ECOA and Regulation B Overview
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Questions and Answers

What is the main purpose of the Equal Credit Opportunity Act?

  • To regulate interest rates on loans
  • To ensure timely credit reporting
  • To provide financial education to consumers
  • To protect consumers from discrimination in credit transactions (correct)

    • Which agency is responsible for enforcing the Equal Credit Opportunity Act?

  • Securities and Exchange Commission
  • Consumer Financial Protection Bureau (correct)
  • Department of Justice
  • Federal Trade Commission

    • What type of discrimination is overt discrimination?

  • Discrimination based on economic status
  • Intentional treatment of a protected class differently from others (correct)
  • Differences in loan programs offered to applicants
  • Subtle differences in treatment that may be unintentional

    • Which of the following factors is NOT cited as a basis for discrimination according to the Equal Credit Opportunity Act?

    <p>Employment history (D)</p> Signup and view all the answers

    Which practice is considered a violation of the general rule of the Equal Credit Opportunity Act?

    <p>Offering loan products only to married applicants (A)</p> Signup and view all the answers

    What is a characteristic of disparate treatment under the Equal Credit Opportunity Act?

    <p>It involves subtle differences in treatment which can be unintentional. (A)</p> Signup and view all the answers

    Which of the following is a requirement for creditors under the Equal Credit Opportunity Act?

    <p>They must retain records of credit applications. (B)</p> Signup and view all the answers

    What does the Equal Credit Opportunity Act say about marital status?

    <p>It must not be considered in lending practices. (A)</p> Signup and view all the answers

    What constitutes 'adverse action' in relation to credit applications?

    <p>A refusal to increase the available credit upon request (C)</p> Signup and view all the answers

    What must a creditor include in a notification of adverse action?

    <p>A statement of the reasons for the action taken (C)</p> Signup and view all the answers

    How long does an applicant have to request specific reasons for the adverse action?

    <p>60 days after the notification (B)</p> Signup and view all the answers

    Within what time frame must a creditor notify an applicant of adverse action taken on a completed application?

    <p>30 days (C)</p> Signup and view all the answers

    If an application is incomplete, what is one requirement the lender must fulfill in their notification?

    <p>Inform the applicant of the time frame to complete the application (B)</p> Signup and view all the answers

    When multiple applicants are involved, who must receive the notification of adverse action?

    <p>The primary applicant if apparent (B)</p> Signup and view all the answers

    If a creditor makes a counteroffer and it is not accepted, how long do they have to notify the applicant of the outcome?

    <p>90 days (D)</p> Signup and view all the answers

    What happens if the applicant fails to provide requested information to complete an application?

    <p>The lender can proceed with adverse action procedures (C)</p> Signup and view all the answers

    What is NOT required in a notification of adverse action?

    <p>Social security number of the applicant (B)</p> Signup and view all the answers

    What is the purpose of providing a statement of reasons for adverse action?

    <p>To comply with regulatory requirements (A)</p> Signup and view all the answers

    What is an example of disparate impact in lending practices?

    <p>Setting a uniform credit score limit that disproportionately affects minority borrowers. (A)</p> Signup and view all the answers

    Which of the following statements is true regarding inquiries into marital status during a loan application?

    <p>It is legal for lenders to ask if an applicant is 'Married, Unmarried, or Separated.' (A)</p> Signup and view all the answers

    Which group of applicants must receive equal consideration compared to younger applicants?

    <p>Elderly applicants aged 62 and older. (B)</p> Signup and view all the answers

    What is the requirement for lenders when it comes to collecting demographic information?

    <p>They must collect data to comply with HMDA and cannot use it for discriminatory practices. (B)</p> Signup and view all the answers

    Which of the following cannot be considered by lenders when determining creditworthiness?

    <p>Age of the applicant. (C)</p> Signup and view all the answers

    What must lenders do if applicants refuse to provide racial, ethnic, or gender information?

    <p>They must note the information based on visual observation or surname. (C)</p> Signup and view all the answers

    What is one requirement related to appraisals in the loan process?

    <p>Applicants must receive copies of appraisals at least three days prior to closing. (B)</p> Signup and view all the answers

    What distinguishes a complete loan application under ECOA standards?

    <p>It should include all necessary data for the lender to make a credit decision. (D)</p> Signup and view all the answers

    Which source of income can lenders evaluate for consistency when making loan approvals?

    <p>Alimony and child support. (C)</p> Signup and view all the answers

    Under what circumstance are lenders permitted to require co-borrowers or co-signers?

