Equal Credit Opportunity Act (ECOA)

The Equal Credit Opportunity Act (ECOA) is a federal law that prohibits lenders from discriminating against borrowers on the basis of race, color, religion, national origin, sex, marital status, age, or receipt of income from public assistance programs. The law applies to all types of credit, including mortgages.

The ECOA requires lenders to provide borrowers with a notice of their rights under the law. This notice, known as the ECOA Notice of Rights, must be provided to borrowers at the time they apply for credit. The notice informs borrowers of their right to be treated fairly and without discrimination, and provides contact information for the federal agency responsible for enforcing the law.

In addition to prohibiting discrimination, the ECOA also requires lenders to provide borrowers with a written explanation of the reasons for any adverse action taken, such as denying a loan application or offering less favorable loan terms. This explanation must be provided within 30 days of the adverse action and must include specific information, such as the borrower's credit score and the reasons why the lender made the decision.

The ECOA is important because it helps ensure that all borrowers have equal access to credit and are not unfairly discriminated against based on their personal characteristics. By prohibiting discrimination and requiring lenders to provide clear explanations of their actions, the ECOA helps promote transparency and fairness in the lending process.