With nearly 200 million credit card users in the United States – not to mention the “pre-approved” cards that arrive in mailboxes every week – it’s hard to imagine anyone who wants a credit card won’t get one. Still, it happens.

In fact, it happens a lot. The national average for credit card approval is just 39.1%.

There are some valid reasons why most of the 61% were denied, but in some cases the denial is questionable and discriminatory, hence the need for the Equal Credit Opportunity Act.

What Is the Equal Credit Opportunity Act?

The ECOA requires banks, credit card companies and anyone else involved in lending to make credit equally available to all creditworthy customers. It prohibits credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age or because a person receives public assistance in whole or in part. It also makes it unlawful to discriminate against anyone who has exercised any rights under the Consumer Credit Protection Act.

When determining a consumer’s creditworthiness, financial institutions must instead consider income, expenses, debts and credit history. Creditors are permitted to ask for certain information to help in the documentation process, but even that is limited by certain rules.

The ECOA applies not just when credit is denied, but also if a consumer receives less favorable borrowing terms such as a higher interest rate. The ECOA protects borrowers in activities before, during and after the extension of credit.

Previously the Federal Reserve was responsible for enforcing the ECOA, but in 2011 a new government agency, the Consumer Financial Protection Bureau, took over the responsibility. If you feel you have been discriminated against, go to the CFPB website and file a complaint. The CFPB will review the complaint, send it to the lender and monitor the status of the complaint.

Pre-approved credit cards also fall under the ECOA. If requested, the card company must list the criteria it used to select potential recipients to prove it didn’t discriminate.

Consumer Protections Under the ECOA

There are certain restrictions as to what information creditors are permitted to gather from you when you apply for credit.

For your protection, the Equal Credit Opportunity Act forbids creditors from doing any of the following:
  • Discouraging you from applying for credit based on race, color, religion, national origin, sex, marital status, age or because you receive public assistance.
  • Considering your race, sex or national origin when approving or rejecting a credit application, even though the creditor does have a right to ask for this information. You may choose to disclose this information voluntarily, as it helps federal agencies enforce anti-discrimination laws. Immigration status may be considered.
  • Imposing unfair terms or conditions on a loan (such as lower loan amount or higher interest rates) based on personal characteristics protected under the ECOA.
  • Asking detailed personal information regarding marital status, such as whether you are widowed or divorced. Creditors are only permitted to ask if you are married, unmarried or separated.
  • Inquiring about marital status if you are applying for credit independently. However, the following community property states allow it: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Additionally, a potential lender in any state can request such information of an applicant seeking a joint account or one secured by property.
  • Asking for information about an applicant’s spouse. Exceptions include if the spouse is part of the credit application or will use the account; if the applicant is relying on a spouse’s income; or if the applicant is relying on money from a former spouse, such as alimony or child support. In community property states, these marital questions are allowed.
  • Asking personal information regarding plans for having or raising children. However, a creditor may ask about costs related to children and dependents.

Likewise, creditors are also barred from factoring certain considerations into their decisions.

When weighing your credit application, the ECOA forbids creditors from considering the following:
  • Your race, color, religion, national origin, sex, marital status or whether you receive public assistance.
  • Your age. Exceptions to this are if you are younger than 18 years old; older than 62 and the credit-scoring system favors people 62 and older; or if age is a valid issue for determining an applicant’s credit-worthiness.
  • Whether you have a telephone account in your name. However, a creditor is allowed to consider whether you have a phone.
  • The racial makeup of a neighborhood or community where you intend torefinance, improve or buy a home with borrowed money.

Consumer Rights Under the ECOA

The primary right consumers have under the ECOA is to receive a response on their application – favorable or unfavorable – within 30 days of receiving the application and if the application is denied, receive written notification of why it was denied.

If the response is favorable, the creditor can inform the applicant with a letter, or simply by issuing the credit card, loan money, property or services the borrower applied for.

If there is a negative response, the creditor must notify the applicant in writing and provide a specific reason or reasons for denying credit. The reason may be given orally if the creditor advises the applicant of the right to receive the reason in writing.

Some of the valid reasons for denying credit would be:
  • Low credit score
  • Balance too high on accounts
  • Credit history too short or no credit history at all
  • History of late payments
  • Just starting new job
  • Incorrect information on your credit report
As detailed by the ECOA, you also have the following rights:
  • Get credit without a cosigner or have a cosigner other than a spouse.
  • Maintain your originally established accounts even if you change your name, marital status, reach a certain age or retire.
  • If your application was approved but you don’t accept a loan based on unfavorable terms, you have the right to learn the specific reasons the lender offered those terms.
  • If you are a married woman and have taken on your spouse’s last name, you may have credit in your maiden name, your married name or a combination of both.

Signs You Have Been Discriminated Against

Some signs you have been a victim of discrimination are obvious, and some are not. Signs you may have been denied credit unfairly or given unfair terms and conditions are:

  • You hear the lender make negative comments about race, religion, sex, national origin, the disabled or other protected groups.
  • You are treated differently when you go the office than you were on the phone.
  • You are refused credit when you know you qualify for it or receive a higher interest rate than what you qualify for.
  • You are discouraged from applying for credit.
  • You are pressured to sign a deal quickly.
You have the right to protect yourself from discrimination by:
  • Seeking help from your state Attorney General’s office.
  • Bringing charges against the creditor.
  • Reporting violations to the appropriate government agency (depending on the financial agency you’ve dealt with).

If a lender is guilty of violating the ECOA, they can be sued in court for actual damages, punitive damages of up to $10,000 for individual lawsuits and $500,000 or 1% of the creditor’s net worth for class-action lawsuits.

Creditors are not liable for inadvertent errors such as mechanical, electronic or clerical mistakes that the creditor can show were not intentional.

The CFPB works with the Department of Justice when it has a case of discrimination under the ECOA and the Justice Department can file a federal lawsuit if it sees a pattern of discrimination.

ECOA and Evaluating Income

Evaluating income is a critical step in the credit application process and also a place where discrimination could easily take place.

For example, the ECOA demands lenders treat income from public assistance programs income the same as any other type of income. Income from public assistance could come in the form of Social Security, food stamps, assistance paying utilities or Medicaid.

Another example would be to discount income because of sex or marital status. In other words, count only 75% of a woman’s salary while counting 100% of man’s salary.

One more way would be to refuse to consider alimony, child support or maintenance payments that are consistently made each month. You may have to prove the payments are made consistently.

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