Equal Credit Opportunity Act Overview

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Questions and Answers

What is disparate impact in the context of lending?

Intentionally denying credit to individuals based on their race, ethnicity, or other protected characteristics.

When a lender sets different credit score requirements for different groups of applicants.

When a lender requires excessive fees or interest rates from certain groups of borrowers.

When a lender applies policies that seem neutral but disproportionately harm a protected class. (correct)

Which of the following is NOT a factor that lenders are prohibited from considering when evaluating a loan applicant?

The applicant's source of income, such as retirement income or part-time employment.

The applicant's request to explain any inaccurate information on their credit history. (correct)

The applicant's potential childbearing or childrearing status.

The applicant's age, as long as they are legally able to enter a contract.

Under ECOA, what is a complete application?

An application that includes all the information the lender needs to make a credit decision. (correct)

An application that includes all six pieces of information defined by RESPA.

An application that includes information about the applicant's race, ethnicity, and gender.

An application that includes information about the applicant's spouse or co-borrower.

What is the lender's responsibility regarding appraisals in a loan application process?

They must provide a copy of the appraisal to the applicant at least three business days before closing, unless the applicant waives this timing requirement. (D) Signup and view all the answers

What is the legal requirement regarding inquiries about marital status in a loan application?

Lenders may ask about marital status as it is relevant to a loan applicant’s property rights. (A) Signup and view all the answers

Which of the following actions by a lender would be considered illegal under ECOA?

Denying a loan to an applicant who works for an organization that provides services to members of a particular religion . (C) Signup and view all the answers

What does ECOA stand for?

Equal Credit Opportunity Act (A) Signup and view all the answers

What is the responsibility of a lender about HMDA reporting data?

Collect data on race, ethnicity, age, marital status, and sex of applicants, but use it only for compliance with HMDA and not for any discriminatory practices. (B) Signup and view all the answers

If an applicant refuses to provide their ethnicity, race, or gender information, what is the lender required to do?

They must note the information on the basis of visual observation or surname or inform the applicant that the information is required by the Federal Government to enable monitoring of compliance with laws that prohibit discrimination. (C) Signup and view all the answers

In determining creditworthiness, what information is a lender permitted to consider, according to ECOA?

The applicant’s income, credit history, and immigration status, but not their age. (C) Signup and view all the answers

Under ECOA, what is the lender required to do if they determine an application is incomplete?

Notify the applicant that the application is incomplete and explain the missing information. (D) Signup and view all the answers

According to ECOA, which of the following can be evaluated for consistency of payment?

Alimony, child support, or separate maintenance payments (A) Signup and view all the answers

Which of the following credit inquiries can be considered by a lender under ECOA?

An applicant’s request to explain negative items on their credit history. (B) Signup and view all the answers

Which of the following is NOT a permitted consideration under ECOA?

An applicant's race, religion, or sex. (B) Signup and view all the answers

What is a counteroffer in the context of a loan application?

A lender's notification that while they cannot offer a loan under the applicant's requested terms, they can offer a loan with different terms. (B) Signup and view all the answers

What is the timeframe under which a lender is required to issue a loan application response?

Within 30 days of receiving a complete application. (B) Signup and view all the answers

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

To protect consumers from discrimination in credit transactions (C) Signup and view all the answers

Which organization is responsible for enforcing the Equal Credit Opportunity Act?

Consumer Financial Protection Bureau (B) Signup and view all the answers

Which factor is NOT considered a basis for discrimination under the Equal Credit Opportunity Act?

Credit score (B) Signup and view all the answers

What type of discrimination involves intentional differences in treatment of a protected class?

Overt discrimination (B) Signup and view all the answers

Which of the following practices could violate the Equal Credit Opportunity Act?

Restricting loan products based on marital status (D) Signup and view all the answers

Which of the following is NOT a required action by creditors under the Equal Credit Opportunity Act?

Collect information about credit scores (C) Signup and view all the answers

What exemplifies disparate treatment under the Equal Credit Opportunity Act?

Providing lower interest rates to married applicants only (A) Signup and view all the answers

Which situation demonstrates overt discrimination in credit transactions?

Marketing products primarily to a specific gender (A) Signup and view all the answers

What constitutes denial in the context of adverse action?

Refusing to grant credit without a counteroffer (A) Signup and view all the answers

Which of the following must be included in a notification of adverse action?

The name and address of the lender (A) Signup and view all the answers

What is the maximum time allowed for a creditor to notify an applicant of adverse action after receiving a completed application?

