1976, August, Pg. 1064. Skimming the Equal Credit Opportunity Act.

• Author: by Richard M. Koon

6 Colo.Law. 1064

Colorado Lawyer

1976.

1976, August, Pg. 1064.

Skimming the Equal Credit Opportunity Act

1064Vol. 6, No. 8, Pg. 1064Skimming the Equal Credit Opportunity Actby Richard M. KoonRichard M. Koon, Denver, is a partner in the firm of Holland & Hart. 1065The Equal Credit Opportunity Act (ECOA) was added as Title VII of the Consumer Credit Protection Act by the Act of October 28, 1974,(fn1) but by its terms did not go into effect until October 28, 1975.(fn2) On October 15, 1975, the Board of Governors of the Federal Reserve System finalized Regulation B(fn3) to implement the Act. The Board of Governors had previously issued proposed drafts of the Regulation for comment on April 22, 1975(fn4) and September 5, 1975.(fn5) Although the Regulation became effective October 28, 1975, many of its provisions contained delayed effective dates in order to give lenders time to alter their forms and otherwise achieve compliance. Approximately five months after the Act became effective, it was amended, with the amendments to become effective March 23, 1977.(fn6)

The purpose of this article is not to undertake an in-depth analysis of all of the twists and turns of the Act and Regulation, but to provide an overview which might prove helpful to attorneys whose areas of expertise and specialty do not require anything more than an acquaintance with the subject matter. Where more detailed knowledge is necessary the source materials at the present are limited to the Act, Regulation B, and an ever-growing body of informal opinion

letters issued by the staff of the Federal Reserve Board. Excerpts from these letters are found in volume 5 of the Commerce Clearing House (CCH) Consumer Credit Guide, commencing at ¶ 42,001. The Federal Reserve Board is also authorized to issue formal interpretations, which can be found in the same CCH source. As of June, only two such interpretations have been issued.PROHIBITED DISCRIMINATION

The basic purpose of the new law is to make it unlawful for any creditor to discriminate against any applicant on the basis of sex or marital status with respect to any aspect of a credit transaction;(fn7) and creditors may not discourage an application on such basis. The term "credit" is given a broad definition, but does not include a lease transaction.(fn8) The Act and, to a greater degree, the Regulation describe conduct which does not constitute discrimination and also conduct which is prohibited. Most credit actions lie somewhere between the two and are therefore to be judged by the basic prohibition against discrimination on the basis of sex or marital status.

By virtue of the recent amendments to the Act, effective March 23, 1977, the list of factors upon which discrimination

may not be based will be expanded to include race, color, religion, national origin, age, receipt of income from any public assistance program, and the good faith exercise of any right under the Consumer Credit Protection Act.(fn9)Colorado presently has a law enacted in 1973 covering consumer lease transactions (the ECOA does not) as well as consumer loans and consumer credit sales and prohibiting discrimination solely on the basis of race, creed, religion, color, sex, national origin, or ancestry.(fn10)

CREDITORS COVERED

The ECOA applies only to those creditors who regularly extend or arrange for the extension of credit, including assignees, transferees, or subrogees of an original creditor if they participate in the decision to extend credit.(fn11) Unlike some of the other consumer legislation, such as the Truth-In-Lending Act,(fn12) coverage of the ECOA is not limited to consumer transactions (i.e., those primarily for personal, family, household or agricultural purposes). The basic prohibition against discrimination contained in the ECOA runs to commercial or business credit as well as consumer credit. Some of the specific requirements of the Regulation do, however, except business or commercial credit from their coverage.(fn13)

CREDIT APPLICATION FORM

Perhaps one of the areas where lawyers will be most likely to come in contact with the ECOA is with respect to credit application forms. The ECOA contains a few basic prohibitions with which a lawyer examining a credit application form should be familiar. These prohibitions became effective June 30, 1976, and apply to oral as well as written inquiries.

Marital StatusThe creditor may not ask the applicant's marital status if the applicant is applying for separate credit on an unsecured basis. Where the application is joint or where the application is for secured credit a creditor may ask the applicant's marital status.(fn14) Unfortunately, oftentimes the applicant does not know whether he is applying for secured or unsecured credit. It may never occur to many married applicants to even attempt to apply for separate credit. The ECOA does not require the creditor to bring this option to the attention of the applicant.

In those instances where the creditor may ask the applicant's marital status, only the terms "married," "unmarried" or "separated" shall be used.(fn15)

Designation of Title---Mr., Mrs., Ms., MissA creditor may request the applicant to designate one of the foregoing titles, but only if it first states conspicuously that the designation of such title is optional.(fn16) It is questionable whether creditors will find this exercise worthwhile.

Payments Received as Alimony, Child Support or Separate MaintenanceBefore inquiring as to whether any income stated in an application is derived from alimony, child support or maintenance payments, the creditor is required to disclose to the applicant that such payments need not be revealed if the applicant does not choose to rely upon them in applying for the credit.(fn17) As long as this "warning" is given, the creditor may ask whether the applicant has listed any income from such sources and may also ask questions bearing on

1067the credit-worthiness of the payor. Creditors are required to consider such payments as income to the extent that they are likely to be consistently made.(fn18)Some credit application forms in current use ask applicants to list "other income." Still other forms go further and ask the applicant to "itemize" this other income or indicate its "source" It is at least arguable that an application making such inquiries without also containing the warning language may be in violation of the ECOA.

DependentsInquiry may be made as to the number of dependents an applicant has, but the question must be phrased in neutral terms. The applicant cannot be asked to further identify dependents as "children" or "spouse." Similarly, inquiry into "minor dependents" or "dependent children" is prohibited. A more detailed inquiry may be made into the amount of aid which the applicant pays toward such dependents since such information is relevant to the creditor's legitimate need to evaluate the applicant's liabilities. However, the inquiry must be in neutral terms and must be asked of all applicants, male or female, whatever their marital status. The following language found sanction in one staff opinion letter: "Costs related to support of dependents (other than shared expenses listed elsewhere in this section). . . . $ ___."(fn19)

Childbearing InquiriesRegulation B prohibits any assumption that childbearing is associated with a discontinuity in ability to repay in an evaluation of credit-worthiness.(fn20) Thus, permissible inquiries related to childbearing, even in the case of an obviously pregnant applicant, are limited to neutral questions concerning continued ability to repay. A creditor may ask the applicant's anticipated income over the term of the loan. However, according to a staff opinion letter, even such a neutral question must be asked of all applicants, male and female. To do otherwise, it is concluded, would have the result that although the question is neutral, the creditor would be guilty of discrimination in its use.(fn21) The Regulation specifically prohibits a creditor from requesting information about birth control practices or childbearing intentions or capability. Further, creditors are prohibited by the Regulation from using any...