What is the Equal Credit Opportunity Act?

The Equal Credit Opportunity Act, commonly referred to as the ECOA, is a facet of United States law that prohibits most lenders from discriminating on the basis of race, religion, national origin, sex, marital status, age, or income source. The act was enacted in 1974 as a part of the larger Consumer Credit Protection Act (CCPA). The Equal Opportunity Credit Act amends the CCPA by prohibiting discrimination at any level of the lending process. Creditors can still ask lenders to provide certain personal information, but under the act they cannot use that information to decide whether to extend a loan or to decide what the terms of any resulting loan will be.

The Equal Credit Opportunity Act is codified in the United States Code, the statutory law of the United States, at 15 U.S.C section 1691. The act applies to any person or entity who “regularly extends, renews, or continues credit,” as well as anyone who participates in the decision of such a person or entity. Banks, mortgage lenders, and all commercial creditors are covered. Personal loans between friends or one-time loans between parties who are not regular lenders are usually not.

Enforcement of the Equal Credit Opportunity Act is an important part of many aspects of U.S. law practice. The act is important to United States federal banking legislation insofar as it covers banks and commercial financial lenders. It also commonly comes up in housing and real estate law, since its provisions cover housing lenders and real estate loans. The act also touches consumer protection law with respect to credit card companies, personal credit extensions, and interest rates.

In large part, the Equal Credit Opportunity Act was designed to ensure that all individuals who apply for credit are treated on equal terms. The act specifically prohibits discrimination based on race, religion, national origin, sex, marital status, age, or the receipt of public assistance such as welfare. Discrimination is prohibited both in deciding whether to grant a loan and in any other aspect of the loan-granting process, such as setting loan rates, interest, or penalties.

Creditors may still ask about personal details such as marital status or age when deciding whether to grant a loan or extend credit. All that the Equal Credit Opportunity Act says is that the creditor cannot use any of the named factors to influence the decision. In some cases, borrowers may choose to report their demographic and personal information so that federal agencies can better track whether lenders are following the act’s rules.

What sort of loan is at stake influences who enforces the act. The Federal Trade Commission applies the act to most consumer credit scenarios, whereas the Department for Housing and Urban Development applies it to real estate loan transactions. The Federal Deposit Insurance Corporation enforces the act against most commercial banks. If a certain lender has established a routine pattern of discrimination, the Department of Justice will usually get involved. Agencies monitor lenders’ practices, but also depend on consumer complaints in order to take action.

The act also provides for a private right of action, which means that individuals who believe that they have been discriminated against can file a lawsuit in their own right, without going through a federal agency. Discrimination complaints under the Equal Opportunity Credit Act are brought in U.S. federal district court. Federal district courts apply federal law, but are seated in every state. Individuals who believe that they were not the only victims of a particular lender’s discrimination may choose to bring a class action lawsuit, which joins many plaintiffs with a similar grievance into a single claim. Monetary damages and recovery are usually higher in class action lawsuits.

Filing a lawsuit in federal court is a complex endeavor, whether individually or on behalf of a class. Lawsuits allow injured parties to collect damages that may not be available in a federal agency enforcement action, but also take more time, resources, and know-how than simply alerting an agency to a possible abuse. It is usually best to consult with a lawyer before taking any individual action.