Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.
Updated January 31, 2024 Reviewed by Reviewed by Thomas BrockThomas J. Brock is a CFA and CPA with more than 20 years of experience in various areas including investing, insurance portfolio management, finance and accounting, personal investment and financial planning advice, and development of educational materials about life insurance and annuities.
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The Equal Credit Opportunity Act (ECOA) is a federal civil rights law designed to ensure fair lending practices. It prohibits lenders from discriminating against loan applicants, with the sole exception being their ability to repay the loan.
Specifically, ECOA protects consumers from discrimination based on race, color, religion, national origin, sex, marital status, age, eligibility for public assistance, or the exercise of any rights under the Consumer Credit Protection Act. This legislation serves as a vital safeguard against unfair lending practices and aims to promote equal access to credit opportunities for all individuals.
The Equal Credit Opportunity Act was enacted in 1974 and is detailed in Title 15 of the United States Code. The act, as implemented by Regulation B, states that individuals applying for loans and other credit can be evaluated only using factors directly related to their creditworthiness. It prohibits creditors and lenders from considering factors that are unrelated to creditworthiness—specifically, the following protected classes:
In 2021, the Consumer Financial Protection Bureau clarified that the prohibition against sex discrimination in ECOA and Regulation B encompasses sexual orientation discrimination and gender identity discrimination, including discrimination based on an applicant's nonconformity with sex-based or gender-based stereotypes.
ECOA prohibits discrimination in all aspects of a credit transaction and applies to any organization that extends credit—including banks, small loan and finance companies, retail stores, credit card companies, and credit unions. It also applies to anyone involved in the decision to grant credit or set credit terms.
ECOA covers various types of credit, including personal loans, credit cards, home loans, student loans, car loans, small business loans, and loan modifications. And it's not limited to just consumer loans. ECOA applies to any extension of credit, including those made to small businesses, corporations, partnerships, and trusts.
When a borrower applies for credit, the lender may ask about some of the personal facts that ECOA prohibits. While these questions can't be used to make lending decisions—and answering them is optional—the information does help federal agencies enforce anti-discrimination laws.
Another aspect of ECOA allows each spouse in a marriage to have a credit history in their own name. Still, if a borrower has any joint accounts with their spouse, the accounts will appear on both credit reports. That means a spouse’s financial behavior can positively or negatively impact an individual borrower’s credit score.
If you were turned down for a loan or a line of credit, the lender must tell you in an Adverse Action Notice the specific reasons your application was rejected or disclose that you have the right to request the reason for denial within 60 days of receiving the creditor's notification.
While ECOA prohibits lenders from basing their decisions on marital status, some loans, such as mortgages, require a borrower to disclose if they are relying on alimony or child support income as a basis for obtaining the credit. However, a borrower can't be denied a loan simply because they are divorced.
When you apply for a loan or line of credit, ECOA gives you certain rights:
Additionally, creditors can't:
Credit discrimination is not always obvious, which makes it hard to spot. CFPB advises consumers to watch for warning signs of ECOA violations:
If you feel you’ve been discriminated against at any point during a credit transaction, there are several steps you can take:
One common violation of the ECOA is charging higher rates or fees to Black, Indigenous, and People of Color (BIPOC) applicants.
In July 2012, the Department of Justice (DOJ) reached a settlement of more than $175 million with Wells Fargo Bank for a pattern or practice of discriminatory lending. Black and Hispanic borrowers who qualified for loans were charged higher fees or rates or were improperly placed into subprime loans, which are more costly.
In January 2017, a $53 million settlement was made against JPMorgan Chase for lending discrimination based on race and national origin. The DOJ found that the bank's brokers charged higher interest rates to BIPOC borrowers than White borrowers in the run-up to and during the 2008 financial crisis.
On November 8, 2023, Citibank was ordered by the CFPB to pay a $24.5 million civil penalty as a result of Citibank's discriminatory practices against credit card applicants of Armenian national origin between 2015 and 2021.
According to the CFPB, Citibank subjected these applicants to extra scrutiny, negative assessments, and frequent denials. Additionally, the CFPB said that Citibank failed to provide adequate reasons for these actions, violating ECOA and the Consumer Financial Protection Act (CFPA). Citibank is required to compensate affected consumers with $1.4 million and implement measures to prevent future discrimination.
The Consumer Financial Protection Bureau (CFPB) writes rules to implement ECOA and supervises institutions (e.g., banks and lending companies) to ensure they follow the law. Several other federal agencies share the job of supervising for compliance, including the:
The CFPB enforces ECOA with the agencies listed above, the Department of Justice, and the Federal Trade Commission.
Lenders found in violation of ECOA can potentially face class-action lawsuits from the Department of Justice (DOJ) if the DOJ or any affiliate agencies recognize a pattern of discrimination. The Consumer Financial Protection Bureau enforces ECOA with other federal agencies. If found guilty, the offending organization could have to pay out punitive damages that can be significant and cover any costs incurred by the wronged party.
Yes, the Equal Credit Opportunity Act applies to all creditors. Financial institutions and other firms engaged in the extension of credit can't discriminate against an applicant based on a prohibited basis during any aspect of a credit transaction. Additionally, lending officers and employees can't do anything that would, on a prohibited basis, discourage a reasonable person from applying for a loan.
ECOA is an important federal law promoting fair lending practices. It bars lender discrimination, and guards against bias related to race, religion, national origin, gender, marital status, age, public assistance eligibility, or consumer protection rights.
ECOA has broad applicability, covering various credit types and creditors. Consumers should be vigilant for signs of discrimination and can respond by contacting creditors, state authorities, government agencies, or pursuing legal action. ECOA enforcement involves multiple agencies, including the CFPB, and penalties for violations can be substantial. ECOA's scope also extends to all creditors, making sure everyone has a fair chance to get credit while stopping unfair treatment in credit transactions.