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Lending Laws

Equal Credit Opportunity Act:
There is a law that protects consumer rights through the loan process. This is the Equal Credit Opportunity Act, or ECOA. Because of this law, lenders cannot discourage you from applying for a loan.

ECOA promotes the availability of credit to all creditworthy applicants without regard to certain factors. These factors are called prohibited bases.

Prohibited bases:

• Race
• Color
• Religion
• National origin
• Sex
• Marital status
• Age
• Receipt of public assistance income (the fact that all or part of the applicant's income is derived from a public assistance program)
• Exercise of rights under the Consumer Credit Protection Act (Example: you cannot be denied a loan because you have filed a complaint against the bank)

Discrimination means to treat someone differently than another. Not all discrimination is illegal. Lenders do not have to make loans to everyone. For example, a lender can deny your request for a loan if you do not have enough income to pay back the loan, if you live in a foreign country, or if you are not old enough to legally sign a contract.

Another law that protects consumers during the application process is the ECOA, which restricts lenders from requesting certain information. For example, a lender may not ask you about a spouse or former spouse unless that spouse is applying with you for credit. And, if you are applying for unsecured credit, a lender cannot ask you about your marital status.

If you do not qualify on your own, lenders may require a cosigner or guarantor, but cannot require that it be your spouse. If you are applying jointly or if the loan is secured, the lender may ask about your marital status, but can only use the terms married, unmarried or separated.

Note: If the applicant lives in a community property state, a lender may request information concerning the applicants' spouse. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin are community property states.

ECOA also restricts the lender from asking about income derived from alimony or child support unless you want it considered as part of your income. The lender cannot discount or refuse to consider consistent part-time income, annuities, pensions, alimony or child support payments.

A lender cannot ask about birth control practices or intentions of having children. However, a lender may ask about the number and ages of your dependants.

A lender cannot ask whether you are male or female. Courtesy titles such as Mr., Mrs., Miss, or Ms. can be requested, but do not have to be provided.

Finally, a lender cannot ask for your race, color, religion, or national origin. However, there are a few exceptions. For home loans, the government requires lenders to collect information on race, sex, marital status, and age. Although they will collect this information, they cannot use the information as a factor in deciding whether to grant the loan.

Truth In Lending Act (TILA)

Another important law that should be considered when applying for a loan is the Truth in Lending Act. With this law, lenders must tell consumers how much it will cost to borrow funds. This allows consumers to compare costs. Consumers should be able to shop around for the best loan and this act makes credit shopping easier for consumers.

Two of the most important terms to compare on disclosures are the finance charge and the annual percentage rate, or APR.

The finance charge is the total dollar amount you pay to use credit. The finance charge includes costs, such as interest and service charges.

The APR is the percentage cost of credit on a yearly basis. The APR reflects the costs of interest and loan fees. When shopping for credit, you should compare the APRs.

Now, find out what happens if you are turned down for a loan.