Have you ever been turned down for a credit card and wondered why? Or gotten approved for a car loan or mortgage but suddenly the interest rate and fees are much higher than in the initial quote?
There are many legitimate reasons why people are denied credit: insufficient income, a poor track record on past loan repayments or being too young to sign contracts, for example. But sometimes people are denied credit because of discriminatory lending practices -- which are not always easy to spot.
Fortunately, numerous federal and state laws prohibit lenders from discriminating in any part of a credit transaction on the basis of many personal characteristics. What's more, the Consumer Financial Protection Bureau (CFPB) and other governmental agencies provide avenues for filing complaints if you feel you've been discriminated against. And, offending lenders face government and civil lawsuits and stiff penalties if found to be discriminatory.
Under the Equal Credit Opportunity Act (ECOA) it's illegal for creditors to discriminate against credit applicants based on their race, color, religion, national origin, sex, marital status or age, because they receive income from a public assistance program, or because they have in good faith exercised any right under the Consumer Credit Protection Act.Based on those criteria, lenders cannot:
- Refuse you credit if you qualify for it;
- Discourage you from applying for credit;
- Offer you credit on terms that are less favorable (like a higher interest rate) than those offered to someone with similar qualifications; or
- Close your account.
- The Fair Housing Act (FHA), which prohibits discrimination by direct providers of housing, such as landlords, real estate companies, municipalities, banks or other lending institutions and homeowner's insurance companies.
- The Community Reinvestment Act, which is sometimes invoked to combat discrimination by banks and other lenders.
In addition, state antidiscrimination laws sometimes provide even greater protection than federal laws -- for example, some states prohibit arbitrary discrimination based on occupation, personal characteristics, political affiliation or sexual orientation. Check with your own state's Consumer Protection Office for applicable laws.Warning signs. The CFPB lists several red flags to watch for that may indicate credit discrimination:
- You are treated differently in person than on the phone.
- You are discouraged from applying for credit.
- You hear the lender make negative comments about race, national origin, sex, or other protected groups.
- You are refused credit even though you qualify for it.
- You are offered credit with a higher rate than what you applied for, even though you qualify for the lower rate.
- You are denied credit, but not given a reason why or told how to find out why.
- Your deal sounds too good to be true.
- You feel pushed or pressured to sign.
If you believe a lender has discriminated against you for any reason, you can submit a complaint to the CFPB, which will review and route your complaint to the lender and work on your behalf to get a response. Once your complaint is logged, you will receive email updates and can log in to monitor the status of your complaint.
The CFPB shares credit discrimination data with the Department of Justice, which may file a lawsuit under ECOA or FHA matters when it uncovers a pattern or practice of discrimination. In addition, individuals who believe they are the victims of unfair credit discrimination should contact the appropriate regulatory agency to register a complaint or file their own lawsuit.The regulatory agencies and the types of creditors they regulate include:
- The CFPB, for banks, savings associations and credit unions with total assets over $10 billion and their affiliates. They also share enforcement authority with the Federal Trade Commission over mortgage brokers, originators and servicers, lenders offering private educational loans, and payday lenders regardless of size.
- The Comptroller of the Currency, for national banks, federal savings associations and federal branches/agencies of foreign banks with total assets under$10 billion.
- The Federal Reserve Board, for financial institutions with total assets under $10 billion that are members of the Federal Reserve System, except national banks and federal branches/agencies of foreign banks.
- The Federal Deposit Insurance Corporation, for state-chartered banks with total assets under $10 billion that are not members of the Federal Reserve System.
- The National Credit Union Association, for federal credit unions.
- The Federal Trade Commission, for retailers, finance companies and other creditors not exclusively assigned to another agency.
To better protect yourself against credit discrimination -- or from pursuing credit products that aren't right for you:
- Learn about the various features and downsides of the credit product you want. Research current interest rates and compare products from several lenders.
- Creditors make decisions based on your credit history, so make sure there are no mistakes or missing items in your credit reports. Get free copies of your reports from the three biggest consumer-reporting agencies (Equifax, Experian and TransUnion) every 12 months from AnnualCreditReport.com.
- Don't focus only on your monthly payment. Be sure you understand the rates and fees you'll pay over the long run and ask whether they could change in the future. If a creditor doesn't want to answer your questions, this could be a bad sign.
- Don't let lenders make you feel rushed or unnecessarily delay action on your application. Walking away and continuing the discussion later (if you so choose), is a good way to control the situation.
Bottom line: Before you sign on the dotted line, make sure the credit product is right for your needs -- both today and down the road.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.