30 days (A) Signup and view all the answers

When must a lender notify an applicant of incomplete application?

Within 30 days of receiving the application (B) Signup and view all the answers

What rights does an applicant have if adverse action is taken?

The right to a written confirmation of reasons within 30 days upon request (B) Signup and view all the answers

Which of the following is NOT a requirement when notifying an applicant of adverse action?

Disclosing the creditor's right to appeal (B) Signup and view all the answers

If a creditor takes adverse action on an existing account, when must they notify the applicant?

Within 30 days (B) Signup and view all the answers

What must a notice of incompleteness include?

A reasonable period of time to provide information (A) Signup and view all the answers

When a creditor opts to provide reasons for adverse action orally, what additional requirement do they have?

They must inform the applicant of their right to have reasons confirmed in writing (B) Signup and view all the answers

Study Notes

Equal Credit Opportunity Act (ECOA)/Regulation B

Purpose: Protects consumers from credit discrimination.
Enforcing Agency: Consumer Financial Protection Bureau (CFPB).
Timely Notifications: Creditors must notify applicants about actions on their applications.
Credit History Reporting: Credit history is reported in both spouses' names for accounts.
Record Retention: Creditors must keep application records.
Specific Loan Information: Information about race and similar characteristics may be collected for certain dwelling-related loans.
Appraisal Copies: Applicants must receive copies of appraisal reports.

Protected Classes/Prohibited Factors

Discrimination is illegal: Based on protected characteristics.
Protected Characteristics: Race, color, religion, national origin, sex, marital status, age (if of contracting age), and public assistance income.
Consumer Credit General Rules: Covers all applicant-creditor dealings.
Examples of Impermissible Practices: Certain application procedures, underwriting standards, servicing/admin, and collections (delay or refuse credit).
Discriminatory Actions: Overt discrimination (obvious/intentional) vs. disparate treatment (unintentional differences).
Disparate Impact: Policies applied equally but harm a protected group.
Credit Denial Due to Protected Class Affiliation: Refusal to lend due to the applicant or business associations with a protected class is illegal.

Application Considerations

Marital Status: Permitted inquiry related to property rights, but restricted in other contexts.
Age Consideration: Equal consideration for applicants 62 and older.
Co-Borrowers/Co-Signers: Not required for creditworthy applicants.
Individual Credit Applications: Applicants to be allowed individual applications regardless of marital status.
Income Sources: Alimony, child support, separate maintenance income is permissible to consider.
Income Evaluations: Part-time, retirement, annuities, public assistance income are considered valid income; consistency of payment is evaluated.
Borrower's Obligation: Lender allowed to ask about alimony, child support, and separate maintenance to evaluate payment obligation.
Joint Accounts: Must consider joint accounts if requested by the applicant.

Mortgage Lender Obligations (Home Mortgage Disclosure Act)

Information Collection: Lenders must collect data about race, ethnicity, age, marital status, and sex.
Use Restrictions on Information: Information collected cannot be used for discriminatory practices.
Applicant Refusal: Applicant may refuse to provide data, though lender must inform applicant of legal obligation to collect this information.

Creditworthiness Decisions

General Information Use: Lenders may use all applicant-supplied data to evaluate creditworthiness, except for factors prohibited by ECOA.
Prohibited Considerations: Age, potential childbearing/childrearing status, telephone listing, income source, and protected characteristics or refusal to disclose.
Permitted Considerations: Credit history (joint accounts considered), explanation for contradictory credit history, immigration status, state laws, appraisals.

Application Processing

Application Completion: Lenders will provide notice of application incompleteness and a timeframe to provide requested information.
Adverse Action: Loan denial/unfavorable change in account terms; written notification with specific reasons or right to request them. Applicant can request a statement of reasons for the denial within 60 days.
Timeframes for Notification: Lenders must notify applicants of decisions (approval, denial, counteroffers) within 30 days of receiving a complete application.
Incomplete Applications: If application is incomplete, notice within 30 days; applicants get a period to complete missing information; failure to provide results in no further consideration.
Appraisal Requirements: Must provide appraisal copies at least 3 days prior to closing; can be waived in which case must provide in 30 days after closing.

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Description

This quiz covers the Equal Credit Opportunity Act (ECOA) and its associated regulations. It outlines the protections against credit discrimination, the responsibilities of creditors, and the protected characteristics under the law. Test your knowledge on the ECOA's main provisions and enforcement mechanisms.