A credit grantor generally will provide credit to anyone who is a good financial risk. A person with no apparent source of income, with a history of long periods of unemployment, who regularly pays bills late or misses payments, or who has recently declared bankruptcy, isn’t a good risk. A person with a low income and many dependents and expenses also may not be a good risk. These are legitimate considerations for a lender. However, creditors are not permitted to consider factors that are unrelated to income or ability to pay, such as marital status.
What Is Illegal Credit Discrimination
The Equal Credit Opportunity Act (ECOA) prohibits creditors from discriminating on the basis of marital status (and on the basis of race, national origin, religion, sex, age, or because all or part of a person’s income comes from public assistance). (15 U.S.C. §1691.) Ability to pay should be the criterion used.
Specific federal regulations say that a creditor:
• cannot inquire about marital status for individual unsecured credit unless the applicant lives in a community property state or is using as collateral property located in a community property state
• cannot require the use of a married name, but must allow credit to be issued in either your given name or a combined surname
• can require you to reveal alimony and child support payments for which you are responsible, but not payments you receive, unless you rely on them to establish your income for credit purposes
• may not ignore your income from child support or alimony payments in determining your creditworthiness, but may consider how likely it is that you will actually receive that income
• may not ignore income from a part-time job
• may not ask questions about your birth control practices, or whether you intend to have children
• may not terminate your account or require a reapplication if you change your name or marital status unless there is evidence that you’re unwilling or unable to pay your bill, and
• must inform you of any reason you are denied credit.
A creditor that illegally discriminates in extending credit may be liable for up to $10,000 plus any money that’s actually lost as a result of the discrimination.
But the law is not completely cut and dried. Under the ECOA, asking a person’s marital status is not discrimination if the inquiry is made in order to determine “the creditor’s rights and remedies applicable to a particular extension of credit”—for example, whether the creditor will require a cosigner or guarantor, or whether property you are claiming as an asset for purposes of your credit application is jointly owned. However, the inquiry is illegal if it is made solely for the purpose of discriminating on the basis of your status. In addition, because the ECOA allows a creditor to consider state property laws in its decision to extend credit, in some states a creditor may be able to ask about marital status in certain situations. For example, if a loan will be secured by real property, and state law gives the applicant’s spouse an interest in the property, the creditor can ask if the applicant is married.
Few cases have tested the Equal Credit Opportunity Act. Since its passage, however, unmarried couples have had fewer obstacles in opening joint accounts.
Resources on Credit-Related Discrimination
To read the text of the ECOA or want advice on a non-bank related credit problem, visit the Federal Trade Commission’s website and look in the Consumer Protection area, or call the FTC at 877-FTC-HELP (382-4357).
For a bank-related credit problem, check out the consumer affairs division of the Federal Reserve Board website or call 202-452-3693 or 888-851-1920.
For more information on consumer protection when it comes to debt and credit, see the Personal Finance section of the Nolo site.