Equal Credit Opportunity Act

Key Takeaways

• The Equal Credit Opportunity Act, or ECOA, bans discrimination in any part of a credit transaction, including taking the application, underwriting, setting terms, and even discouraging someone from applying.
• Regulation B lists the prohibited bases as race, color, religion, national origin, sex, marital status, age, income from a public assistance program, and the good faith exercise of a Consumer Credit Protection Act right (12 CFR 1002.2).
• A creditor must notify an applicant of the action taken within 30 days of a completed application, and a denial must carry the specific reasons or an offer to supply them on request (12 CFR 1002.9).
• Washington's own credit discrimination law adds bases that ECOA does not name, including creed, citizenship or immigration status, honorably discharged veteran or military status, and sexual orientation (RCW 49.60.176).

What It Means

The Equal Credit Opportunity Act, usually shortened to ECOA, is the federal law that keeps discrimination out of lending. It applies at every stage of a credit transaction: taking the application, evaluating it, setting the rate and terms, servicing the loan, and collecting on it. It also reaches conduct before an application even exists, because a creditor may not discourage a qualified person from applying on a prohibited basis.

Regulation B is the rule that carries ECOA out, and it names the prohibited bases: race, color, religion, national origin, sex, marital status, age (as long as the applicant can enter a binding contract), the fact that part or all of an applicant's income comes from a public assistance program, and the fact that the applicant has in good faith exercised a right under the Consumer Credit Protection Act.

ECOA builds in a paper trail as well. A creditor has to tell the applicant what it decided within 30 days of a completed application, and a denial has to be explained with specific reasons or an offer to provide them. That letter is the adverse action notice. ECOA is the credit side companion to the housing rules that outlawed Redlining, and it works alongside the Fair Housing Act on any mortgage application.

How It Works in Washington

Washington layers its own statute on top of ECOA, and the state list is longer. RCW 49.60.176 makes it an unfair practice for any person, in connection with any credit transaction, to discriminate because of race, creed, color, national origin, citizenship or immigration status, sex, marital status, honorably discharged veteran or military status, sexual orientation, or the presence of any sensory, mental, or physical disability, or the use of a trained dog guide or service animal. Creed, citizenship or immigration status, veteran or military status, and sexual orientation are not on the federal ECOA list, so a lender doing business in this state has two bars to clear, not one.

The same chapter reaches the deal a broker is working on. RCW 49.60.222(1)(j) makes it an unfair practice to discriminate in the course of negotiating, executing, or financing a real estate transaction, and it names title insurance, mortgage insurance, and loan guarantees among the services it covers. Complaints under the Washington Law Against Discrimination go to the Washington State Human Rights Commission, which RCW 49.60.120 empowers to receive, impartially investigate, and pass upon them. A borrower can pursue the federal route and the state route at the same time.

Example

Grace Okonkwo and her fiance Marcus Bell apply together to Cascade Mutual Bank for a $410,000 loan on a townhouse in Renton. They are not married. The loan officer tells Grace the bank will only run the file as a joint application if the two of them are married, and suggests she reapply alone with a co-signer.

Marital status is a prohibited basis under Regulation B, so the bank may not demand a marriage certificate before treating two applicants as joint borrowers, and steering Grace away from the joint application is itself discouragement that ECOA forbids. RCW 49.60.176 lists marital status too, so the same three minute conversation is an unfair practice under Washington law. Grace files a complaint with the Washington State Human Rights Commission. The bank reopens the file, underwrites it on the couple's combined $11,400 monthly income, and mails written notice of its decision inside the 30 day window that 12 CFR 1002.9 requires.

Common Mistakes and Exam Traps

• ECOA governs credit and the Fair Housing Act governs housing. A mortgage application can trigger both, but only ECOA reaches a car loan or a credit card.
• Age and public assistance income are prohibited bases under ECOA, and neither one appears in RCW 49.60.176. Do not merge the federal and Washington lists.
• Creed, citizenship or immigration status, honorably discharged veteran or military status, and sexual orientation appear in RCW 49.60.176 but not in the federal ECOA list.
• The 30 day notice clock runs from a completed application, not from the day the borrower first walked into the branch.