What is the Equal Credit Opportunity Act?

Facebook Email icon An envelope. It indicates the ability to send an email.

Email Twitter icon A stylized bird with an open mouth, tweeting.

Twitter LinkedIn icon

LinkedIn Link icon An image of a chain link. It symobilizes a website link url.

Copy Link lighning bolt icon An icon in the shape of a lightning bolt.

• What is the Equal Credit Opportunity Act?
• Your rights under the Equal Credit Opportunity Act
• Example of ECOA enforcement
• Signs of credit discrimination to watch out for
• What to do if you suspect credit discrimination?
• Frequently asked questions

Affiliate links for the products on this page are from partners that compensate us and terms apply to offers listed (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate credit score services to help you make smart decisions with your money.

• The Equal Credit Opportunity Act prohibits discrimination in credit transactions.
• Under the ECOA, borrowers have the right to know why their credit application was rejected.
• If you suspect you're being discriminated against, document everything related to the incident.

Sadly, credit discrimination is alive and well in the financial world. According to recent Home Mortgage Disclosure Act data, out of all the rejected mortgage applications in 2020, Black borrowers had the highest denial rate of 27.1%. On the other hand, white borrowers had the lowest denial rate of 13.6%, half of what Black Americans experienced.

These statistics are undoubtedly disheartening. However, it's worth acknowledging that things aren't as bleak as they were decades ago — and a big part of that credit goes to the enactment of the Equal Credit Opportunity Act.

What is the Equal Credit Opportunity Act?

The Equal Credit Opportunity Act (ECOA) is a federal law that promotes fairness and prohibits discrimination in credit transactions. Enacted in 1974, implemented by Regulation B, and detailed in Title 15 of the United States Code, ECOA aims to ensure that all individuals have an equal opportunity to obtain credit, free from bias based on the following protected classes:

• Race
• Color
• Age
• Marital status
• Religion
• National origin
• Sex (including gender and sexual orientation)
• Age
• Participation in a public assistance program

In other words, creditors can only make credit decisions based on factors related to your creditworthiness, like your income, credit score, monthly expenses, and debt. The law also mandates that creditors provide applicants with specific reasons if their credit application is denied. ECOA applies to any business or financial institution that extends credit or sets credit terms, like traditional banks, online lenders, credit unions, retail stores, and credit card companies.

Throughout its 50-year history, ECOA has served as a cornerstone for preventing discrimination in credit transactions. "In my role as a financial advisor, I've seen its impact in creating a level playing field where decisions are based on financial facts rather than personal attributes," says Dominic James Murray, CEO and Independent Financial Advisor at Cameron James.

Your rights under the Equal Credit Opportunity Act

Before applying for a loan or taking out a line of credit, make sure you know your rights under the Equal Credit Opportunity Act so you're not taken advantage of. Here are the rights ECOA gives you:

• When considering your application or setting your terms, creditors can only take into account relevant financial factors like your credit score or debt-to-income ratio.
• Creditors must notify you whether your application was accepted within 30 days of you submitting a complete application.
• You're entitled to know why a creditor denied your application if you ask within 60 days of receiving the rejection notice, also known as an adverse action notice.
• You have the right to know why you received unfavorable terms — provided that you ask within 60 days and reject the offer.
• Creditors must provide a specific reason for closing your active and up-to-date account.

Example of ECOA enforcement

A common violation of the ECOA is charging minority borrowers higher rates. This was the case when the United States Attorney for the Southern District of New York filed a federal civil rights lawsuit against JPMorgan Chase in 2017.

This legal action stemmed from allegations of credit discrimination based on race and nationality, with the bank found to have charged higher interest rates for minority mortgage borrowers leading up to and during the 2008 financial crisis. To compensate the estimated 50,000 Black and Hispanic borrowers who were harmed by this discriminatory practice, JPMorgan Chase ultimately agreed to create a settlement fund of $53 million.

Signs of credit discrimination to watch out for

Here are some telltale signs that a creditor may have violated your ECOA rights:

• The creditor treats you differently in person than they did over the phone or online.
• The creditor fails to provide a clear and justifiable reason for denying your credit application.
• The creditor discourages you from applying for a certain type of loan.
• Your loan application is rejected, though you meet all the requirements.
• You're offered a much higher interest rate even though you qualify for the lower rate.
• You overhear the creditor making negative comments about your race, gender, marital status, or other protected classes.
• You're pressured to sign a loan contract with unfavorable terms. For example, ones with higher interest rates and fees.

What to do if you suspect credit discrimination?

If you notice one or more of the above-mentioned signs during your credit transaction, take the following steps:

1. Document it: As soon as you realize a creditor might be discriminating against you, document it. Write down names, dates, and other information that could be useful when you file a complaint or take legal action.
2. Contact the creditor: Before contacting anyone else, get in touch with the creditor to see if a resolution is possible. If they cannot provide a clear reason for denying your credit application or are unwilling to resolve the issue, it's time to take other actions.
3. Contact your state Attorney General's office: Your state attorney general or a lawyer specializing in credit discrimination cases can provide guidance and support if you believe your creditor is engaging in discriminatory lending practices. Use the Lawyer Referral Directory to find a reputable attorney near you.
4. Submit a complaint to the CFPB: You could also submit a complaint online with the CFPB or call (855) 411-CFPB (2372). Since the CFPB generally does not allow you to submit a second complaint about the same problem, be sure to submit all documents that support your case.

Equal Credit Opportunity Act frequently asked questions

Does ECOA apply to all creditors? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.

Yes. ECOA applies to all creditors, both traditional lenders like bank and credit unions as well as non-traditional lenders, like retailers providing in-store financing.

Who enforces the Equal Credit Opportunity Act? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.

Several federal agencies help enforce the Equal Credit Opportunity Act. The Consumer Financial Protection Bureau (CFPB) has the authority to write ECOA rules and supervise institutions to ensure they follow the law. Besides the CFPB, ECOA compliance is also overseen by federal agencies like the National Credit Union Administration, the Federal Reserve Board, and the Federal Deposit Insurance Corporation.

Is there a penalty for violating ECOA? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.

Yes, the ECOA requires federal agencies like the CFPB to forward cases to the Department of Justice (DOJ) if they believe a creditor is practicing credit discrimination. In instances where credit discrimination is highly suspected, the creditor could face class-action lawsuits from the DOJ. According to Regulation B, creditors may have to pay up to the lesser of $500,000 or 1% of the creditor's net worth in class action suits.

Jamela Adam is a personal finance writer covering topics such as savings, investing, mortgages, student loans, and more. Her work has appeared on Forbes Advisor, U.S. News & World Report, GOBankingRates, Chime, and Mint Intuit, among other publications.

Western Alliance Bank High-Yield Savings Premier Take advantage of today's rates and earn 5.31% APY on your entire account balance

5.31% annual percentage yield (APY) is accurate as of 7/11/2024 and subject to change at the Bank’s discretion. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.

Editorial Note: Any opinions, analyses, reviews, or recommendations expressed in this article are the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any card issuer. Read our editorial standards.

Please note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed, or may no longer be available.

Sign up to get the inside scoop on today’s biggest stories in markets, tech, and business — delivered daily. Read preview