ECOA-Equal Credit and Opportunity Act
A copy of all appraisals and other written valuations. These are due ____________________________________________________________________ whichever is earlier. Borrowers may waive the timing requirement as long as they still receive an appraisal copy at or prior to consummation (12 C.F.R. §1002.14(a)(1)).
"promptly" after they are completed or at least three business days prior to consummation,
For at least ________________ after notifying an applicant of action taken or of incompleteness, the creditor must retain certain records.
25 months
Within ________ of receipt of an application that lacks information that the applicant can provide, the creditor must provide a Notice of Action or a Notice of Incompleteness. A Notice of Incompleteness must state the information needed, set a reasonable time for submission of the information, and advise the applicant that failure to provide the information will result in no further consideration of the application (12 C.F.R. §1002.9(c)).
30 days
Within _________________ of receipt of a loan or credit application, lenders must notify consumers in writing of action taken.
30 days
Redlining
A process by which banks draw lines on a map and refuse to lend money to purchase or improve property within the boundaries.
There are some limited exceptions to the prohibition against unlawful inquiries:
Creditors may ask a loan applicant to provide information on his/her immigration status Creditors may obtain information about an applicant's personal characteristics, such as race and ethnicity, in order to determine eligibility for special-purpose credit such as credit assistance offered by a non-profit organization or for a federal or state program to assist the economically disadvantaged Creditors may ask the necessary questions about age, race, ethnicity, and sex in order to satisfy the data collection requirements of ECOA and the Home Mortgage Disclosure Act
Who enforces Regulation B?
Until July 2011, the enforcement of ECOA was shared by the federal banking agencies, but the CFPB is now the agency that has authority to enforce the law and regulations.
Timeframe for sending an adverse action to an applicant
Within 30 days of receipt of a loan or credit application, lenders must notify consumers in writing of action taken. If the creditor takes adverse action on the application, the notice must provide a statement of the reasons for the unfavorable decision, and must include a statement that ECOA prohibits discrimination against credit applicants. This notice must also include the name and address of the creditor and the name of the agency that enforces the lender's compliance with the law. A description of the credit is also provided on the notice and, if the adverse action was based on data from a consumer credit report, information on the credit reporting agency must also be included (12 C.F.R. §1002.9(a)).
Adverse Action Characteristics
a creditor's refusal to offer credit in the amount or according to the terms requested by a loan applicant (with the exception of a successful negotiation of loan terms and conditions between a creditor and an applicant). In open-end transactions, such as those for HELOCs, the term includes the termination of an account or an unfavorable change in the terms of its use, or a refusal to approve an application for a credit line increase.
Good faith:
honesty in fact and the observance of reasonable commercial standards of fair dealing
The Home Mortgage Disclosure Act (HMDA)
is a federal fair lending law that was enacted with the goal of discouraging redlining. HMDA accomplishes this by monitoring the mortgage lending practices of depository and non-depository institutions. Data about loan applicants is collected, and that data is used to determine whether financial institutions are sufficiently meeting the borrowing and depositing needs of the communities in which they are located. The first step in this process involves inquiries by loan officers and originators regarding the personal characteristics of credit applicants. Therefore, in every credit transaction that is secured by a dwelling, creditors are obligated to request information on the applicant's ethnicity, race, sex, marital status, and age.
ECOA also states that submission of a joint financial statement or other evidence of jointly-held assets may _____________________________________________________________________________
not be considered an application for joint credit.
Where there is more than one applicant for a mortgage loan, ______________________________________________________________________ . Where there is an apparent primary applicant, the notice must be provided to that ____________ (12 C.F.R. §1002.9(f)).
notice is only required to be given to one individual; primary applicant
ECOA prohibits creditors from making ______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
oral or written statements that would discourage prospective credit applicants from applying for a loan. This prohibition also applies to advertisements using statements and images that are intended to discourage members of a protected class from applying for credit while encouraging others to do so.
