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Posted by Hannah Lapin ● Oct 9, 2019 9:00:00 AM

Understanding ECOA

ECOA

As a reminder to everyone who helps Visio originate and service loans, it is important to make sure that you follow all federal and state regulations. One regulation to be aware of is the Equal Credit Opportunity Act (ECOA). ECOA is a federal law that requires extended credit to be made equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.  Let’s take a deeper look at the types of discriminatory lending practices prohibited by ECOA and what is permissible under ECOA.

Discriminatory Lending Practices

ECOA prohibits two types of discriminatory lending practices:

  1. Creditors must not discriminate against an applicant on a prohibited basis regarding any aspect of a credit transaction.
  2. Creditors must not make any oral or written statements to applicants or prospective applicants that would discourage, on a prohibited basis, a reasonable person from making or pursuing an application.

What is Permissible Under ECOA

Under ECOA, you cannot discriminate based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs. A creditor may:

  • Inquire whether a potential applicant is married to determine the creditor’s rights and remedies regarding a particular loan (but the creditor must not use this information to discriminate in the determination of credit-worthiness)
  • Inquire about the applicant’s age or whether the applicant’s income derives from a public assistance program, as long as the inquiry is for the purpose of determining the amount and probable continuance of other pertinent elements of credit-worthiness
  • Inquire or consider the age of an elderly applicant when the age of the applicant will be used by the creditor in making a loan in favor of the applicant

Although ECOA ensures that no member of those protected classes will be discriminated against, it does not mean that all consumers who apply for a loan will be approved for one. Under ECOA, loan approval must simply depend on fair measurements of creditworthiness and other legitimate factors. For more information on ECOA, check out these websites:

Debt.org

CFPB Laws and Reguatlions

Wikipedia

For additional resources, visit our Resources Page. Want to broker loans to Visio? Join our Broker Program

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Related: Understanding Prepayment Penalties, Understanding Series LLCs

Topics: Brokers, Finance, The Visio Box