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Do we still need the Equal Credit Opportunity Act?


  • Dubravka Ritter


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.

Suggested Citation

  • Dubravka Ritter, 2012. "Do we still need the Equal Credit Opportunity Act?," Payment Cards Center Discussion Paper 12-03, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpdp:12-03

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    References listed on IDEAS

    1. Susan Herbst-Murphy, 2012. "Government use of the payment card system: issuance, acceptance, and regulation," Payment Cards Center Discussion Paper 12-06, Federal Reserve Bank of Philadelphia.
    2. Herbst-Murphy, Susan, 2015. "Trends and preferences in consumer payments: updates from the visa payment panel study," Payment Cards Center Discussion Paper 15-2, Federal Reserve Bank of Philadelphia.
    3. Shawn A. Cole & John Thompson & Peter Tufano, 2008. "Where Does it Go? Spending by the Financially Constrained," Harvard Business School Working Papers 08-083, Harvard Business School, revised Apr 2008.
    4. Kevin Foster & Erik Meijer & Scott Schuh & Michael A. Zabek, 2011. "The 2009 survey of consumer payment choice," Public Policy Discussion Paper 11-1, Federal Reserve Bank of Boston.
    5. Julia S. Cheney & Sherrie L. W. Rhine, 2006. "How effective were the financial safety nets in the aftermath of Katrina?," Payment Cards Center Discussion Paper 06-01, Federal Reserve Bank of Philadelphia.
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    Cited by:

    1. Skanderson, David & Ritter, Dubravka, 2014. "Fair lending analysis of credit cards," Payment Cards Center Discussion Paper 14-2, Federal Reserve Bank of Philadelphia.
    2. Wardrip, Keith & Hunt, Robert M., 2013. "Residential Migration, Entry, and Exit as Seen Through the Lens of Credit Bureau Data," Payment Cards Center Discussion Paper 13-4, Federal Reserve Bank of Philadelphia.

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    Equal Credit Opportunity Act ; Discrimination in consumer credit;

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