When requesting tinformation about ethnicity, race, gender, marital satus, and age, ECOA requires creditors to explain to consumers that this is a request from the federal government in order to monitor compliance with anti-discrimination laws. Creditors must also inform applicants that they are required to provide this information based on visual observation and surname if the applicants do not wish to provide it themselves.
that this is a request from the federal government in order to monitor compliance with anti-discrimination laws. Creditors must also inform applicants that they are required to provide this information based on visual observation and surname if the applicants do not wish to provide it themselves.
Mortgage brokers serve primarily as a liaison between borrowers and lenders by referring applicants to select lenders or by offering borrowers a variety of loan products from a number of lending institutions. Therefore, ___________________________________________________________________________________-
the definition of creditor applies to mortgage brokers, and is not limited to lenders or mortgage bankers who actually extend credit.
Marital status:
the state of being unmarried, married, or separated, according to applicable state laws. "Unmarried" refers to persons who are single, divorced, or widowed. These are the only terms that creditors are allowed to use when making inquiries related to marital status under ECOA.
Exceptions to Providing the Appraisal Report
the timing requirement may be waived by the borrower, and he or she may agree to receive a copy at or before consummation. In order to do this, the borrower must submit an oral or written request to the creditor three business days prior to consummation. If the creditor denies a loan application or the application is withdrawn by the consumer, the obligation to provide copies of valuations still exists. However, the deadline is extended to 30 days after the date on which the creditor determines the transaction will not proceed (12 C.F.R. §1002.14(a)).
Discriminate
using a prohibited basis, such as ethnicity or sex, as a basis for treating a loan applicant less favorably than other applicants.
Negative factor or value:
utilizing a factor, value, or weight that is less favorable to elderly applicants than warranted by the applicant's experience, or that is less favorable than the factor, value, or weight assigned to people who are non-elderly and are most favored by a creditor on the basis of age.
Definition of "elderly"
age 62 or older.
Creditors are prohibited from requiring the signature of
an applicant's spouse, or of another person who is not a joint applicant, if the individual qualifies on his or her own for credit.
Why was ECOA passed?
In 1974, Congress enacted ECOA (15 U.S.C. §1691 et seq.) to eliminate discriminatory treatment of credit applicants. The primary reason for the enactment of ECOA was anecdotal evidence that women were not treated on an equal basis with men when applying for credit, including their applications for mortgages. ECOA and its regulations are intended to promote the availability of credit to all creditworthy applicants regardless of race, color, religion, national origin, sex, marital status, or age. The law also prohibits credit decisions being based on the fact that the applicant has income from a public assistance program, or that the applicant has exercised his or her rights under the Consumer Credit Protection Act (e.g. participation in a consumer credit counseling program).
According to Regulation B, when it comes to credit transactions, a creditor cannot discriminate:
On the basis of the applicant's race, marital status, nationality, gender, age, or religion Against an applicant whose income is derived from a public assistance program Against an applicant who, in good faith, exercised his or her rights under the Consumer Credit Protection Act
Overt Discrimination
Overt discrimination includes discriminatory actions such as a blatant refusal to offer credit to an individual due to his/her ethnicity or religion. Redlining, or the refusal to offer credit in particular neighborhoods due to the race or ethnicity of the residents, is another example of overt discrimination.
Circumstances when it is acceptable to deny credit/loan
The applicant is not of legal age to enter into a contract The applicant fails to demonstrate sufficient creditworthiness, based on consideration of permitted factors, such as income and credit history The applicant fails to submit information needed to complete the application
Prohibited basis:
any of the following: Race Color Religion National origin Sex Marital status Age, as long as the loan applicant is old enough to enter a contract Receipt of income from a public assistance program Exercise of rights under the Consumer Credit Protection Act, which includes the Truth-in-Lending Act
The treatment of public assistance income has
drawn the attention of the CFPB who, in 2014, issued a bulletin that warns creditors that it is a violation of ECOA to ask for an excessive amount of documentation related to Social Security disability income. The bulletin states that upon receipt of a benefits verification letter, creditors should not request medical opinions regarding the likely duration of a loan applicant's disability (CFPB Bulletin 2014-03).
