Equal Credit Opportunity Act (“ECOA”)

The ECOA in 1974 was enacted to protect women from discrimination in the extension of credit. The ECOA was then broadened to prevent discrimination against all applicants with respect to a credit transaction based on race, color, religion, national origin, sex, or marital status or age. The ECOA also protects any discrimination because all are part of an applicant’s income, is derived from public assistance or because an applicant has exercised any right under the ECOA. The ECOA states that creditors have to inform the candidate if they have been denied or granted credit within 30 days of receiving a completed application and give a specific reason if someone is denied credit or granted less credit than originally applied for. This is also true if a creditor closes an account, refuses to increase a line of credit, makes a negative change in the terms of the credit or refuses to give credit at the same terms as were offered when the credit was initially applied for.

Key ECOA Terms

Under the federal statue an applicant is considered a person who applies to a creditor directly for an extension, renewal, or continuation of credit or who applies to a creditor directly by use of an existing credit plan for an amount exceeding a previously established credit limit. 15 U.S.C. § 1691a(b). A creditor is considered any person who regularly extends, renews or continues credit, arranges for any of these transactions or participates in decisions regarding such transactions as an assignee of an original creditor. 15 U.S.C. § 1691a(e).

appUnder ECOA a person is any natural person, corporation, government, governmental subdivision or agency, trust, estate partnership, cooperative or association. 15 U.S.C. § 1691a(f).

“Activities constituting discrimination” are discriminatory actions by any creditor against any applicant with respect to any aspect of a credit transaction on the basis of 1) race, color, religion, national origin, sex or marital status or age; 2) the fact that all are part of an applicant’s income is derived from a public assistance program; or 3) any of the applicant’s good faith exercise of rights under the ECOA. 15 U.S.C. §§ 1601, 1691.

“Activities not constituting discrimination:” while the ECOA does prohibit discriminatory actions, it does not prohibit creditors from inquiring about marital status or age or use of public assistance for the purposes of determining income, credit history, or other elements of credit worthiness.

ECOA Enforcement

The Federal Trade Commission enforces the ECOA. 15 U.S.C. § 1691c(c).The comptroller of currency has enforcement powers for national banks. For banks that are members of the Federal Reserve, the Board of Governors of the Federal Reserve enforces the Act against them. For any other FDIC insured banks, the Board of Directors of the FDIC enforces the ECOA.

ECOA Civil Liability

A creditor within 30 days of receipt of a completed credit application must notify an applicant of the credit decision that was made. If the creditor makes and adverse action as defined under the ECOA, it must follow the ECOA’s procedure for notification and written explanation regarding the adverse action. An adverse action is defined as denial or revocation of credit, a change in the terms of an existing credit arrangement or refusal to grant credit or on substantially the terms requested. However, if a lender complies with the ECOA rules the lender is not liable for an act or omission done in good faith under the ECOA.

A statue of limitations under the ECOA is two years “from the date of the occurrence of the violation.” 15 U.S.C. § 1691e(f).

ECOA Damages

Federal courts have held that plaintiffs must prove actual damages for an ECOA violation and injury cannot be assumed. Punitive damages can be awarded even without actual damages if the court also grants declaratory or injunctive relief. Anderson v. United Finance Co., 66 F.2d 1274, 1278 (9th Cir. 1982). Attorneys’ fees are also available for a successful action under the ECOA. U.S.C. § 1691e(d).

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