NMLS SAFE MLO Test

The Equal Credit Opportunity Act, enacted in 1974 and implemented by Regulation B, prohibits discrimination in credit transactions. ECOA applies to all creditors and covers all types of credit, including mortgage loans, credit cards, auto loans, and business credit. The CFPB enforces ECOA for most creditors, while other federal agencies enforce it for institutions under their jurisdiction.

Creditors may not discriminate against applicants based on race, color, religion, national origin, sex (including sexual orientation and gender identity), marital status, age (provided the applicant has the capacity to contract), receipt of income from public assistance programs, or good faith exercise of rights under the Consumer Credit Protection Act.

Overt discrimination occurs when a creditor openly discriminates against applicants based on prohibited factors. Disparate treatment occurs when a creditor treats applicants differently based on prohibited factors, even without stated discriminatory intent. Disparate impact occurs when a facially neutral policy has a disproportionate negative effect on a protected class and cannot be justified by business necessity.

Creditors may not discourage or refuse to accept applications based on prohibited factors. Oral applications must be reduced to writing if the creditor takes applications in writing for the type of credit requested. Creditors may not request information about an applicant's spouse or former spouse unless the spouse will be liable for the debt, the applicant is relying on the spouse's income, or the applicant resides in a community property state.

Creditors may not inquire about an applicant's plans regarding having or raising children. Creditors may collect information about race, color, religion, national origin, and sex for monitoring purposes on applications for dwelling-secured credit, but applicants must be informed that providing this information is optional.

Creditors must evaluate applications using criteria that are demonstrably related to creditworthiness. Income from part-time employment, alimony, child support, and public assistance must be considered if reliable. Creditors may not discount or exclude income because of its source or because of the applicant's sex, marital status, or other prohibited factors.

Creditors may consider the applicant's age only to determine the applicant's capacity to contract, to determine a pertinent element of creditworthiness in an empirically derived credit scoring system, or to favor elderly applicants in a special purpose credit program.

Creditors must notify applicants of action taken on their applications within 30 days of receiving a completed application. If the creditor denies an application or takes other adverse action, the notification must include a statement of the action taken, the name and address of the creditor, the name and address of the federal agency that administers compliance, and either a statement of specific reasons for the action or a disclosure of the applicant's right to request reasons.

Adverse action includes denial of credit, a counteroffer that the applicant does not accept, termination of an account, and unfavorable changes in account terms.

Creditors must retain records related to credit applications for 25 months after the date of notification of action taken. Records must be retained for 25 months following the date a creditor receives notice of a civil action or government enforcement action. Business credit applications for less than $100,000 may follow different retention requirements.