Do You Know Who ECOA protects?
I’ve written previously about anti-discrimination policies; they’re important in making your employees feel safe, which can help increase efficiencies in the workforce and overall help your business. The Equal Credit opportunity Act (ECOA) expands that same idea to your consumer population to promote businesses treating everyone equally regardless of their status in protected classes for lending purposes.
ECOA is a way for lawmakers to essentially say, “It’s okay for you to run your business how you want to run it. It’s not okay for you to discriminate against consumers in protected classes.” Race, national origin, gender, marital status, all of these differentiators, aren’t going to affect if someone can pay back their loan. Using credit worthiness rather than a factor associated with a protected class is the ultimate goal of the ECOA. In the long run it’s best for businesses to comply with these standards because metrics associated with credit-worthiness is what will ensure a successful loan and repayment of that loan.
It’s okay for you to run your business how you want to run it. It’s not okay for you to discriminate against consumers in protected classes.
What can be asked to determine credit worthiness:
- Past payment history
- Number of open accounts
- What their debt to income ratio is
Inappropriate (illegal) questions that aren’t indicators of credit worthiness:
- Whether or not they’re currently or previously married
- What the color of their skin is
- If they speak a different language
- If they were born in another country
And so the smart choice is going to be to focus on the metrics associated with the credit-worthiness and not these metrics that are illegal to consider.
Let’s consider an example
For example, let’s consider national origin. You can’t consider someone’s national origin as the basis for credit-worthiness as a discriminatory factor. If you knew somebody was born in Mexico, you wouldn’t be allowed to say, “Nope, we don’t fund people who are born in Mexico.” What you are allowed to ask is what their permanent residency status is in the United States. Because if they’re not a permanent resident here, that’s a different risk profile for funding, as far as credit-worthiness. If someone is only in the USA on a Visa for 90 days you shouldn’t extend to them a 36-month financing option.
Having your company representatives certify that they know the limits of ECOA will not only prevent lawsuits but will also protect your reputation.
How can we help? Compli’s system automates tracks the process of certification ensuring everyone is trained and makes reporting that to regulators a snap.
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