ECOA's purpose, the prohibited bases, and what a creditor may do

Equal opportunity throughout credit

The Equal Credit Opportunity Act (ECOA), implemented by Regulation B, prohibits discrimination in any aspect of a credit transaction. Information requirements, underwriting, loan terms, changes to existing credit, and collection are all covered. Creditors may still evaluate legitimate creditworthiness criteria. Equal opportunity does not guarantee approval. (15 U.S.C. § 1691(a); 12 C.F.R. §§ 1002.2(m), 1002.4(a).)

Know the prohibited bases

• Race, color, religion, national origin, sex, and marital status.
• Age, provided the applicant has capacity to contract.
• Receipt of income, in whole or in part, from public assistance.
• Good-faith exercise of rights under the Consumer Credit Protection Act.

Good faith means honesty in fact. A creditor may not impose worse treatment for these reasons. (15 U.S.C. § 1691(a); 12 C.F.R. § 1002.2(r).)

Protection starts before application

Statements in advertising or conversations, including visual images, must not communicate that credit would be denied or offered on less favorable terms because of a prohibited basis when the creditor knows or should know a reasonable person would understand that message. For the discrimination and discouragement rules, a creditor includes a broker who regularly refers applicants or prospective applicants to lenders. (12 C.F.R. §§ 1002.4(b), 1002.2(l).)

Permitted inquiry is not prohibited use

A creditor may inquire about marital status to determine its rights and remedies for the particular credit, rather than to discriminate in evaluating creditworthiness. Inquiries about age or public assistance may address legitimate creditworthiness elements, including the amount and probable continuance of income, subject to regulatory requirements. These limited permissions do not authorize using a protected characteristic as a shortcut for risk. (15 U.S.C. § 1691(b)(1)–(2).)

Evaluating the documented amount and expected continuance of income differs from rejecting someone because the income is public assistance. A qualifying, demonstrably and statistically sound credit scoring system may consider age, but cannot assign an elderly applicant a negative age factor. Elderly means age 62 or older. Age may also be considered in an elderly applicant's favor. (15 U.S.C. § 1691(b)(3)–(4); 12 C.F.R. § 1002.2(o).)

Ask two questions: What is the actual reason for the treatment? How is the information used? Apply those checks from advertising through the life of the loan.