Equal Credit Opportunity Act (ECOA)

Updated July 12, 2021

What Is the ECOA?

The Equal Credit Opportunity Act (ECOA) is legislation designed to ensure that all qualified people have access to credit. It prevents lenders from rejecting credit applicants based on race, gender, marital status, age, religion, or national origin and requires lenders to consider public assistance in the same light as other forms of income.

How the ECOA Works

Under the ECOA, consumers applying for credit are legally obligated to receive a response to their application within 30 days.

If the application is rejected, the creditor must notify the applicant in writing and provide the specific reason(s) for denying credit.

If the response is positive, the creditor can inform the applicant with a letter, or simply by issuing the credit card, loan money, property, or services that the borrower applied for.

ECOA Penalties

If a lender is guilty of violating the ECOA, it can be sued in court for actual damages and punitive damages of up to $10,000 for individual lawsuits and $500,000 or 1% of the creditor’s net worth for class-action lawsuits.

However, creditors are not liable for inadvertent errors such as mechanical, electronic, or clerical mistakes that the creditor can show were not intentional.

Why Is the ECOA Important?

The ECOA was created to provide equal opportunity to access credit and thus to participate in financial activities such as owning a home or a car or financing education. It became necessary because historically, credit card companies and other lenders have discriminated against women and minorities, without punishment. 

Discriminatory practices were many and varied.

For example, women applying for credit were generally required to have more collateral or extra cosigners than men with comparable finances. People living in minority-populated neighborhoods were told that they lived outside the areas where the bank made loans.

In addition, lenders didn’t legally have to consider public assistance or child support payments from alimony to be income, which disadvantaged women who were heads of households. It was not uncommon for lenders to take much longer to process applications from women and minorities in order to discourage those groups from seeking credit

History of the ECOA

The ECOA was signed into law in 1974. The Federal Reserve Board was originally in charge of enforcement, but that role was transferred to the Consumer Financial Protection Bureau, created in 2011 by the Dodd-Frank Act.

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