Equal Credit Opportunity Act

This article is about the United States law. For the specification for a software framework (ECOA), see European Component Oriented Architecture.

The Equal Credit Opportunity Act (ECOA) is a United States law (codified at 15 U.S.C. § 1691 et seq.), enacted October 28, 1974,^[1] that makes it unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract);^[2] the applicant's use of a public assistance program to receive all or part of their income; or the applicant's previous good-faith exercise of any right under the Consumer Credit Protection Act. The law applies to any person who, in the ordinary course of business, regularly participates in a credit decision, including banks, retailers, bankcard companies, finance companies, and credit unions.

Equal Credit Opportunity Act of 1974

Acronyms (colloquial)	ECOA
Citations
Public law	88 Stat. 1500, Pub. L. 93–495
Legislative history
Signed into law by President Gerald Ford on October 28, 1974
United States Supreme Court cases
Hawkins v. Community Bank of Raymore, No. 14-520, 577 U.S. ___ (2016)

The part of the law that defines its authority and scope is known as Regulation B,^[3] from the (b) that appears in Title 12 part 1002's official identifier: 12 C.F.R. § 1002.1(b) (2017).^[4] Failure to comply with Regulation B can subject a financial institution to civil liability for actual and punitive damages in individual or class actions. Liability for punitive damages can be as much as $10,000 in individual actions and the lesser of $500,000 or 1% of the creditor's net worth in class actions.^[5]

Before the enactment of the law, lenders and the federal government frequently and explicitly discriminated against female loan applicants and held female applicants to different standards from male applicants.^[6] A large coalition of women's and civil rights groups pressured the government to pass the ECOA (and the Housing and Community Development Act of 1974) to prohibit such discrimination.^[6][7]

Background

In 1967, when Margaret Heckler was the only newly elected woman in the 90th Congress, she came in as a lawyer and a congresswoman with no right to credit in her own name. She joined the House Committee on Banking and Currency with a determination to ensure that women were granted economic justice and fair treatment under the law. In 1968, she was one of only 11 women in Congress, and one of only two women to serve on the committee where any legislation regarding women's credit would need to be discussed.

Heckler arranged a meeting with CEOs of several major banks, such as J.P. Morgan, Chase, and Wells Fargo, to discuss their hesitancy to extend credit to women. Financial institutions were worried that women would not pay their bills, but a female Mastercard executive helped allay their concerns. Heckler continued to dispel this fear of women not being credit worthy, assuring the banking executives that they could approve and deny female applicants based on credit eligibility, just as they did with men.^[8]

Heckler then drafted the Equal Credit Opportunity Act of 1974.^[9] According to Heckler's chief of staff Edmund Rice, "The work in the Banking Committee, the work in the House, the work to find the allies—all of this Margaret Heckler had the lead on; others were there rhetorically. But all the hard work was Margaret Heckler."^[10]

As a legislative fellow with Senator Bill Brock of Tennessee, Dr. Emily Card was motivated by her own experience in being denied a credit card and home mortgage. This led her to work on legislation prohibiting discrimination in granting credit to women. Her work and coordination with women's organizations such as the National Organization of Women generated a report on gender-based discrimination in the banking industry that was supported by thousands of letters from women throughout the United States who had been denied credit.^[11]

Prohibitions

Among other things, the ECOA states that it is illegal for creditors to:^[1]

• Discriminate based on race, sex, age, national origin, or marital status, or because one receives public assistance.
• Ask about marital status if a candidate is applying for separate, unsecured credit, with one exception: one can be asked about marital status if one lives in a community property state. No matter what the state of residence is, joint credit (credit shared by a married couple) or credit secured with property is exempt from this.
• Ask the candidate if they plan to have children or additional children (though creditors can ask about the number, ages, and financial obligations relating to all existing children).
• Disallow regular sources of income, such as reliable veteran's benefits, welfare payments, Social Security payments, alimony, child support, etc. Nor may they refuse to consider or discount any income earned from a part-time job, pension, annuity, or retirement benefits program.

Requirements

The ECOA states that creditors must:

• Provide the applicant with a notification of action taken within 30 calendar days of receiving a completed application, unless certain exceptions apply. These notifications of action taken are sometimes required to be in writing, while in other cases, oral notification satisfies the Regulation's requirement.
• Give the specific reason(s) (or let the candidate know how to get the reason(s)) why one is denied credit or granted credit in a way different from the terms under which they originally applied. This same rule applies if a creditor closes the account, refuses to increase a line of credit, makes a negative change in the terms of the credit and doesn't make the same change for other consumers, or refuses to give credit at the same, or approximately the same, terms as were offered when the credit was initially applied for.

