The Equal Credit Opportunity Act (ECOA): A Key Component of the CFPB’s Part 1002 – Regulation B
Legal prohibitions against discrimination
According to the Equal Credit Opportunity Act (ECOA), lenders must treat loan applicants fairly in all aspects of a credit transaction. It pertains to all consumer loans kinds. The ECOA prevents the creditor, for example, from discouraging the consumer from seeking credit, rejecting loan applications, or imposing greater charges, such as increased interest rates or fees, for any of the following reasons:
- country of origin
- Sex (including gender)
- relational status
- Age (if the applicant is old enough to engage in a contract)
- Obtaining funding from any kind of government assistance program
- Within 30 days of the consumer completing all papers for the application, creditors must inform borrowers of any decisions made about their credit applications.
- Clearly state the reasons why the customer’s application was refused or state that they have the right to find out if they inquire within 60 days.
- Keep track of credit application history and report it.
- In applications for various loans connected to housing, collect data on the applicant’s race and other personal factors.
- Transmit copies of the appraisal reports utilized in the applicants’ credit transactions.
The ECOA requirements must be followed by banks, or they risk severe fines.
Included in noncompliance for noncompliance are:
- Punitive damages in an individual case up to $10,000
- 1% of the Bank’s net value, or $50000, in a class action
- Actual losses, expenses, and legal fees
Examples of breaking the law
- Against JPMorgan Chase, the Manhattan U.S. Attorney settles a lawsuit for $53 million.
- Redlining case against Klein Bank is resolved by the DOJ
Evaluation for ECOA compliance
In order to assess how financial institutions, identify and manage their fair lending under ECOA, the Consumer Financial Protection Bureau (CFPB) conducts baseline assessments. In order to more effectively prioritize the CFPB’s fair lending supervisory actions, they also do these evaluations to identify and assess the risk of possible ECOA breaches.
The CFPB examiners employ five models from the Baseline Review during the review. These consist of:
- Module 1: Fair Lending Supervisory History
- Module 2: Fair Lending Compliance Management System (CMS)
- Module 3: Origination-Related Fair Lending Risks
- Module 4: Servicing-Related Fair Lending Risks
- Module 5: Model-Related Fair Lending Risks
” Before the review, and when the appropriate modules have been selected, the examiners will send the institution information requests related to the selected modules.” Says the policy. Examiners often finish the modules during the review’s on-site component. – CFPB webpage.
CFPB, banking organizations, and the Department of Justice all participate in ECOA enforcement actions (DOJ). Examiners visit the institutions, go through paperwork, and consumer complaints, meet with officers and workers for performance reviews and utilize data that is readily accessible to the public to keep an eye on how the institution is operating.
The institution will not be subject to sanctions if it self-reports a violation, with the exception of having to provide impacted customers refunds.