    <p>If the applicant chooses to apply for joint credit. (A)</p> Signup and view all the answers

    Which of the following is an illegal practice regarding lending?

    <p>Refusing to lend due to the racial composition of the neighborhood. (A)</p> Signup and view all the answers

    How must lenders respond upon receiving a complete loan application?

    <p>They must provide a notification within 30 days. (D)</p> Signup and view all the answers

    Which of the following can lead to a loan denial based on creditworthiness?

    <p>Inconsistent employment history. (B)</p> Signup and view all the answers

    What is the purpose of the Home Mortgage Disclosure Act (HMDA)?

    <p>To monitor compliance with laws that prohibit discrimination. (B)</p> Signup and view all the answers

    Flashcards

    Equal Credit Opportunity Act (ECOA)

    A 1974 law prohibiting credit discrimination based on protected characteristics.

    Regulation B

    The implementing regulation of the Equal Credit Opportunity Act.

    Discrimination (ECOA)

    Treating applicants differently based on a prohibited characteristic (e.g., race, sex).

    Protected Characteristics (ECOA)

    Characteristics (race, religion, sex) creditors can't use to discriminate.

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    Disparate Treatment

    Intentional or unintentional unequal treatment of a protected class in credit.

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    Disparate Impact

    A form of discrimination where credit practices, though seemingly neutral, have a disproportionate effect on a protected group.

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    CFPB

    The agency tasked to enforce Regulation B and thus the Equal Credit Opportunity Act.

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    Credit Application Procedures (ECOA)

    Specific lending practices that, while appearing neutral on the surface, disproportionately harm a protected group.

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    Adverse Action (Credit)

    A refusal to grant credit in the requested amount or terms, account termination, or unfavorable account changes (not affecting all accounts).

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    Adverse Action Notice

    Written notification required by law to inform applicants of an adverse decision regarding a credit application; must include reasons for denial or a right to a statement of reasons; names and contact info of relevant parties.

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    Time Limit (Adverse Action)

    Creditors must notify applicants of adverse action within 30 days of receiving a completed application, or after taking adverse action on an incomplete/existing account; or 90 days with counteroffers.

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    Incomplete Application

    An application that lacks crucial information or documentation required as specified by the lender.

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    Notice of Incomplete Application

    Written notification to an applicant for an incomplete application, specifying missing information, deadline for completing, and consequences of inaction.

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    Counteroffer (Credit)

    An alternative credit offer with different terms or amount.

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    Primary Applicant

    The main applicant identified primarily in the application, for delivering notices as required for federal laws

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    ECOA

    Equal Credit Opportunity Act: Federal law that protects consumers from credit discrimination by requiring lenders to provide information and explain reasons for rejections.

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    Reg B

    Regulation B. A regulatory enforcement regulation of the Equal Credit Opportunity Act that governs lending regulations regarding applicants or consumers

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    Written Notice

    Formal notification in writing. Required for providing information or details, particularly for issues concerning credit applications or denials

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    Protected Class

    Groups legally protected from discrimination in lending.

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    ECOA/Regulation B

    Federal law prohibiting credit discrimination based on protected characteristics.

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    Marital Status Inquiry

    Legal to ask about marital status regarding property rights in loan applications.

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    Elderly Applicants

    Applicants aged 62 or older must receive equal consideration.

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    Co-borrower/Co-signer Requirement

    Lenders cannot require a creditworthy applicant to add a co-borrower or co-signer.

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    Individual Credit Application

    Lenders must accept applications for individual credit, if desired by the applicant.

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    Income Sources

    Lenders cannot exclude income sources like part-time jobs, retirement, or annuities.

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    Alimony, Child Support, Separate Maintenance

    Lenders can consider this income as long as consistent payments are shown.

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    Applicant Refusal of Information

    Applicants can refuse to provide ethnic, racial, or gender information; lenders must then document and inform applicant.

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    Credit History

    Used in determining creditworthiness, equal standards apply to all past credits.

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    Appraisal Requirements

    Lenders must provide appraisal copies to applicants, generally within 3 business days of application.

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    Application Completion

    A complete application contains all required information for a credit decision.

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    Counteroffer

    An alternative loan offer with different terms if the initial offer cannot be made.

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    Study Notes

    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.

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    Description

    This quiz covers the Equal Credit Opportunity Act (ECOA) and Regulation B, enacted to prevent discrimination in credit transactions. Explore the prohibited bases for discrimination and understand the general rules surrounding equal treatment in credit applications and transactions. Test your knowledge on the types of discrimination that may occur in credit matters.

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