Legal Definitions - Equal Credit Opportunity Act

The Equal Credit Opportunity Act (ECOA) is a United States federal law designed to ensure fairness in lending practices. It prohibits creditors—such as banks, credit card companies, and mortgage lenders—from discriminating against credit applicants based on certain personal characteristics. Specifically, lenders cannot deny credit, offer less favorable terms, or treat applicants differently because of their race, color, religion, national origin, age, sex, or marital status. This protection extends to every stage of a credit transaction, from the initial application to the management of an existing account.

Here are some examples illustrating how the ECOA applies:

• Example 1: Mortgage Application
  A qualified couple, both with excellent credit scores and stable, high incomes, applies for a home mortgage. Despite meeting all financial criteria, they are offered a significantly higher interest rate than a similarly qualified couple of a different racial background, without any objective financial justification. This situation would likely violate the ECOA because the lender appears to be discriminating based on the applicants' race, offering less favorable terms for reasons unrelated to their creditworthiness.

• Example 2: Credit Card Denial
  A 70-year-old retired woman with a strong pension and a perfect credit history applies for a new credit card. The credit card company automatically denies her application, stating their policy is not to issue new cards to applicants over 65, despite her demonstrated financial stability. The ECOA prohibits discrimination based on age. If the denial is solely due to her age and not her financial ability to repay, the credit card company would be in violation of the Act.

• Example 3: Small Business Loan Inquiry
  A single woman applies for a small business loan to expand her successful catering company. During the application process, the loan officer repeatedly asks about her marital status and whether she has a husband who could co-sign, implying that a single woman might be a higher risk. The ECOA prohibits discrimination based on sex and marital status. The lender's line of questioning and potential bias against her as a single woman, rather than focusing on the business's financial viability, would constitute a violation of the Act.