PART TWO: ECOA reg B – EQUAL CREDIT OPPORTUNITY ACT (REGULATION B)
The Equal Credit Opportunity Act was enacted in 1974 to prevent banks and other financial organizations from discriminating on the basis of race, color, religion, national origin, sex, marital status, age, childbearing status, source of income, or whether the potential customer has exercised their rights under the CCPA – Consumer Credit Protection Act. It requires banks and other financial institutions to follow certain guidelines about information collection, application processing, advertising, account service and maintenance, and communications.
When a bank or other financial institution is marketing or advertising their products, they can’t use any imagery or language that indicates any sort of preference for or against any of the protected classes. Sexual orientation isn’t listed in the protected classes, which is an annoyance, but 1) I can’t recall hearing about banks refusing to write loans for GLBT types, and 2) that would be a different article in any case, so. Moving on!
Note that exercising one’s CCPA rights IS among the protected classes, to banks and financial institutions are specifically prohibited from ‘shutting out’ people for insisting on legally entitled fair treatment. The gist is that banks and other financial institutions can’t discriminate against people for their status in the above classes, and they can’t advertise or market their products and services in a way that makes people THINK they are. The only thing they can use to make decisions on is creditworthiness – your credit score, ability to meet payments on a loan, stuff like that.
They are also forbidden from discouraging people to apply for products or services based on the above protected classes. For instance, if you have kids, and go into a bank to apply for a car loan, they cannot tell you that you shouldn’t bother to apply because you have kids, your life is destined to be an unending torrent of chaos and disorder and they couldn’t be sure you’d pay them back. You should never be discouraged from applying for products or services unless the basis of that discouragement is strictly creditworthiness – in practice, since they should only be checking your credit report (the major, although not sole, factor in determing creditworthiness) when they are processing your application, you should never be discouraged, period. This includes verbal discouragement as well.
Banks are also forbidden from asking you for certain information like race, ethnicity, and sex on a loan application… sort of. They do have to collect that information on the application (and quietly fill it out for you based on best-guess from the person taking the application if you decline to state) but are forbidden from using that information in the decisionmaking process. The information is collected and used by regulatory agencies as a way to tell if discriminatory practices are being used – for instance, if a grossly out-of-whack proportion of the approved loans vs. denied loans are for white people, this would be an indicator that the bank is potentially engaging in discriminatory activities. The bank or financial institution is permitted to use this data to keep an eye on itself for similar reasons – just never to use it as part of making the decision about extending credit, and never in the case of mortgages or other loans or transactions secured by a principal dwelling. Marital status and sex are also collected for home purchase or refinance loan applications for similar purposes.
Marital status is another gotcha. Generally, unless you’re in a community property state or you’re applying for something other than individual unsecured credit (Plain old loan. Individual means it’s just for you, unsecured means you don’t put up any property or other collateral to guarantee the loan.), the bank or financial institution can’t ask that. If they do ask, they can only ask in terms of ‘married’, ‘unmarried’, or ‘seperated’. Asking if you’re divorced or widowed to make a decision on extending credit is forbidden. However, if you are or have been married, you might have to give specific information about your spouse or former spouse under very specific circumstances – if your current spouse will be permitted to access the account or contracually liable for it; if you are relying on the income of your spouse, or alimony / child support / other maintenance payments from your spouse or former spouse; or if you are in a community property state (and your spouse therefore has certain rights and obligations to your assets).
If you almost meet the creditworthiness requirements, but not quite, the bank or financial institution may require a cosigner (or guarantor). They are specifically forbidden from requiring or even suggesting that the cosigner be any particular person or relationship – the cosigner’s suitability can be assessed solely on the basis of creditworthiness.
If you’re not approved for the loan; or if your loan terms are changed in a way that is not favorable to you; or if you requested your loan amount be raised and it wasn’t approved; or your account was terminated, the bank or financial institution has to tell you in writing within 30 days, along with specific reasons why (at BARE minimum, a statement telling you that you have the right to this information and clear instructions as to how to get it, but this just adds a needless layer of complexity so practically nobody does this and instead just tells you), the name and address of the bank or financial institution, and the name and address of the regulating agency that oversees that activity. If instead the bank or financial institution issues a counteroffer (saying no to your request, but offering something different instead) they can hold off on the ‘this is why we denied you’ notice – called an adverse-action notice – until 90 days after the counteroffer is issued. Many banks and financial institutions make this simpler by just tacking the counteroffer to the original adverse-action notice since it saves a stamp and that way they have one less timer to worry about.
If you’re not approved for the loan because you goofed and forgot to complete the application, they need to send you a letter within 30 days either saying ‘no, you messed up the application, no loan for you’ or ‘look, dope, you forgot to put your name on here’ and giving you a reasonable timeframe to submit the information. If you never give them the requested information, they don’t have to send you any more letters and can safely assume you don’t care to hear from them anymore.
It’s not fair for a bank or financial institution to decide not to float you a loan just because you’re black, or Muslim, or you have kids, or etc etc etc. It’s also not fair – though a little less obviously so – for them to market or advertise in ways that directly or indirectly communicate that people shouldn’t bother applying if they are black / Muslim / parents / etc.
IV. WHAT ELSE?
There’s a line drawn between inquiry and application – and it’s not as simple as ‘if you write it down, it’s an application’. Basically, if you’re giving information to the bank or financial institution and they are either making a decision or recommendation based on that information, it’s an application for the purposes of the ECOA, even if it’s just talk. Asking about interest rates? That’s just an inquiry. Saying you have a 2500 square foot house in the suburbs and a clean credit report and asking for a ballpark figure of a loan you could get for it? That’s an application. This is why bankers are maddeningly vague sometimes, the slightest verbal misstep can turn light conversation into the sort of thing that could land them huge fines and penalties if they say the wrong thing.
There are a few exceptions to protected classes. Banks and financial institutions are allowed to take age into account if and only if they are using it to favor people 62 years old or older, and they’re allowed to take your job into account if it clearly impacts your ability to pay – a waiter, for instance, has a pretty good idea what sort of money they’re going to pull in on a monthly basis even though (since it’s mainly tips) they can’t commit to a precise figure, so that couldn’t be a factor. Someone who does temp work, daily labor, or otherwise can’t reliably commit to even a general idea of what sort of money they’re going to bring in each month, though – that can be considered in the decisionmaking process.
If you’re securing a home loan with the home in question, the bank or financial institution is going to have the home appraised. You have a right to this report, and they can choose to either give the report to everyone who applies, or tell applicants that they’re entitled to the information and give them clear instructions as to how to get it.
V. WHAT DOES THIS MEAN TO ME?
If you’re applying for a loan, and the loan officer asks the wrong questions, or you feel that the regulatory information was used improperly, you should give a holler to the regulatory agency (banks and financial institutions are required to tell you who this is) and get that fixed straight away. You’ll be awarded actual damages, and punitive damages in certain situations.
If you’re applying for a loan, and the loan officer gives you the stinkeye because he found out that you took a bank to court over illegal practices before, that’s against the law. Banks and financial institutions aren’t allowed to care if you’ve exercised your rights.
If you see an advertisement for a loan that says directly or indirectly that certain people shouldn’t apply based on – well, based on almost anything but creditworthiness, same thing. Also, if they require a cosigner when your creditworthiness is sufficient for you to get the loan on your own, or if they request (or even suggest) a specific cosigner or specific relationship for the cosigner to be, that’s also actionable. There’s no penalty or anything if you contact the regulatory agency for something that turns out to be completely legal, so feel free to hit them up if something seems shady.