ECOA and Regulation B Overview

Equal Credit Opportunity Act (ECOA) and Regulation B

• Purpose: To prevent discrimination in credit transactions. Enacted in 1974.
• Enforcing Agency: The Consumer Financial Protection Bureau (CFPB) enforces ECOA.
• Prohibited Bases for Discrimination: Race, color, religion, national origin, sex, marital status, age (if able to contract), public assistance income, and exercising Consumer Credit Protection Act rights.
• General Rule: Creditors cannot discriminate against applicants based on prohibited bases in any aspect of a credit transaction–this covers all lender-applicant interactions, application procedures, underwriting standards, servicing, and collections processes for delinquent accounts. Differing treatment based on prohibited factors is illegal.

Types of Discrimination

• Overt Discrimination: Intentional unequal treatment of a protected group (e.g., restricting loan offerings to people over a certain age).
• Disparate Treatment: Subtle but unequal treatment of an applicant's protected class (e.g., offering unmarried applicants a more expensive loan). This is illegal even if unintentional.
• Disparate Impact: Policies that treat all applicants equally but unintentionally make it harder for a protected group to access credit (e.g., credit score limitations that disproportionately affect minority applicants).

Application Considerations

• Permissible Inquiries: Marital status may be inquired into regarding property rights. Lenders may ask "Married, Unmarried, Separated." Elderly applicants (62+) must receive equal consideration. Applicants may not be required to add a co-signer or co-borrower, nor discouraged from applying individually.
• Prohibited Inquiries: Direct questions about receipt of alimony, child support, or separate maintenance are prohibited, but inquiries about income to be considered for qualification are allowed.
• Data Collection: Mortgage lenders must collect race, ethnicity, age, marital status, and sex information for HOME MORTGAGE DISCLOSURE ACT (HMDA) reporting–it is NOT permissible to use this for discrimination reasons though, and applicants can decline to provide this data.
• General Evaluation: Lenders can use any lawfully obtained data regarding credit history (including joint accounts between applicants and former spouses), and applicant’s explanations of creditworthiness in contradiction to credit histories, and immigration status that directly impacts the lender's rights in regards to repayment. Lenders may also consider state property laws that affect creditworthiness.
• Income Evaluation (allowed): Lenders may evaluate all income sources; part-time, retirement, annuities, and public assistance are acceptable, as long as repayment likelihood is evaluated and alimony, child support, and separate maintenance can also be evaluated for consistency.
• Income Evaluation (not allowed): Lenders may NOT consider a potential applicant's ability to bear children, nor their telephone listing or status as a receiver of public assistance to discriminate against a loan application.

Applications - Completeness and Notification

• Complete Application: A completed application meets the lender's requirements for a credit decision.
• Notice of Deficiencies: Lenders must notify applicants within 30 days if an application is incomplete. The notice must specify the missing information, a reasonable time for completion, and the consequences of non-compliance. Oral notification is permissible, but written notification of deficiency is required for continued consideration.
• Application Response: Lenders must notify applicants within 30 days if they intend to approve, deny or counteroffer, or if the application is deemed deficient.
• Loan Denial – Adverse Action: Refusal to loan, terminating an account, or an unfavorable account change. Lender must provide written notification within 30 days containing specific reasons or a statement of the applicant's right to a formal explanation within 30 days of their written request, along with the contact information to obtain it. (This applies even for incomplete applications)

Appraisal Reports

• Appraisal Copies: Lenders must provide a copy of any appraisal reports or other written valuations at least three business days before closing, or within 30 days if the applicant waives the earlier notice requirements.