Equal Credit Opportunity Act (ECOA); Regulation B; Fair Lending

Overview

The Equal Credit Opportunity Act ("ECOA"), which is now implemented by CFPB Regulation B, applies to all creditors. In keeping with the broad reach of the statute’s prohibition, the regulation covers creditor activities before, during, and after the extension of credit. (The Fair Housing Act ("FHA") is closely related to the ECOA, and the FHA and the ECOA together are sometimes referred to as the "Fair Lending" requirements. The FHA prohibits discrimination in all aspects of residential real-estate transactions, including making loans on residential real estate.)

The ECOA provides that its purpose is to require financial institutions and other firms engaged in the extension of credit to "make credit equally available to all creditworthy customers without regard to sex or marital status." Moreover, the statute makes it unlawful for: "any creditor to discriminate against any applicant with respect to any aspect of a credit transaction (1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract); (2) because all or part of the applicant’s income derives from any public assistance program; or (3) because the applicant has in good faith exercised any right under the Consumer Credit Protection Act."

The ECOA has two principal theories of liability: disparate treatment and disparate impact. Disparate treatment occurs when a creditor treats an applicant differently based on a prohibited basis such as race or national origin. Disparate impact occurs when a creditor employs facially neutral policies or practices that have an adverse effect or impact on a member of a protected class unless the creditor can demonstrate that the relevant policies meet a legitimate business need that cannot reasonably be achieved by means that are less disparate in their impact.

When originally enacted, the ECOA made the Federal Reserve Board responsible for prescribing the implementing regulation; Section 1085 of Dodd-Frank transferred this authority to the CFPB, as well as to some extent expanding the scope of the ECOA, for example with respect to data collection. See also the topic page on the Home Mortgage Disclosure Act and CFPB Regulation C.

Rachel.Rodman@cwt.com's picture
Contributor Organization 
Contributor Title 
Partner
Daniel.Meade@cwt.com's picture
Contributor Organization 
Contributor Title 
Partner

Find

 
Find: 

Banking Rules

Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. 1691 et. seq.

Rules