The Equal Credit Opportunity Act
If you’re a landlord, understanding fair lending laws like the Equal Credit Opportunity Act (ECOA) impacts your success in funding your real estate endeavors. Often referred to as the Equal Credit Act (1974), this federal law ensures fair lending by prohibiting credit discrimination based on anything other than the applicant’s ability to repay.
Identifying and reporting ECOA violations is key in providing all loan-seekers equal protections and access to credit opportunities. In this article, you will learn how the ECOA influences landlords and why upholding similar principles in your tenant screening policies is vital for inclusive rental and investing environments.
Equal Credit Opportunity Act Meaning
The Equal Credit Opportunity Act (ECOA) is a federal civil rights law passed in 1974 that prohibits discrimination in lending based on anything besides an individual’s creditworthiness.
This law explicitly prohibits creditors from discriminating against individuals applying for loans based on their membership in any of the following federally protected classes:
- Race
- Color
- Religion
- National origin (the country you or your ancestors were born in)
- Sex (including gender, gender identity, and sexual orientation)
- Marital status
- Age (so long as applicants are at least of age to enter contracts)
- Participation in a government public assistance program, such as Social Security Disability Insurance (SSDI) or Supplemental Nutrition Assistance Program (SNAP)
- Exercising one’s rights under the Consumer Credit Protection Act
The ECOA was passed in the 70s, when many women struggled to secure loans, especially if they were married. Women were likely to be denied credit at higher rates than men.
To reconcile this situation, the ECOA was passed by Congress to limit discrimination based on sex and marital status. Two years later, the law was amended to add race, color, religion, national origin, age, receipt of public assistance, and exercising of one’s consumer rights to the list of membership classes that cannot be used to discriminate against applicants.
Rights Protected Under the ECOA
The ECOA applies in all aspects and stages of a credit transaction, including the decision to lend, determination of mortgage rates, configuration of terms and conditions, and other steps.
All financial institutions and organizations that lend money or extend credit are subject to the ECOA’s restrictions, including banks, mortgage and finance companies, credit card companies, federal credit unions, and even some retail stores. The law’s principles apply to all types of loans, including mortgage loans, personal loans, credit cards, auto loans, small business loans, student loans, and more.
Here are a few of your rights as a consumer under this law:
- The right to be considered equally and only to be denied or given different terms or conditions (e.g., higher interest rates) based on creditworthiness, income, and existing debt load.
- The right to have your reliable public assistance income considered equal to other sources of income.
- The right to keep your accounts after getting married, changing your name, retiring, or reaching a certain page.
- The right to receive an acceptance or denial notification within 30 days.
- The right to receive an adverse action notice within 60 days if you are denied a loan or line of credit that explains the reason for the denial.
- The right to not disclose your marital status.
ECOA’s Significance in Real Estate
The ECOA has major implications for landlords seeking financing for their investments, especially those who belong to a minority demographic group.
If you have difficulty securing a loan despite your qualifications, discrimination might be at play. This could take the form of being treated differently than other similarly qualified credit applicants, being offered higher interest rates for unspecified reasons, or being discouraged from applying for credit altogether.
Discrimination can have long-term effects for your portfolio and investment goals, preventing you from accessing the loans you are qualified for and limiting your available resources. The kinds of discrimination described above are strictly against the ECOA and should be reported so that you, other investors, and all other credit-seekers have an equal chance of securing good financing.
How to Respond to Suspected Credit Discrimination
Experiencing discrimination during the financing process can be disheartening. If you suspect that a lender has exhibited discriminatory behavior, there are steps you can take to respond to the situation and report the violation.
- Review federal and state equal credit opportunity laws to verify that the lender’s discriminatory actions violated the law.
- Contact the lender or creditor to voice your complaint. In some cases, the lender may agree to address and reconcile the situation.
- Report the violation to the relevant government agency if the company does not acknowledge the problem and reconcile the behavior. The Federal Trade Commission (FTC) is responsible for enforcing the ECOA, but your creditor is also required to disclose the name and contact information of the government agency you should reach out to.
- Additionally, submit a complaint to the Consumer Financial Protection Bureau (CFPB), who tracks discrimination violations and enforces the ECOA. You can either submit a complaint online or call the toll-free number on their website.
If you decide to sue a lender who discriminated against you, and the judge rules in your favor, you can recover court costs and even win punitive damages.
Which Fair Housing and Credit Laws Apply to Landlords?
Landlords are also subject to anti-discrimination laws. The federal Fair Credit Reporting Act (FCRA) protects consumer privacy and ensures fairness and accuracy of information divulged by consumer reporting agencies and used by various parties, such as landlords and employers. This means landlords are responsible for using credit reports responsibly, investigating their accuracy, keeping the results confidential from others, and sending adverse action notices if you deny a tenant based on their credit history.
Likewise, the federal Fair Housing Act (FHA) prohibits discrimination in the sale, rental, and financing of housing based on the seven federally protected classes (race, color, religion, national origin, sex, disability, and familial status). The Fair Housing Act says that tenant screening processes must be the same for every applicant—you cannot enforce more restrictions or tests for certain applicants over others.
Further, many states and localities have their own individual fair housing laws that determine how fair housing is examined and enforced.
As a landlord or property manager, you are responsible for offering equal housing opportunities to qualified applicants, and you can be penalized by discriminating against tenants for any of the reasons listed above. This ensures that all applicants have equal protections and opportunities to be considered for renting a property, creating a level playing field in the tenant selection process.
Conclusion
By prohibiting discrimination in credit transactions, the Equal Credit Opportunity Act not only promotes economic empowerment but also fosters a more inclusive financial community for landlords and real estate investors. As investing becomes more attainable for many groups who previously did not have those opportunities, the ECOA remains a cornerstone in safeguarding the rights and opportunities of every individual in the realm of credit.
