What is the Equal Credit Opportunity Act?

You may find it hard to believe there was ever a time when banks routinely turned down women who applied for credit cards and loans — even when they had a proven ability to repay.

Stick with me, and you’ll learn how the 1974 passage of the Equal Credit Opportunity Act (ECOA) changed that — and a lot of other things about financial services.

ECOA prohibits discrimination against credit applicants on the basis of race, color, religion, national origin, and sex. It also protects applicants regardless of marital status, age, and income.

The Equal Credit Opportunity Act (ECOA) protects credit applicants against discrimination and requires lenders to consider only their creditworthiness.

In other words, the law requires lenders to judge applicants according to their creditworthiness, not on arbitrary factors that have nothing to do with it — like race and gender.

The story of the Equal Credit Opportunity Act is about overcoming outdated assumptions about financial access to achieve a fairer credit marketplace for all. And I’ll fill you in on how it continues to help borrowers to this day

Although the Equal Credit Opportunity Act originally protected individuals only on the basis of sex and marital status, Congress quickly expanded its scope.

The law also guides lender interactions with credit applicants, governs what they can ask during the application process, and establishes a time frame and content requirements for credit decision notifications.

Prohibited Discrimination

We said ECOA’s original mission was to fight gender discrimination. In 1964, the Civil Rights Act established a basis for the argument, and by 1969, the Supreme Court had ruled that employers could not exclude women from certain jobs because of their gender.

The Equal Credit Opportunity Act, passed in 1974, was a logical next step. Then, in 1976, Congress expanded the Equal Credit Opportunity Act to align it with other civil rights legislation.

The 1976 expansion also prohibits credit discrimination against individuals on welfare, food stamps, or Social Security who could demonstrate an ability to repay.

The Equal Credit Opportunity Act prohibited only discrimination according to gender and marital status before a 1976 amendment to the law aligned it with other civil rights legislation.

The expansion also protected folks who pursued legal action against financial institutions under another law, the Consumer Credit Protection Act (CCPA).

Among other laws, the Consumer Credit Protection Act included the Truth in Lending Act (TILA) and the Fair Credit Reporting Act (FRCA) when Congress passed and amended it in 1968-70. The Truth in Lending Act governs how lenders disclose information about charges and fees, and the Fair Credit Reporting Act regulates what credit reporting agencies can do with consumer financial data.

Before the Equal Credit Opportunity Act, banks sometimes punished credit applicants with a history of pursuing action under those laws.

Credit Application and Information Guidelines

American legal history is complex, but summing up the benefits of the laws we’re discussing is easy. The Equal Credit Opportunity Act governs what lenders can discuss with potential borrowers during the application process in several ways.

Keep in mind that before Congress passed the Equal Credit Opportunity Act, some lenders routinely asked single working women who applied for loans for proof they were on birth control. They would decline applications from women who couldn’t or wouldn’t provide evidence, arguing they couldn’t count on them not to get pregnant, quit work, and stop payments.

Therefore, I hope we can all appreciate that the Equal Credit Opportunity Act tells lenders to stick to the subject. In fact, it allows creditors to discuss income, employment history, assets, and other subjects directly related to creditworthiness.

They can even ask about marital status when it’s relevant, such as when there’s community property or a joint account involved. And you’ve got to check a person’s age to ensure they’re old enough to sign a contract.

Beyond that are prohibited inquiries. Under the Equal Credit Opportunity Act, lenders can’t ask about your plans to have children, whether you use birth control, or anything else about your marriage, relationships, or life. They can’t ask about your gender or race except under privacy rules governing statistical monitoring.

As consumers on an equal footing with everyone else, Americans in protected classes have recourse against credit exploitation under the Equal Credit Opportunity Act.

Notification of Action

The Equal Credit Opportunity Act cleans up other items to ensure transparency. That’s another way of saying it requires creditors to keep prospective borrowers informed or notified in writing throughout the application process.

Notification in writing encompasses the delivery of physical forms and electronic communications. It’s a strategy to give borrowers opportunities to monitor and respond to lender’s actions.

Decision notifications can be approvals, denials, or counteroffers. The law requires lenders to notify applicants of their credit decisions within 30 days of receiving a completed application. The 30-day limit applies to denials when applications are incomplete.

Denials are among the adverse action notices creditors issue against borrowers. By definition, adverse actions by creditors impede the ability of borrowers to obtain credit.

In addition to denials, adverse actions include credit revocations, changes to the terms offered, and refusals to grant credit on terms borrowers request in their applications.

Lenders also issue an adverse action notice — in this case, a denial — when borrowers do not accept counteroffers within 90 days.

Now, let’s delve a little deeper into those denials. Turndown notices lenders send to borrowers must include the specific reasons for the refusal. Or, they can inform the applicant that they have the right to request those reasons within a 60-day window.

Denial notices that take the second option must include the name and address of the creditor and an explanation of how to request more information.

As a society, I think we can all agree we’ve moved far beyond the days when bankers assumed married women didn’t need credit that wasn’t their husbands’. Sometimes, banks wouldn’t even count the wife’s income when the husband applied for a card.

