ECOA Mortgage Rules

Adoption of the Equal Credit Opportunity Act (15 U.S.C. §1691, et seq.) in 1974 was largely in response to discrimination against women in the financial marketplace.  Before ECOA made it illegal to discriminate against credit applicants on the basis of their gender, women were generally unable to secure any type of credit, including mortgage credit, unless they were co-applicants with their husbands.  Unmarried women were forced to ask their fathers or brothers to co-sign applications for mortgages and applications to finance the purchase of automobiles and other consumer products.
The CFPB is responsible for the implementation and enforcement of ECOA and its implementing regulations, which are known as Regulation B.  ECOA and Regulation B apply to business credit and to a wide range of credit transactions with consumers

The provisions of ECOA extend to “creditors,” which the law defines as individuals or entities that regularly extend credit or arrange for the extension of credit (15 U.S.C. §1691a(e)). Regulation B clarifies the definition of creditors, stating that the term also applies to:
  • Participants in the credit decision: A creditor not only includes the individual or institution that underwrites and funds a loan, but also includes:
    • Entities or individuals to whom a loan is assigned or transferred, when participating in the credit decision
    • A potential purchaser of a mortgage since it may influence a lender’s credit decision by indicating whether it will or will not agree to purchase the loan
  • Those referring applicants to creditors: Mortgage brokers and other individuals and entities that “regularly refer” loan applicants to creditors are also treated as creditors when they make these referrals in the ordinary course of business. In its Official Interpretations of the rule, the CFPB states that the term “creditor” also includes real estate brokers and home builders that refer homebuyers to particular creditors. The particular provisions of ECOA that apply to real estate brokers and builders are those that prohibit discriminatory practices, including the practice of discouraging particular consumers from applying for a mortgage.

As these provisions of Regulation B demonstrate, the term “creditor” has a broad definition and is not limited to individuals or entities that fund mortgages

 Protected classes under ECOA include:
  • Race
  • Color
  • Religion
  • National origin
  • Sex
  • Marital status
  • Age, as long as the loan applicant is old enough to enter a contract
  • Potential to have or raise children
  • Individuals that receive income from a public assistance program
  • Individuals that exercise their rights under the Consumer Credit Protection Act, which includes the Truth-in-Lending Act
  • ECOA applies to all types of mortgage transactions, including open-end and closed-end mortgages and those that are secured by first liens and subordinate liens.  Therefore, in virtually all transactions for home loans, creditors must make lending decisions based on the creditworthiness of a loan applicant and may not consider an applicant’s personal characteristics, his/her receipt of public assistance, or the fact that the applicant has pursued an action under the Consumer Credit Protection Act. There is one exception to the prohibition against considering the personal characteristics of a loan applicant, and this exception arises when a consumer applies for special purpose credit.  Special purpose credit includes mortgage assistance offered by a not-for-profit organization or through a state or federal program that has been established to promote home ownership for “…an economically disadvantaged class of persons” (12 C.F.R. §1002.8(a)(1)).
a not-for-profit organization offers special purpose credit to meet special social needs, it may consider personal characteristics of loan applicants if:
  • The program is based on a written plan to meet the credit needs of a particular “class of persons,” and
  • The program will extend credit to a class of persons that would not be able to qualify for credit or who would receive it under less favorable terms than those that the organization could offer to those meeting “customary standards of creditworthiness”
previously mentioned, ECOA prohibits creditors from discriminating against a loan applicant on the basis of his/her race, color, religion, national origin, sex, marital status, age, or because he/she receives public assistance or filed a claim under the Consumer Credit Protection Act (15 U.S.C. §1691(a); 12 C.F.R. §1002.4(a)). Treating an applicant differently from others on a prohibited basis is a practice that is referred to as disparate treatment.
Regulation B limits punitive damages to:
  • $10,000 for individual actions
  • The lesser of $500,000 or 1% of a creditor’s net worth in class actions
  • The statute of limitations for an individual to file a claim for a violation of ECOA is five years from the date on which the alleged violation occurred (12 C.F.R. §1002.16(b)(2)). Class actions are permitted and they are also subject to a five-year statute of limitations.
  • Violations of ECOA are subject to individual actions, class actions, and referrals to the Attorney General for a pattern or practice of discriminatory action. Violations may result in an award of actual damages, costs, and attorney’s fees. Punitive damages are limited to $10,000 for individual actions, and $500,000 or 1% of the creditor’s net worth in class actions.

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