Post submitted by Jeanine Skowronski

When it comes to credit, it’s easy to feel as if the deck is stacked against you. Errors can just pop up on credit reports. Debt collectors sometimes call ad nauseam. One misstep, and suddenly your chances for scoring an affordable loan seem a whole lot dimmer. But, frustrating as these things can be, there are federal laws in place meant to protect you in the credit marketplace.

The Fair Credit Reporting Act ensures those credit report errors get removed. The Fair Debt Collection Practices Act protects you from overly aggressive debt collectors; and, while, yes, missed due dates or big debts can keep you from a loan, many personal characteristics can’t, thanks to what’s known as The Equal Credit Opportunity Act.     

What Is The Equal Credit Opportunity Act?

The Equal Credit Opportunity Act, or ECOA, is intended to give everyone in America a fair chance at obtaining a loan. It was passed back in 1974, when credit scoring was in its early stages and lending decisions were still “arguably susceptible to a loan officer’s personal judgments and prejudices,” per a 2012 paper written by Dubravka Ritter for the Federal Reserve Bank of Philadelphia. Initially, the ECOA prohibited discrimination based on sex and marital status, but it was amended in 1976 to include race, ethnicity, age and other characteristics.

The ECOA applies to all creditors, whether they be an auto lender, mortgage company, bank, credit union, credit card issuer or even a retailer offering a store-branded credit card. It currently prohibits lenders from discriminating against applicants based on:

• Race
• Color
• Religion
• National Origin
• Sex
• Marital Status
• Age
• Use of Public Assistance

Although the ECOA does not explicitly prohibit discrimination on the basis of sexual orientation and gender identity, LGBTQ people may still be protected under the statute’s sex discrimination protections. The Equal Employment Opportunity Commission (EEOC) has interpreted Title VII’s prohibition of sex discrimination as preventing employers from discriminating against employees on the basis of gender identity and sexual orientation. Numerous federal courts across the country have also adopted this interpretation to provide protections to LGBTQ people under existing civil rights laws including Title VII, Title IX, and the Fair Housing Act. For example, Just last week a landlord’s refusal to rent a home to a transgender woman and her wife due to their “unique relationship” constituted impermissible sex discrimination under the Fair Housing Act because such treatment punishes someone for failing to conform to gender stereotypes (see Smith v. Avanti).

What can lenders consider when you apply for a loan? Factors like your income, expenses, debts, credit history and credit score are the biggies. And credit scores, so it’s clear, are primarily based on your loan payment history, credit utilization rate, credit age, mix of accounts, and amount of new credit inquiries.  

Keep in mind, a creditor can ask for some of the aforementioned information when you go to apply for a loan. For instance, they make ask you to voluntarily disclose your race, sex, or national origin, since, as per the Federal Trade Commission (FTC), that information “helps federal agencies enforce anti-discrimination laws.” However, the creditor can’t use said information when making their underwriting decision. That means they can’t deny you a loan or set the terms of any financing they do offer based on those characteristics.

Other stipulations of the ECOA include: the right to know why your application was rejected, the right to know why you were specifically offered less favorable terms (so long as you don’t accept them) and the right to “keep your own accounts after you change your name, marital status, reach a certain age, or retire, unless the creditor has evidence that you’re not willing or able to pay,” the FTC says.

There are some notable caveats to the overarching act, too. For instance, a lender can consider your age if you’re too young to sign contracts or if it’s being used to determine other legitimate underwriting factors (so, say, your income is about to drop because you’re set to retire). They can also ask information about your spouse if they are a co-signer, able to use the account, provide income you’re reliant on (like alimony or child support) or you’re living in a community property state. You can find the full law on the Federal Deposit Insurance Corporation’s website.

The ECOA Today

Of course, the ECOA isn’t foolproof, meaning discrimination can still happen and still does, as evidenced by several enforcement actions and fair lending cases taken against various lenders over the last 10 years. However, there are serious repercussions for a company that runs afoul of the law. Lenders who violate the ECOA are subject to penalties of up to $10,000 in individual cases and the lesser of $500,000 or 1 percent of their net worth in class action suits.

The ECOA is also not comprehensive. Since there is no federal law that consistently protects LGBTQ people, in many places, LGBTQ people can still be denied a mortgage, credit card, student loan or other type of lending simply because of who they are. That’s why HRC endorsed the Equality Act.

Efforts have been taken to remedy this issue. Back in May 2015, Rep. Steve Israel (D-New York) and Sen. Patty Murray (D-Washington) introduced the Freedom from Discrimination in Credit Act (FDCA), which would amend the ECOA to prohibit lenders from discriminating based on sexual orientation or gender identity. But the legislation was never voted on and has yet to be reintroduced to Congress. You can learn more about how you can support these efforts and the ECOA in general on the HRC’s website.

What to Do if You Think You’re Being Discriminated Against

The FTC recommends that a consumer who believes they’re being discriminated against in the credit marketplace due to personal characteristics complain to the creditor (which could result in your application getting reconsidered.) Beyond that, you can call your state Attorney General and/or consult with a consumer attorney to see if you have a viable complaint. Finally, you can report the violation to a federal agency. The act’s enforcement falls under the purview of several government agencies, including the FDIC, FTC, CFPB, the Federal Reserve Board (FRB) and the Office of the Comptroller of the Currency (OCC).

Jeanine Skowronski is the executive editor of Credit.com. Her work has been featured by The Wall Street Journal, American Banker, TheStreet, Newsweek, Business Insider, Yahoo Finance, MSN, Fox Business, Forbes, CNBC and various other online publications. Follow her at @JeanineSko