In her memoir, “Washington Through a Purple Veil,” Congresswoman Lindy Boggs remembers her colleague, Congresswoman Pat Schroeder, struggling to obtain credit in her name, converting Schroeder to the cause of fairer credit and leading to the Equal Credit Opportunity Act’s passage.

Boggs, Schroeder, and their bipartisan colleagues in both houses of Congress reasoned that since women were powerful enough to rise to congressional status, bankers had no reason not to trust them enough to take out a credit card.

Promotes Fair Lending Practices

It gives you a vivid idea of how different society was in those days — and how the Equal Credit Opportunity Act promotes fair lending practices in general.

It’s part of a broad, historical sweep: Women who took on those famous Rosie the Riveter roles during World War II got it in their heads that the economic advantages of the future weren’t men’s alone.

The economy expanded to make room, but the financial system resisted. The Equal Credit Opportunity Act has its place among many other laws of the 1960s and 1970s that raised society’s standards of equity.

That means an environment that treats all applicants as consumers and only considers what’s relevant to make credit decisions. Financial qualifications, not personal traits, determine who gets the best terms and rates on mortgages, loans, credit cards, and other products.

I’ll say it a thousand times if you want. The law isn’t perfect, but it truly strives to give everyone an equal chance at obtaining credit.

That’s a good thing. Fairer lending practices increase competition and lead to more and better options for all consumers.

Legal Recourse and Complaints

All laws like the Equal Credit Opportunity Act include provisions empowering consumers who believe they have experienced discrimination to take action. The Act includes steps for legal recourse, including protocols for consumers to file lawsuits against creditors believed to have violated the law.

The first step is to file a complaint and let a public official investigate the merits of your case. The U.S. Consumer Financial Protection Bureau (CFPB) administers the ActECOA along with other financial regulations. Submit your complaint through the Consumer Financial Protection Bureau here.

The Federal Trade Commission (FTC) regulates some nonbank entities that provide financial services. Submit complaints that fall under the FTC’s purview here.

The process of deciding whether to sue a creditor for discrimination is one you should undertake with a qualified legal professional — or at least after much thought and research.

The Equal Credit Opportunity Act allows consumers to sue for actual damages and up to $10,000 for punitive damages in individual cases. The decision to sue rests on your assessment of whether your best case can win in court and whether the projected return justifies the legal investment.

However, lenders know consumer advocacy professionals are always watching for cases to bring to court. The prospect of future legal action deters lenders from considering actions that could imperil them.

Financial Education and Resources

As with other laws of its type, the Equal Credit Opportunity Act requires lenders to explain more than the numbers to consumers.

They also have to explain the information I’m giving you here — including what adverse action notices mean and what consumers can do to respond to them — in a standard format designed to be accessible to all.

That helps consumers stay abreast of their rights and responsibilities while dealing with their financial providers.

More broadly, the Consumer Financial Protection Bureau and the Federal Trade Commission are indispensable consumer resources for financial protection, where you can learn about the Equal Credit Opportunity Act and much more. Topics include how to improve your creditworthiness, dispute errors on your credit report, and make more informed financial decisions in general.

Learn about protections against credit discrimination for low-income consumers at the National Consumer Law Center.

As the law’s administrator, the Consumer Financial Protection Bureau provides educational materials, including this article, regarding many financial regulations, including the Equal Credit Opportunity Act.

The Consumer Financial Protection Bureau published it back in 2016, but the information in it is still helpful and up to date. For those interested, I recommend using it as a portal to a deeper understanding of the law.

Outside governmental agencies, many nonprofit consumer advocacy organizations provide information to help consumers understand their financial rights and responsibilities. Feel confident about going online and seeking help.

If you’re a low-income consumer interested in broader protections from credit discrimination, consider visiting the National Consumer Law Center, which fights for economic justice for low-income and other vulnerable people.

As always, knowledge is power. Educating yourself puts you in the driver’s seat with credit along for the ride, not the other way around.

After World War II, Americans entered the 1950s with an expanding economy and new opportunities for women to enter the workforce. But women were still not allowed to open a bank account in their own names.

As the role of women changed in society, bankers still believed that a woman needed the approval of their husband or father to take out a loan. They routinely asked women applicants personal questions and required them to have a male cosigner.

When feminism emerged in the 1960s, groups like the National Organization for Women (NOW) highlighted financial inequality as a chief obstacle to women’s progress.

In 1971, while a professor of law at Rutgers University, Ruth Bader Ginsberg co-wrote a brief that established the legal basis for the Equal Credit Opportunity Act’s passage. Ginsberg later became a Supreme Court Justice.

History is a great teacher. When I look back on things, it’s hard not to feel proud of what Americans have managed to accomplish together. Passage of the Equal Credit Opportunity Act is part of a much larger story of economic and social change propelling us toward the future.

Before the Equal Credit Opportunity Act, women had no legal recourse if banks chose to discriminate against them for reasons unrelated to their finances. Bankers declined mortgage applications by single women, held them to higher standards when applying for loans, and even prohibited married women from getting credit in their own name.

By protecting women and many others, ECOA strives to put all Americans on the same footing with an equal chance to access and benefit from financial services.