The Equal Credit Opportunity Act

The Equal Credit Opportunity Act (ECOA) was enacted in 1974 to counter a variety of discriminatory practices that were once prevalent in credit markets. In particular, ECOA targeted discrimination based on sex and marital status. The Act has since been amended several times to expand its protections. Regulation B, which implements ECOA, prohibits discrimination in any credit transaction – whether for consumer or business purposes – on the basis of race, color, religion, national origin, sex, marital status, age (except in limited circumstances), receipt of income from public assistance programs, and the good faith exercise of any rights under the Consumer Credit Protection Act. Regulation B applies to anyone who, in the ordinary course of business, regularly participates in decisions about whether to extend credit or how much credit to extend.

The Equal Credit Opportunity Act (ECOA), passed by Congress in 1975, and the Federal Reserve Board’s implementation of Regulation B, prohibits discrimination in any aspect of a credit transaction on the basis of:

• Race
• Color
• Religion
• National origin
• Sex
• Marital status
• Age (provided that the applicant has the capacity to enter into a binding contract)
• Receipt of income from a public assistance program
• Good faith exercise of any right under the Consumer Credit Protection Act (Truth in Lending Act)

The ECOA and Regulation B also prohibit discrimination against an applicant because of his or her personal or business dealings with members of a certain religion or because of the persons who will be related to the extension of credit (for example, tenants in the apartment complex being financed or the individuals who reside in the neighborhood where the collateral is located). A creditor may however, take into account the applicant’s immigration status and any applicable law, regulation, or executive order restricting dealings with citizens or the government of a particular country.

Though our primary focus of this chapter is the impact of this regulation on the mortgage industry, it is important to realize that the types of credit transactions protected by the ECOA are very broad. They include, but are not limited to, business loans, consumer leases, consumer loans, auto loans, credit cards, agricultural loans and loans to purchase, in addition to refinances or construction of residential or commercial real estate. If a credit transaction provides deferred payment of debt, it is also covered by ECOA and Regulation B even though it may not be defined as a credit transaction by the Truth in Lending Act, Regulation Z.