ECOA Flashcards
What does ECOA mean?
Equal Credit Opportunity Act
What does HMDA mean?
Home Mortgage Disclosure Act
Purpose of ECOA?
Prohibits lenders from discriminating, in any aspect of a credit transaction, based on any of the following factors:
- Race
- Color
- Religion
- National origin
- Sex
- Marital status
- Age (unless borrower is too young to sign a contract, or lacks “legal capacity”)
- Receipt of income from a public assistance program
- Exercise of rights under the Consumer Credit Protection Act
Purpose of HMDA?
A federal fair lending law that was enacted with the goal of discouraging redlining
ECOA’s regulations are known as ___
Regulation B
What is the CFPB?
Consumer FInancial Protection Bureau
Implements and enforces Federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive
Office of Fair Lending and Equal Opportunity
- Within the CFPB
- Responsible for enforcing ECOA and the Fair Housing Act
What is the FTC?
Federal Trade Commission
Federal Trade Commission
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
ECOA applies to ___
- Transactions for the extension of credit by any person who regularly extends, renews or continues credit
- A person who regularly refers applicants to creditors, or selects or offers to select creditors to whom requests for credit can be made
NOTE: The definition of creditor applies to mortgage brokers
Notice of Action Taken
Required by: ECOA
Due: 30 days after application
Some permissible grounds for denial of a mortgage loan application
- Applicant not legal age
- 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
Notice of Incomplete Application
Required by: ECOA
Due: 30 days after application
- Must state the information needed
- Set a reasonable time for submission of the information
- Advise the applicant that failure to provide the information will result in no further consideration of the application
Valuation Disclosure
Required by: ECOA
Due: Promptly after valuations are completed or at least 3 business days prior to consummation, whichever is earlier
(Borrower may waive timing but must receive copy at or prior to closing)
A copy of all appraisals and other written valuations
Notice Regarding Monitoring Programs
Required by: ECOA
Due: Immediately upon requesting information
When obtaining information on race, ethnicity, sex, mortgage, and age
ECOA Record retention
- 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
- For at least 25 months after the creditor receives an application for which it is not required to comply with ECOA’s notification requirements (e.g., certain commercial credit applications), the creditor must retain all written or recorded information that it has regarding the applicant, including notes indicating action taken
ECOA Prohibited lending practices
Overt Discrimination
- 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.
ECOA Prohibited lending practices
Disparate Treatment
Treating a loan applicant who is a member of a protected class differently from other loan applicants who are similarly situated but not members of a protected class
ECOA Prohibited lending practices
Disparate Impact
Adopting a neutral policy without discriminatory intent, but the policy has a discriminatory impact
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
ECOA Prohibited lending practices
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
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
ECOA Prohibited lending practices
Discouragement
Making oral or written statements that would discourage prospective credit applicants from applying for a loan
ECOA Prohibited lending practices
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 Prohibited lending practices
Others
- 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
Borrowers are not required to disclose alimony and child support unless it is used as qualifying income
ECOA penalties
- Regulation B limits punitive damages
- $10,000 for individual actions
- The lesser of $500,000 or 1% of a creditor’s net worth in class actions
- If a consumer is successful in an action for an ECOA violation the law authorizes the court to award actual damages
- costs of bringing the action
- reasonable attorney’s fees
- Statute of limitations for an individual to file a claim for a violation of ECOA is 5 years from the date on which the alleged violation occurred.
- Class actions are permitted and they are also subject to a 5-year statute of limitations.
Define: Discriminate
(ECOA context)
Treat someone more favorably than others
May a lender request information about a loan applicant’s protected characteristics?
No
Home Mortgage Disclosure Act
Demographic information about race, color, and sex must be collected solely for monitoring purposes.
When such information is requested, the applicant must be advised that
- They are not required to provide the information
- If they choose not to provide the information, it will be collected based on visual observation or the applicant’s surname
- Approval of the application is not based on the applicant’s agreement to provide the information
- The information is being requested to monitor compliance with federal fair housing laws
A creditor also may not ask an applicant
- If any income stated on the application is derived from alimony or child support, unless the applicant wishes that income to be considered in determining eligibility for the loan
- About plans for having children, childbearing capabilities, or birth control practices
- If the applicant is divorced or widowed
- For information about a spouse’s income if the spouse is not a co-applicant
Notification to an applicant of action taken on an application
- 30 days after receiving the completed application, concerning the approval, counteroffer, or rejection of the application
- 30 days after taking adverse action, including on an incomplete application
- 90 days after notifying the applicant of a counteroffer if the applicant does not expressly accept the offer
Notice of adverse action
Required by: ECOA
Due: 30 days after application
- A statement of the action taken
- Contact information for the lender
- The name and address of the federal agency with jurisdiction, and
- One of the following:
- The reason(s) for the adverse decision, or
- A statement advising the borrower of their right to receive a statement of reasons within 30 days if such a statement is requested within 60 days of notification of the adverse action
ECOA valuations rule
Upon receipt of an application, a lender has three days to notify a borrower of their right to receive a copy of any appraisal or valuation performed on the property that is the subject of the loan application.
The appraisal or valuation must be:
- “Promptly” shared upon completion, or
- Provided at least three business days before closing
The borrower may waive the right to receive the copy before closing, in which case it must be provided no later than at closing
What are the differences between the terms color and ethnicity?
None
They are interchangable
Can a loan be made to a non-US citizen?
No
Can a loan be made to an illegal alien?
No
Notice Regarding Monitoring Programs
Required by: ECOA
Due: When obtaining information on race, ethnicity, sex, marriage, and age
Notice of Action Taken
Required by: ECOA
Due: 30 days after application received
Notice of Adverse Action
Required by: ECOA
Due: 30 days after application received
Notice of Incomplete Application
Required by: ECOA
Due: 30 days after application received
