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Offer Credit? Know Your Equal Opportunity Credit Act (ECOA) Responsibilities

Toby Graham /
car salesperson handing over keys

Offer financing to your customers? If you do, it’s imperative to make sure you’re not breaking the law by discriminating against anyone.

Every entity that extends credit in the United States is subject to the Equal Credit Opportunity Act, or ECOA for short. ECOA requires that all customers have an equal chance to obtain credit. This doesn’t mean that everyone who applies for credit will receive it, but it does mean that all customers must be treated equally in their pursuit of credit.

ECOA forbids creditors from discriminating against an applicant in a credit transaction based on characteristics such as the prospective borrower’s…

  • national origin
  • marital status
  • religion
  • sex
  • color
  • race
  • age (provided the applicant has the capacity to contract)
  • receipt of public assistance benefits

Discrimination typically takes the form of adverse action. The Corporate Finance Institute offers the following examples of adverse action under ECOA:

  • Denying credit or revoking existing credit based on the characteristics above
  • Changing the existing terms of credit in a way that is detrimental to the borrower, such as increasing the interest rate if the borrower receives some form of public assistance
  • Providing credit that is substantially different in amount and terms sought for by the borrower

Keep in mind that not every kind of “special treatment” counts as discrimination. In certain cases, creditors can ask about protected characteristics such as age and marital status so long as the information “does not adversely affect the decision” to offer credit, according to CFI. A creditor may also “[use] age as a factor in a statistically sound model for credit risk, as long as it does not discount the elderly.” You can even consider age when making a decision—but “only if it is in favor of the applicant.”

Penalties for violating ECOA can be severe and include substantial fines and punitive damages. Expect to pay tens of thousands, hundreds of thousands, or more in legal fees and compliance costs.

For more information, read CFI’s article on ECOA.

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