The Equal Credit Opportunity Act, or ECOA, protects consumer rights throughout the loan process. Lenders cannot discourage you from applying for a loan based on certain characteristics.
The ECOA promotes the availability of credit to all creditworthy applicants without regard to the factors (also called prohibited bases) listed below:
- Race
- Color
- Religion
- National origin
- Sex
- Marital status
- Age
- Receipt of public assistance income (the fact that all or part of the applicant's income is derived from a public assistance program)
- Exercise of rights under the Consumer Credit Protection Act (Example: You cannot be denied a loan because you have filed a complaint against the bank.)
Further, a woman who exercises her rights under the act cannot be "blacklisted" from obtaining credit. Of course, this doesn't mean all consumers who apply for credit get it. Factors such as income, expenses, debt and credit history are considerations for credit worthiness.
What type of restrictions does ECOA place on lenders?
During the loan application process, ECOA restricts the lender from requesting certain information during the loan application process. In general, the lender may not ask:
- For information about a spouse or former spouse unless your spouse is applying with you. If you are applying for unsecured credit, the lender cannot ask about marital status.
If you do not qualify on your own, lenders may require a cosigner or guarantor, but may not require that it be your spouse. If you are jointly applying or if the loan is secured, the lender may ask your marital status, but can only use the terms married, unmarried, and separated.
- For income derived from alimony or child support unless you want it considered as part of your income. The lender cannot discount or refuse to consider consistent part-time income, annuities, pensions, alimony, or child support payments.
- About birth control practices or intentions of having children. However, a lender may ask about the number and ages of your dependents.
- About whether you are male or female. Courtesy titles (Mr., Mrs., Miss, Ms.) can be requested, but these are optional.
- For your race, color, religion, or national origin.
Problems with ECOA
One of the main problems with the ECOA is that it is hard to prove discrimination since other reasons can be given for denial of credit. Another problem is that the people the law was designed to protect seldom exercise their rights, generally because of one of the following reasons:
- Because credit rejection may be masqueraded by another reason, the applicant may not even realize she has been a victim of discrimination.
- The applicant may not want to get involved with fighting the system.
- Most people don't know their rights under the law and are unaware of the ease of filing a complaint.
Summary of Rights under ECOA
The general rule of thumb to decide whether you have been a victim of discrimination is to ask yourself if you would have been granted the loan if you were a non-minority with the same economic status. The following is a summary of your rights under the ECOA:
- If you are a woman, you may use your maiden or married name. You may even use a combination of both.
- If you have an adequate debt-to-income ratio, the lender cannot require a cosigner or co-applicant.
- The creditor may inquire as to how many dependents you have to decide your spendable income. However, he cannot ask about your birth-control practices or plans for parenthood.
- A woman cannot be denied credit automatically for listing her occupation as a housewife.
- The creditor must consider all income derived from alimony, child support, public assistance, and part-time work. A woman may select not to reveal alimony and child support.
If she chooses not to, these amounts will not be taken into consideration when computing her debt-to-income ratio.
- A woman's marital status cannot be inquired into if she is trying to obtain separate unsecured credit. The only exception is if the applicant lives in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, or Washington).
- If there is a change in a woman's marital status or she chooses to change her name legally, the creditor cannot automatically require her to reapply for an existing loan.
The only exception is if there appears to be a problem with a loan in which a former husband's income had been considered at the time the loan was approved.
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