The Equal Credit Opportunity Act (ECOA) gives users protection against discriminatory lending practices. ECOA was enacted into legislation in the USA in 1974 and applies to any individual or entity that regularly participates in credit decisions as part of normal business. Lenders who violate the provisions of ECOA can be subject to personal or class action lawsuits on the behalf of credit applicants.
Function
Lenders cannot deny a borrower a mortgage due to his race, color, religion, place of birth, gender, martial status or age, under the provisions of ECOA. The applicant still has to be the lawful age to sign a contract, according to §701(a) of this U.S. Code. ECOA does not allow lenders to reject an application since the applicant’s income is all or partly derived from a public assistance program. Lenders cannot deny a borrower a mortgage since she imposed her rights under the Truth in Lending Act, a pair of laws requiring creditors to correctly disclose all conditions of financing.
Factors
The Equal Credit Opportunity Act does allow mortgage lenders to inquire about martial standing if establishing the standing clarifies the debtor’s rights to a loan, such as determining if a spouse alone can take out a mortgage on a marital home. Based on §701(b) of this U.S. Code, the lender can inquire about income from public aid to learn the quantity and the duration of time the income will continue. ECOA allows lenders to use a credit-based scoring system that considers age, as long as the assigned value of a senior citizen’s era is not negative.
Outcomes
The ECOA established procedures for loan applications, according to §701(d) of this U.S. Code. Loan decisions typically have to be left within 30 days, and the applicant should be notified in writing of the choice. Lenders that are rejecting home mortgage applicants should supply the applicant with the reasons for your refusal. Lenders can provide the decision on a loan asked by a third party, such as, for instance, a mortgage broker, to the next party. The broker can then inform the applicant, so long as the rejecting creditor is identified to the applicant.
Extra Rules
A special provision in §701(e) of this U.S. Code, a portion of the ECOA, speech home appraisals for mortgage loans. An appraisal is a professional evaluation of the house’s worth utilized by mortgage lenders to ensure that the property would be worth the total amount of the mortgage. The lender should provide the applicant a copy of the evaluation if the individual requests the document. A mortgage applicant can be responsible for the cost of this appraisal even if the loan is not approved. A borrower who is facing a reduction in a home equity line of credit of loan must be notified of the adverse action on the credit line in writing by the lender, according to §701(d) of this U.S. Code.
Misconceptions
Lenders can think about the age of an elderly applicant in a home mortgage, according to §701(b) of this U.S. Code. The age decision can stop an older person from getting a mortgage loan since she may be unable to reasonably complete a long-term payment program. The provisions in §701(c) of this U.S. Code let lenders to deny an applicant a loan since the person is engaging in a consumer credit counseling program that does not allow her to acquire new credit. A consumer credit program is a debt management program that allows someone to pay multiple creditors modest amounts per month to get rid of debt.