Scope additions

When the Banking committee marked up the ECOA, congresswoman Lindy Boggs added the provision banning discrimination due to sex or marital status without informing the other members of the committee beforehand, personally inserting the language on her own and photocopying new versions of the bill.^[12] She then told the other committee members, "Knowing the members composing this committee as well as I do, I'm sure it was just an oversight that we didn't have 'sex' or 'marital status' included. I've taken care of that, and I trust it meets with the committee's approval."^[12] The committee unanimously approved the bill.^[12]

Amendments and regulatory development

1976 amendments

The original 1974 law prohibited discrimination based only on sex and marital status. In March 1976, Congress amended the law to add prohibitions on discrimination based on race, color, religion, national origin, age, and receipt of public assistance income.^[13]

Transfer of authority to CFPB

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 transferred rulemaking authority for ECOA from the Federal Reserve Board to the newly created Consumer Financial Protection Bureau (CFPB).^[14] The CFPB now writes and enforces regulations implementing ECOA, known as Regulation B (12 C.F.R. Part 1002). The CFPB shares enforcement responsibility with other federal agencies including the Federal Trade Commission, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the National Credit Union Administration, depending on the type of creditor involved.

Section 1071 small business lending data

Main article: Dodd–Frank Wall Street Reform and Consumer Protection Act § Section 1071

Section 1071 of the Dodd-Frank Act amended ECOA by adding Section 704B (15 U.S.C. § 1691c-2), which requires financial institutions to collect and report data on credit applications by women-owned, minority-owned, and small businesses. The CFPB finalized rules implementing Section 1071 in March 2023, though implementation has been subject to ongoing litigation.^[15]

Enforcement

Department of Justice referrals

Federal regulatory agencies are required to refer matters to the Department of Justice when they have reason to believe a creditor has engaged in a pattern or practice of lending discrimination in violation of ECOA.^[16] DOJ referrals from banking regulators and the CFPB increased from 12 in 2020 to 33 in 2023, a 175% increase.^[17] In 2023, the CFPB alone referred 18 matters to DOJ involving alleged discrimination based on race, national origin, receipt of public assistance, sex, and age.

Combating Redlining Initiative

In October 2021, Attorney General Merrick Garland announced the Combating Redlining Initiative (also referred to as the Combatting Redlining Initiative in some cases), a coordinated enforcement effort between DOJ, the CFPB, federal banking regulators, and state attorneys general to address redlining under both ECOA and the Fair Housing Act.^[18] By late 2023, the initiative had secured more than $107 million in settlements from financial institutions accused of failing to provide mortgage lending services to majority-Black and Hispanic neighborhoods.^[19]

Major settlements under the initiative included Trident Mortgage Company ($22.4 million, 2022), City National Bank of Los Angeles ($31 million, 2023), Park National Bank ($9 million, 2023), Lakeland Bank ($12 million, 2022), and Ameris Bank ($9 million, 2023).

Recent enforcement actions

In addition to redlining cases, agencies have brought ECOA enforcement actions for other discriminatory practices. In 2022, the Federal Trade Commission and the State of Illinois brought an action against Napleton, a multistate auto dealer group, for alleged ECOA violations including discrimination in auto lending.^[20] In 2023, the CFPB ordered Bank of America to pay a $12 million civil penalty for HMDA violations related to failing to properly collect applicants' demographic information.^[17]

CFPB v. Townstone Financial

A significant legal question regarding ECOA's scope was addressed in Consumer Financial Protection Bureau v. Townstone Financial, Inc. The CFPB filed suit in 2020 alleging that Townstone, a Chicago mortgage lender, violated ECOA by making statements on a radio program and podcast that would discourage Black prospective applicants from applying for mortgage loans.^[21]

The district court dismissed the case in February 2023, holding that ECOA's protections apply only to "applicants" who have actually applied for credit, not to prospective applicants who might be discouraged from applying.^[22]

On July 11, 2024, the Seventh Circuit Court of Appeals reversed in a unanimous decision, holding that ECOA authorizes liability for discouraging prospective applicants.^[23] The court found that "when the text of the ECOA is read as a whole, it is clear that Congress authorized the imposition of liability for the discouragement of prospective applicants." The court noted that other ECOA provisions refer to "discouraging" applications, and that the statute prohibits discrimination "with respect to any aspect of a credit transaction," which includes pre-application conduct.^[24]

The decision was notable as one of the first significant fair lending rulings following the Supreme Court's decision in Loper Bright Enterprises v. Raimondo (2024), which overturned Chevron deference. The Seventh Circuit conducted de novo review of the statutory interpretation question but still ruled in favor of the CFPB's position.^[25]

In November 2024, the CFPB sought court approval of a consent order requiring Townstone to pay a $105,000 penalty.^[26]

Relationship to other fair lending laws

ECOA works alongside several other federal laws addressing discrimination in credit and housing:

• The Fair Housing Act (1968) prohibits discrimination in residential real estate transactions, including mortgage lending, based on race, color, religion, sex, national origin, disability, or familial status. Many redlining cases are brought under both ECOA and the Fair Housing Act.
• The Home Mortgage Disclosure Act (1975) requires lenders to report data on mortgage applications, which regulators use to identify potential ECOA and Fair Housing Act violations.
• The Community Reinvestment Act (1977) requires banks to meet the credit needs of their entire communities, including low- and moderate-income neighborhoods.

In March 2023, the CFPB and DOJ filed a joint statement of interest in private litigation explaining that relying on discriminatory home appraisals can violate ECOA, as lenders cannot use appraisals they knew or should have known were discriminatory.^[17]

See also

• Women's National Bank (Washington DC)