In a series of posts, we've began exploring how those individuals who find themselves in the unenviable position of having a loan application rejected -- whether for a home purchase, business opportunity, educational pursuit or other prospect -- shouldn't be too hard on themselves, as financial institutions often decline to extend the necessary funds.
We also discussed how prospective borrowers can take some comfort in the protection afforded by the Equal Credit Opportunity Act, which prohibits credit discrimination and empowers victims to hold lenders accountable for engaging in prejudicial conduct. In today's post, we'll continue this important discussion by exploring what lenders can't consider when evaluating income or setting the terms of a loan.
What is a lender prohibited from considering when evaluating income?
When a lender evaluates your income for the purpose of determining whether to offer a loan, it can't discount or refuse to consider any of the following forms of income:
- Reliable child support, alimony or separate maintenance payments (proof may be requested)
- Funds from annuities, pensions, part-time employment or Social Security
- Reliable public assistance
Furthermore, a lender can't disregard income based on marital status or gender. To illustrate, it would be a violation of the ECOA to assume that a woman would stop working to start a family, or assume salary discrepancies based on gender (i.e., a man's counted as 100 percent and a woman's counted as 80 percent).
What is a lender prohibited from considering when setting the terms of a loan?
As you would probably imagine, a lender cannot consider gender, marital status, religion, national origin, color or race when setting the terms of a loan.
However, they are also prohibited from considering other less obvious factors in setting loan terms, such as whether you have a telephone account in your name, or, if seeking a home loan, the racial composition of the neighborhood in which you are looking to buy, improve or refinance the residence.
What about age?
In general, a lender cannot consider age when setting the terms of a loan. However, the ECOA does permit certain exceptions to this rule, including where:
- The borrower is less than 18 (i.e., too young to execute contracts)
- The borrower is 62 or older and this works in their favor
- The lender conducts a creditworthiness examination and this is crucial component of this effort (i.e., determining whether income might drop due to impending retirement)
We'll conclude this discussion in a future post, exploring some additional rights extended to borrowers under the ECOA and their options if they suspect illegal treatment.
If you believe that you have been victimized by credit discrimination or other fraudulent business practices, consider speaking with a skilled consumer protection attorney to learn more about your rights and your options.