When a transaction involves a mortgage loan that will be secured by a first lien on a dwelling, the creditor must provide the loan applicant with:
A notice of the right to receive a copy of all written appraisals associated with the transaction. This notice is due within three business days of receipt of a loan application (12 C.F.R. §1002.14(a)(2)). A copy of all appraisals and other written valuations. These are due "promptly" after they are completed or at least three business days prior to consummation, whichever is earlier. Borrowers may waive the timing requirement as long as they still receive an appraisal copy at or prior to consummation (12 C.F.R. §1002.14(a)(1)).
For at least 25 months after notifying an applicant of action taken or of incompleteness, the creditor must retain the following records:
Any application that it receives Any information required to be obtained concerning the applicant's characteristics for the purposes of monitoring ECOA compliance Any other written or recorded information used in evaluating the application and not returned to the applicant A copy of: The Notice of Action Taken The statement of specific reasons for adverse action taken Any written statement submitted by the applicant alleging a violation of ECOA or Regulation B
Before the creation of the __________, the Board of Governors of the Federal Reserve was the agency that issued regulations for the implementation of ECOA.
CFPB,
Loans Covered by ECOA
ECOA applies to transactions for the extension of credit by any person who regularly extends, renews or continues credit. The law also applies to a person who "...regularly refers applicants to creditors, or selects or offers to select creditors to whom requests for credit can be made." Unlike RESPA and TILA, ECOA applies to extensions of credit for business, commercial, and agricultural use.
Adverse Action Notice, including when multiple applicants/guarantors are on the loan request
If the creditor takes adverse action on the application, the notice must provide a statement of the reasons for the unfavorable decision, and must include a statement that ECOA prohibits discrimination against credit applicants.
The following are not considered to be valuations under ECOA, and are not required to be provided to consumers according to the aforementioned requirements:
Internal documents that merely restate a dwelling's estimated value as listed in the appraisal or written valuation that will be given to the applicant Publicly-available government agency statements of appraised value Publicly-available lists of valuations Manufacturers' invoices for manufactured homes Reports reflecting property inspections that do not provide, and are not used to develop, an estimate of the property's value Appraisal reviews that do not include the appraiser's estimate of the property's value or opinion of value An appraisal review that does not itself state an estimate that is different from the appraisal
General Provisions of Regulation B
Regulation B is a regulation intended to prevent applicants from being discriminated against in any aspect of a credit transaction. Regulation B outlines the rules that lenders must adhere to when obtaining and processing credit information. Lenders are prohibited from discriminating on the basis of age, gender, ethnicity, nationality, or marital status.
lenders may not:
Refuse to consider public assistance as income Assume a woman of childbearing age will stop working to raise children Refuse to consider income from a pension, annuity, or retirement benefit Refuse to consider regular alimony or child support (although borrowers are not required to disclose alimony and child support unless it is used as qualifying income)
Disparate Impact
When a creditor adopts a neutral policy without discriminatory intent, and the policy has a discriminatory impact, this is known as disparate impact, and there is some potential for liability under ECOA. For example, if a mortgage lender has a policy of limiting mortgage credit to transactions for $250,000 or more, the policy may limit the access that members of a protected class have to credit. There are many legal obstacles to proving this type of discrimination.
If the creditor takes ________________ on the application, the notice must provide a statement of the reasons for the unfavorable decision, and must include a statement that ECOA prohibits discrimination against credit applicants.
adverse action
Factors that cannot be used to discriminate
race, color, religion, national origin, sex, marital status, or age. The law also prohibits credit decisions being based on the fact that the applicant has income from a public assistance program, or that the applicant has exercised his or her rights under the Consumer Credit Protection Act (e.g. participation in a consumer credit counseling program).
Reverse Redlining
which first occurred during the lending boom when predatory lenders targeted neighborhoods with elderly, immigrant, and minority populations to make risky loans that included oppressive lending terms.
A notice of the right to receive a copy of all written appraisals associated with the transaction. This notice is due _____________________________________________________________ (12 C.F.R. §1002.14(a)(2)).
within three business days of receipt of a loan application