Unlike some countries, which are cash-based, the United States is a credit-based society. Briefly, a credit-based society is a society in which credit dictates what an individual can and cannot do based on their ability to secure credit.
For instance, credit enables individuals to purchase homes, attend post-secondary educational programs, and operate businesses. These are all activities that make it possible for people to support themselves as well as their loved ones.
The ability to secure credit or a loan typically depends on one’s credit score and financial history. In the past, many lender decisions were contingent on factors that had no bearing on a person’s financial history. Instead, some lenders engaged in credit discrimination practices that made it difficult for certain groups of people to access lines of credit, which in turn, prevented them from gaining opportunities like buying a home or attending college.
In reaction to these practices, Congress passed the Equal Credit Opportunity Act (“ECOA”) in 1974, which makes it illegal for a creditor to discriminate against a person during any aspect of a credit transaction due to their race, national origin, sex, gender, age, religion, color, or because they receive public assistance benefits.
Some common examples of situations that might signify that a creditor is partaking in credit discrimination may include:
- Asking if you are divorced or widowed (note that creditors must use specific language to refer to either of these statuses);
- Imposing different conditions or terms, such as a higher interest rate for a loan, simply because of your sex, religion, color, and so forth;
- Discouraging you from applying for credit or rejecting an application based on your marital status, national origin, age, and so on;
- Evaluating the race of persons living in the neighborhood where you intend to purchase, refinance, or renovate a home with the money you are being loaned;
- Refusing to let you borrow money or receive a line of credit, even if you have a perfect credit history and there is no genuine reason that would make you ineligible; and
- Ignoring consistent streams of income from alimony, public assistance benefits, pensions, part-time jobs, and so on to reject your credit application or to deny your request for a loan.
It is important that consumers keep this information in mind when applying for or participating in a credit transaction. The more alert you are to such wrongful conduct, the better equipped you will be to spot warning signs that may indicate a creditor is making decisions based on discriminatory motives. This will not only help you to avoid becoming a victim of credit discrimination, but reporting an incident can also assist in protecting others from these practices.
In addition, it should be noted that some applications may be rejected for legitimate reasons, such as if your credit report contains an error. Thus, if you suspect that this may have been the reason that your credit application was rejected, then you have a right to obtain a free copy of your credit report under the Fair Credit Reporting Act (“FCRA”).
To learn more about illegal credit discrimination practices or to find out whether your application was denied for a legally permissible reason, you should contact a local credit lawyer for further legal advice on the matter.
How Can I Protect Myself from Credit Discrimination?
There are a number of ways that a consumer can protect themselves from credit discrimination. First and foremost, a consumer can educate themselves about illegal credit discrimination practices and look out for any warning signs, even the ones that may seem insignificant.
Basically, if a consumer is being pre-judged because of their national origin, sex, age, race, or any other basis that includes the protected groups of people mentioned above, then a claim for credit discrimination may exist. If a consumer is not sure whether an incident would qualify as credit discrimination, they should consult a local credit lawyer immediately for further legal advice.
If a consumer is not prepared to hire a lawyer yet, they may also visit the websites of multiple federal and state agencies where they can find free materials on credit discrimination and the different steps they can take to help resolve their issue. Some government agencies that handle credit discrimination claims include the U.S. Federal Trade Commission (“FTC”), the U.S. Consumer Financial Protection Bureau (“CFPB”), and a state Attorney General’s office.
A consumer may also be able to raise the issue with a creditor directly. In some instances, a creditor may be willing to review an application a second time and can clear up an error or misunderstanding. Other issues may require the assistance of an agency, investigator, and/or a court.
For instance, when an investigation has been opened against a creditor, the investigating agency will typically seek out a pattern of discrimination against a protected class of persons over a period of time.
If the investigator finds solid evidence that a large portion of applicants included in a protected class of persons have been denied at a greater rate when compared to applicants of other classes who are similarly situated financially, then this may be a sign of discrimination.
A consumer can also report suspected violations to their state Attorney General’s office or another government agency. All creditors must provide the name and address of the relevant government agency to contact when an applicant has been denied a line of credit. In addition, creditors must also provide specific reasons as to why they denied a person’s application. Some acceptable reasons for denying an application for a line of credit or a loan include:
- Having too low of an income or salary;
- Having a high amount of credit card debt;
- Submitting an incomplete application;
- Having a low credit score;
- Having a short employment history; and/or
- Having a history of defaulting on, missing, or continuously making late payments.
On the other hand, creditors who offer vague or ambiguous reasons as to why they denied an application, will fail to meet the requisite legal standards. Thus, a consumer may be able to report the creditor for a violation or file a lawsuit against them in a federal district court. If a particular creditor’s actions have impacted enough applicants, then that pool of applicants may also be able to bring a class action lawsuit against the offending creditor.
Do I Need a Lawyer?
Proving that a creditor is engaging in discriminatory credit practices can often be very difficult to prove. Credit discrimination cases are largely fact-based and thus usually require lots of evidence to support such claims. There are also a number of complicated legal procedures and laws to comply with in order to properly file such claims. In some instances, a consumer may even need to consider violations of state laws, as opposed to only federal statutes.
Accordingly, it may be in your best interest to hire a local credit lawyer if you believe that a creditor has rejected or denied your credit application solely based on discriminatory reasons. An experienced credit lawyer can assist you in investigating your claim and gathering evidence. Your lawyer can also discuss the various options you may have for legal recourse and can advise you on whether it may be worth pursuing damages or initiating a class action lawsuit.
In addition, your lawyer can help you navigate the different legal procedures associated with credit discrimination claims and can provide legal representation in court if necessary. Your lawyer can also communicate with a creditor on your behalf to further inquire about the reasons as to why your credit application may have been rejected.