Do we still need the Equal Credit Opportunity Act?

The Equal Credit Opportunity Act (ECOA) prohibits discrimination in any aspect of a credit transaction based on sex, marital status, race, ethnicity, age, or other specified factors. Regulation B implementing the ECOA, a applied by the courts, requires that financial institutions challenged on the basis that a policy or practice has a disparate impact on a protected class must demonstrate that such a policy or practices is related to creditworthiness and is justified by a legitimate and necessary business objective. Certain factors that lenders may use in their decisions regarding creditworthiness may be affected by discrimination that occurs in other markets, such as the labor and housing markets. The business necessity test allows financial institutions to distinguish between two categories of credit factors influenced by illegal discrimination in other markets: a) credit factors that have a disparate impact but demonstrably affect risk (so long as a less discriminatory approach would not satisfy the same business objective), and b) credit factors that have a disparate impact but where there is no countervailing legitimate business objective, or a less discriminatory factor would achieve the same business goal. This paper discusses the role of the ECOA and Regulation B in distinguishing between the two categories of credit-related policies and arches that the ECOA continues to be relevant so long as discrimination persists in markets affecting credit qualifications.