Equal Credit Opportunity Act: Know Your Rights

Mortgage applications saw an increase in 2020 as 30-year mortgage rates hit record lows and first-time homebuyers found a way inside.

If you're considering applying for a mortgage loan and are worried about an unfair denial, understanding the Equal Credit Opportunity Act (ECOA) of 1974 is extremely important.

What is the Equal Credit Opportunity Act?

The ECOA mandates that banks, lending institutions, and any party involved in providing credit cannot discriminate based on age, marital status, sex, color, race, national origin, or receipt of public assistance.

What does this mean?

This federal law protects minorities and ensures that the creditworthiness of a loan applicant is based on their credit history, income, expenses, debts, and other financial obligations.

The ECOA comes into effect even if the borrower feels that the credit terms are unfavorable or unfair, such as a higher interest rate.

Know your rights...

According to the Equal Credit Opportunity Act, lenders are permitted to ask questions related to your marital status (but not whether you are divorced or widowed), age (whether you are a legal adult or a senior citizen), and even your immigration status.

However, answers to most questions are voluntary, but it helps federal agencies to carry out anti-discrimination laws.

30-day rule...

Creditors are required to provide a notification of their decision to approve, deny, or require more information on a credit application, within 30 days. If the loan is denied, the creditors must give the reasons based on which the loan application was rejected.

If the lender feels that there is information missing on the application, they may allow the borrower time to provide the missing information, before denying the application.

Read Next: Due-on-Sale Clause: Everything You Need to Know

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