The Equal Credit Opportunity Act (ECOA), implemented by the CFPB's Regulation B (12 CFR Part 1002), is one of the federal laws on the SAFE MLO Test. Where the Fair Housing Act addresses discrimination in housing, ECOA covers every kind of credit, including mortgages.
The prohibited bases
A creditor may not discriminate against an applicant on the basis of:
- race, color, religion, national origin or sex
- marital status
- age, provided the applicant has the capacity to enter into a binding contract
- the fact that some or all of the applicant's income comes from a public assistance program
- the fact that the applicant has in good faith exercised a right under the Consumer Credit Protection Act
A common test trap: familial status and disability are protected under the Fair Housing Act, but they are not on Regulation B's list of prohibited bases.
Related: What to Expect on the NMLS SAFE MLO Exam
Notice of action taken: 30 days
A creditor must notify an applicant of action taken within:
- 30 days after receiving a completed application (approval, counteroffer or adverse action)
- 30 days after taking adverse action on an incomplete application
- 30 days after taking adverse action on an existing account
- 90 days after a counteroffer the applicant doesn't expressly accept or use
For an incomplete application, the creditor can instead send a notice of incompleteness within 30 days, explaining what's needed.
Adverse action notices
An adverse action notice must be in writing and include the action taken, the creditor's name and address, the ECOA anti-discrimination notice, the federal agency that oversees the creditor, and either:
- a statement of the specific reasons, or
- a disclosure of the applicant's right to get those reasons within 30 days if the applicant asks within 60 days.
The reasons must be specific. Saying the applicant didn't meet "internal standards" or failed to reach a qualifying credit score is not sufficient.
Spousal signatures
If an applicant qualifies on their own for the amount and terms requested, a creditor may not require the signature of a spouse or anyone else other than a joint applicant. A joint financial statement is not, by itself, an application for joint credit. Regulation B allows exceptions, such as when a signature is needed to make the collateral available under state law.
Copies of appraisals
For a loan secured by a first lien on a dwelling, the creditor must give the applicant a copy of all appraisals and other written valuations, promptly upon completion or three business days before consummation, whichever is earlier. The applicant can waive the timing and receive copies at or before consummation, but the waiver itself must be obtained at least three business days before consummation, except for a revised valuation with only clerical changes.
Why it matters for an MLO
Fair lending isn't only about final decisions. How you describe products, which options you offer and how you handle an application all count. Treat every applicant the same way, and document the reasons for every decision.