Equal Credit Opportunity Act = ECOA

Regulatory Agency and Regulations

Before the creation of the CFPB, the Board of Governors of the Federal Reserve was the agency that issued regulations for the implementation of ECOA. These regulations are known as Regulation B (12 C.F.R. §1002.1 et seq.). 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. As directed by the Dodd-Frank Act, the CFPB has established an Office of Fair Lending and Equal Opportunity that is directly responsible for enforcing ECOA and the Fair Housing Act. Although the CFPB is the agency that is primarily responsible for implementing and enforcing ECOA, the FTC retains some of the authority that it historically held for enforcing the compliance of non-depository lenders, mortgage brokers, and mortgage loan originators with ECOA.

Requiring a Co-Signer

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. 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. Some circumstances may require the signature of another party on certain documents; however, this is not the same as requiring a co-signer to serve as a joint applicant for a mortgage loan. Generally, signatures of other parties, such as co-owners and spouses, may be required only to allow the creditor to satisfy a debt upon the default or death of the applicant under the applicable community property laws of the state (12 C.F.R. §1002.7(d)).

Exceptions to Providing the Appraisal Report

Creditors must deliver a copy of an appraisal "promptly upon completion" or three business days prior to consummation, whichever is earlier; however, some exceptions exist. As previously stated, 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 If the creditor denies a loan application or the application is withdrawn by the consumer, the obligation to provide copies of valuations still exists.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)).

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." 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. Unlike RESPA and TILA, ECOA applies to extensions of credit for business, commercial, and agricultural use.

Discouragement

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.

Prohibited Inquiries

Other than inquiries that are permitted for monitoring purposes, asking questions related to characteristics that may define an individual as a member of a protected class is prohibited. For example, it is illegal to ask a loan applicant about his/her national origin. 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

Acceptable Reasons for Denial

There are a number of reasons which would serve as permissible grounds for denial of a mortgage loan application. These include, but are not limited to: · 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 (see next section)

Notice of Action Taken

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)).

Notice of Incomplete Application

Within 30 days 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)).

Adverse action:

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.

Elderly:

age 62 or older.

Application:

an oral or written request for an extension of credit, made in accordance with procedures used by the creditor for the type of credit requested. A completed application is one in connection with which the creditor has received all information regularly obtained and considered in evaluating applicants for the amount and type of credit sought (e.g., credit reports, additional requested information, appraisals, etc.).

Good faith

honesty in conducting a transaction.

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.

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 creditor'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.

Valuation Disclosures: 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)).

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