In a previous post, we began discussing how anyone looking to pursue their dreams -- from owning a home to starting a business -- will more than likely need to take out a loan and the unfortunate reality that financial institutions can -- and often do -- decline to extend the necessary funds.
We also discussed how even though this rejection of the loan application can prove crushing, borrowers should nevertheless take comfort in the fact that they are afforded considerable protection from discriminatory lending practices by the Equal Credit Opportunity Act. Indeed, the ECOA enables them to take action if they later uncover that this decision was not based on consideration of such permissible factors as their income, debts, expenses and credit history.
What are creditors prohibited from doing under the ECOA in relation to the application process?
The ECOA prohibits lenders from discouraging applicants, rejecting applicants or imposing different terms (higher fees, interest rates, etc.) on applicants based on age, color, marital status, national origin, race, receipt of public assistance, religion or sex.
It's important to note, however, that lenders may ask you to voluntarily disclose information concerning sex, race or national origin. These questions are actually asked to help federal agencies better track and enforce anti-discrimination laws.
What about immigration status?
A lender can inquire about your immigration status in order to establish whether you are able to remain in the U.S. long enough to repay the loan.
How exactly are questions about marital status limited during the application process?
While a lender can use such terms as "married," "unmarried" and "separated," it can't inquire as to whether you are divorced or widowed. Furthermore, inquiries about marital status are prohibited when the person is applying for a separate, unsecured account (with the exception of those living in one of the nine community property states).
Regarding alimony and child support, a creditor can ask if you have to make these types of payments. However, it can't ask if you receive these types of payments unless it first informs you that you don't have to supply this information if you aren't relying on them to secure credit.
What about asking about spouses or children?
Inquiries about spouses are generally prohibited during the application process unless any of the following apply:
- The spouse will be using the loan proceeds.
- The spouse is also applying for the loan.
- You and your spouse reside in a community property state.
- You rely on the spouse's income
As for children, lenders can ask about expenses relating to dependents, but not about plans for starting or expanding a family.
We'll continue this discussion in a future post, exploring how the ECOA prohibits discrimination when setting the terms of a loan.
In the meantime, consider speaking with a skilled consumer protection attorney to learn more about your rights and your options if you believe that you have been victimized by credit discrimination or other fraudulent business practices.