The Equal Credit Opportunity Act prohibits creditors from discriminating against individuals in credit transactions because of the person's race, color, national origin, sex, marital status, religion, age, or public assistance status. Another federal law, the Fair Housing Act, prohibits discrimination in residential real estate and mortgage context.
Below you can learn more about the ECOA, FHA, and other anti-discrimination laws in the credit arena, as well as find out what types of actions constitute credit discrimination.
The Equal Credit Opportunity Act
The Equal Credit Opportunity Act (ECOA) and Regulation B are quite broad in scope. They prohibit discrimination in any part of a credit transaction, including:
- applications for credit
- credit evaluation
- restrictions in granting credit, such as requiring collateral or security deposits
- credit terms
- loan servicing
- treatment upon default, and
- collection procedures.
The ECOA prohibits a creditor from refusing to grant credit because of your:
- race or color
- national origin
- marital status
- public assistance status, or
- exercise of your rights under the Consumer Credit Protection Act (which contains federal consumer credit laws like the Fair Credit Reporting Act).
The ECOA also requires creditors to give you certain notices if you are granted or denied credit, or granted credit on different terms from what you requested. These notices may be combined with notices required under the Fair Credit Reporting Act (FCRA).
The Fair Housing Act
The federal Fair Housing Act (FHA) prohibits discrimination in residential real estate transactions. It covers loans to purchase, improve, or maintain your house and loans in which your home is used as collateral. Other provisions of the FHA prohibit discrimination in the rental housing market. Like the ECOA, the FHA prohibits discrimination based on race, color, religion, national origin, and sex. The FHA prohibits discrimination based on familial status (similar to marital status under the ECOA), and disability, but does not protect against discrimination based on age or public assistance status.
Other Laws Prohibiting Credit Discrimination
Other federal laws provide protections in addition to the ECOA and FHA. For example, the Community Reinvestment Act can be used to combat discrimination by banks and lenders. State antidiscrimination laws often provide even more protection than the federal laws. For example, some states prohibit arbitrary discrimination on the basis of occupation, personal characteristics, political affiliation, or sexual orientation. You can check with your state consumer protection office or do some research on your own to see if there are additional protections in your state.
Types of Credit Discrimination
Here are some common types of credit discrimination that the ECOA and FHA seek to curtail.
The ECOA, the FHA, and many state laws prohibit credit discrimination based on sex. This category often overlaps with the “marital status” category.
Examples of prohibited sex discrimination include:
- rating female-specific jobs (such as waitress) lower than male-specific jobs (such as waiter) for the purpose of obtaining credit
- denying credit because an applicant’s income comes from sources historically associated with women—for example, part-time jobs, alimony, or child support (however, a creditor may ask you to prove that you have received alimony, child support, or separate maintenance consistently)
- requiring married women who apply for credit alone to provide information about their husbands while not requiring married men to provide information about their wives, and
- denying credit to a pregnant woman who anticipates taking a maternity leave.
However, a creditor is allowed to ask your sex when you apply for a real estate loan. The federal government collects this information for statistical purposes. Other creditors may ask for this information as well, although providing it is optional, and the creditor can use the information only to check its own practices for discrimination.
Marital Status Discrimination
The ECOA and many state laws prohibit discrimination based on marital status. The FHA’s similar provision prohibits discrimination based on familial status.
These laws prohibit a creditor from requiring an applicant’s spouse to cosign on an individual account as long as no jointly held or community property is involved and the applicant meets the creditor’s standards on his or her own.
These laws also prohibit a creditor from asking about your spouse or former spouse when you apply for your own credit, unless any of the following is true:
- Your spouse will be permitted to use the account.
- Your spouse will be liable for the account.
- You are relying on your spouse’s income to pay the account.
- You live in a community property state (Alaska, (if spouses agree in writing), Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin) or you are relying on property located in a community property state to establish your creditworthiness.
- You are relying on alimony, child support, or other maintenance payments from a spouse to repay the creditor. (You are not required to reveal this income if you don’t want the creditor to consider it in evaluating your application.) A creditor may ask whether you have to pay alimony, child support, or separate maintenance.
The prohibition against marital status discrimination also means that a creditor must consider the combined incomes of an unmarried couple applying for a joint obligation if it considers the combined income of married co-applicants.
Sexual Orientation Discrimination
No federal law specifically prohibits credit discrimination based on sexual orientation. However, a few states prohibit this type of discrimination.
In general, lenders are prohibited from asking a person’s race on a credit application or ascertaining it from any means (such as a credit file) other than the personal observation of a loan officer. There is one important exception to this law: A mortgage lender may ask someone to voluntarily disclose his or her race for the sole purpose of monitoring home mortgage applications. Other creditors may ask for this information, although provision of the information is optional, and the creditor can use the information only to check its own practices for discrimination.
Lenders have been accused of getting around race discrimination prohibitions by redlining -- that is, denying credit to residents of predominantly nonwhite neighborhoods.
More recently, credit discrimination laws have been used to challenge what is known as “reverse redlining.” In “reverse redlining,” instead of avoiding certain neighborhoods, creditors target low-income, often nonwhite, neighborhoods to sell loan products with extremely high interest rates and other costly terms.
In recent years, some agencies and nonprofit organizations have analyzed data collected under the Home Mortgage Disclosure Act (HMDA), and discovered that African Americans, Hispanics, and women are more likely to wind up with higher-cost loans. The HMDA data doesn’t take into account differences in income, credit scores, or other factors creditors look at to make loans. But when studies took several of those other factors into account, these groups still were more likely to get higher-cost loans than others.
National Origin Discrimination
Discrimination based on national origin is prohibited under the ECOA, the FHA, and most state credit discrimination laws. “National origin” generally refers to an individual’s ancestry or ethnicity. A creditor might be discriminating based on national origin by treating people with Latino or Asian surnames differently from people with European names. This category extends to discrimination against non-English speakers, but it does not necessarily include noncitizens. A creditor is allowed to consider an applicant’s residency status in the United States in certain circumstances.
The ECOA and many state laws prohibit credit discrimination based on age. This is mostly meant to protect older people (aged 62 or over under the ECOA). Creditors are allowed to consider age in order to give more favorable treatment to an older person (for example, considering an older person’s long payment history, which a younger person hasn’t had time to build yet). However, age cannot be used to an older person’s detriment. For example, a creditor cannot automatically refuse to consider income often associated with the elderly, such as part-time employment or retirement benefits.
This is an excerpt from Nolo's Solve Your Money Troubles: Debt, Credit & Bankruptcy, by Margaret Reiter and Robin Leonard.
You can learn more about this topic in Nolo's Fair Lending & Credit Discrimination area.