Equal Credit Opportunity Act

Equal Credit Opportunity Act

Last updated: December 2004

Statutes
Discrimination Prohibited
Specific Prohibited Practices
Permitted Practices
Action on Loan Applications
         Notice of Decision
         Content of Notice
Credit Reporting for Married Persons
         Information in Both Names
Enforcement 
         Private Right of Action

 

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Statutes

Federal Statute
15 USC § 1691 et seq. (Title VII of the Consumer Credit Protection Act). 

Federal Regulations
12 CFR § 202 (Federal Reserve Board "Regulation B"). 

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Discrimination Prohibited

It is illegal to discriminate in the extension of credit on the basis of:

  • age (age 62 and over); 
  • color/race; 
  • sex;
  • marital status; 
  • religion
  • national origin; 
  • receipt of income from public assistance programs (e.g., Aid to Families with Dependent Children (AFDC), Social Security, Supplemental Security Income (SSI), unemployment, Food Stamps; rent and mortgage subsidy programs); 
  • good faith exercise of any rights under the Consumer Protection Act (15 USC § 1601 et seq.).

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Specific Prohibited Practices

See generally,12 CFR § 202.7.

Individual Accounts. Creditor may not refuse to grant an individual account to a creditworthy applicant on a prohibited basis.

Use of Name. Creditor may not prohibit an applicant from opening or maintaining an account in:

  • the applicant’s birth-given surname;
  • the spouse’s surname; or
  • the combined surname.

Reapplication. Creditor may not require a reapplication, change the terms of an account, or terminate an account unless there is inability or unwillingness to repay, when an applicant:

  • reaches a certain age;
  • retires;
  • changes his or her name;
  • changes his or her marital status, unless the credit was based on the spouse’s income and the applicant’s income is not sufficient to support the credit.

Credit Insurance. Creditor may not refuse to extend credit, or terminate an account, because credit insurance is unavailable due to age.

Signature of Spouse. Creditor may not require the signature of applicant’s spouse or other party (who is not a joint applicant) on a credit instrument, if the applicant, on his own, meets the creditor’s standards of creditworthiness for the credit requested.

  • A creditor may request a co-signer or guarantor if the personal liability of the additional party is necessary for creditworthiness.
  •  But, the applicant’s spouse may not be required, and should not be suggested or inferred as the co-signer or guarantor.

Exception: Spouse’s Signature Required for Security Interest

  • A creditor may require the signature of a spouse or other party on an instrument actually needed under state law to make property available on default (e.g., mortgage or security agreement), when applicant requests secured credit and creditor reasonably believes the other person’s signature is required for the security interest (e.g., jointly-owned property, spousal property rights, etc.).

Other examples where another party’s signature may be needed for security purposes:

  • the applicant requests unsecured credit and relies in part on property (in which the other party may have rights) to establish creditworthiness; or
  • married applicant requests unsecured credit and resides in (or the property is located in) a community property state, and;
  • state law denies the applicant the power to manage or control sufficient community property to meet creditor’s standard of creditworthiness; and
  • the applicant does not have sufficient separate property to meet the standard of creditworthiness.

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Permitted Practices

While credit may not be denied on a prohibited basis, facts bearing on creditworthiness may be considered in an unbiased credit evaluation system.

Requiring Information on Spouse. See 12 CFR § 202.5 (c). A creditor may require information on the applicant’s spouse or former spouse, if the:

  • spouse can use the account; or
  • spouse is contractually liable on the account; or
  • spouse’s income is being relied upon; or
  • applicant or property is in a community property state; or
  • applicant is relying on spouse for payment of alimony or spousal/child support.

Consideration of Age, Receipt of Public Assistance. While age or receipt of public assistance may not be basis for denial of credit, related facts may be taken into consideration in determining creditworthiness in a derived or judgmental credit system.

  • In a demonstrably and statistically sound, empirically derived credit scoring system, creditor may use age as a predictor, but age of elderly applicant (in and of itself) may not be assigned a negative value.
  • 12 CFR 202.2(p) specifies the elements of a "demonstrably and statistically sound, empirically derived credit scoring system." The focus is on removing individual bias from evaluation.
  • In a judgmental system for determining creditworthiness, a creditor may consider factors relating to age or receipt of public assistance, insofar as they are relevant to a pertinent (nondiscriminatory) element of creditworthiness.

Permitted Factors Relating to Age. In evaluating creditworthiness, creditor may consider factors such as:

  • applicant’s occupation and time to retirement, relative to the income which will support the credit to its maturity;
  • the adequacy of security when the term of the credit exceeds the applicant’s life expectancy, and the cost of relying on the collateral could exceed applicant’s equity;
  • significance of the length of applicant’s employment or length of time at an address.

Note: Creditor may consider age, in any system, if it favors elderly applicants.

Permitted Factors Relating to Receipt of Public Assistance. In evaluating creditworthiness, creditor may consider factors such as:

  • length of time applicant likely will remain eligible for benefits;
  • whether the applicant will continue to qualify for benefits based on status of dependents (e.g., AFDC (TANF) or SSI payments for a minor);
  • whether the creditor can attach or garnish the income to assure payment in the event of default.

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Action on Loan Applications

See 12 CFR § 202.9.

 

Notice of Decision

A creditor must notify the applicant of action taken on his application for credit within: 

  • 30 days after receiving the application (concerning creditor’s approval of, counteroffer to, or adverse action on the application); or
  • 30 days after taking adverse action on an incomplete application or an existing account; or
  • 90 days after notifying applicant of a counteroffer, if the applicant does not expressly accept or use the credit offered.

Content of Notice

Notice of an adverse action taken must be in writing and must contain:

  • a statement of the action taken;
  • the name/address of the creditor;
  • Equal Credit Opportunity Act notice;
  • the name and address of the federal agency that administers compliance with respect to the creditor;
  • a statement of specific reasons for the action taken, or disclosure of the applicant’s right to request a statement of specific reasons within 60 days of the creditor’s notification.

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Credit Reporting for Married Persons

Information in Both Names

Pursuant to 12 CFR § 202.10, a creditor furnishing credit information must designate any new account to reflect participation of both spouses, if the applicant’s spouse is either:

  • permitted to use the account; or
  • contractually liable on the account.

Note: For accounts in existence before 6/1/77, creditors were required to notify married consumers of their right to change the account designation if the above conditions applied. To make the change on an old account now, the consumer should notify the creditor, who must comply within 90 days.

  • Creditors must furnish information to credit reporting agencies in such a way as to allow access to information in name of each spouse.
  • In response to an inquiry, creditors must furnish information in name of the individual spouse.

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Enforcement

See 12 CFR § 202.14(b).

Private Right of Actioin

A creditor who fails to comply is subject to civil liability for actual and punitive damages, in individual or class actions. But a debtor cannot use a violation of the Act and other regulations as a defense to nonpayment of a loan.

Remedies:

  • actual damages available without limitation;
  • punitive damages limited to:
    • $10,000 in individual actions;
    • the lesser of $500,000 or 1% of creditor’s net worth, in class actions;

Note: Punitive damages may be awarded even though no actual damages exist.

  • equitable and declaratory relief are available;
  • costs and attorney fees can also be awarded.

Jurisdiction. The plaintiff may sue in federal district court (there is no 'amount in controversy' requirement), or any court of competent jurisdiction.

Statute of Limitations. The statute of limitations is two years after the date of the violation, tolled for up to one year from:

  • commencement (within two years of the violation) of agency enforcement proceedings; or
  • filing (within two years of the violation) of civil action by Attorney General (in "pattern or practice" cases).

 

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