; and
• asking about children or plans to have children.

How do Businesses Comply with the ECOA?

The Act imposes special responsibilities on businesses extending credit, as follows:

• issuers must calculate income from all regular sources, such as alimony, maintenance, and part-time jobs;
• issuers must use the credit history for all partners;
• issuers must inform the candidate about the credit decision (granted or denied) within 30 days; and
• consumers must be given a specific reason for denial of credit.

The business must notify the applicant of the reason for a denial of a request to extend credit. Further, the protections extend to any negative action taken pursuant to extending credit.

 Example: A business must notify customers of the reason for a denial of credit, closures of a line of credit, changes to terms of the credit relationship (that is not uniform to all creditors), etc.

What are the Remedies for Violation of the ECOA?

The ECOA provides several remedies and penalties for violation of the Act, as follows:

Private Administrative or Civil Actions – Individuals may bring private causes of action or pursue enforcement through the FTC or CFPB.

Remedies – Individuals bringing a private cause of action may recover actual damages, punitive damages (up to $10,000), attorneys fees, and legal costs.

FTC Administrative and Civil Actions – The FTC may also bring an administrative or civil action against the issuer seeking equitable remedies, including injunction against further violations.