It's in print, it's online and it hangs on the doors of mortgage lenders across America. It's that little house logo and it means "Equal Opportunity Lender" (EOL). But what exactly is an equal opportunity lender?
The Equal Credit Opportunity Act (ECOA) was enacted in 1974 to eliminate discrimination in mortgage lending after data showed that qualified minority loan applicants didn't have the same chance of getting approved for loans as qualified non-minority loan applicants. The EOL logo is a required display so that borrowers understand that it is illegal for mortgage lenders to discriminate against them on the basis of race, color, religion, national origin, sex, marital status, age, receipt of public assistance funds or the exercise of any right under the Consumer Credit Protection Act.
The Many Faces of Discrimination
According to the Boston Federal Reserve Bank, discrimination can take many forms. While overt, conscious prejudice is thankfully rare nowadays, subtle but deliberate discrimination still exists and unintentional discrimination is even more insidious. Subtle discrimination is demonstrated when lenders don't market loan products to potential minority customers or don't hire and promote qualified staff from racial and ethnic minority groups. Unintentional discrimination can be reflected in a lender's underwriting practices; out-of-date policies can effectively decline qualified urban or lower-income minority applicants. Any underwriting criteria that can't be statistically proven to predict mortgage repayment and lowers the chance of protected classes getting loan approval is discriminatory and illegal.
Unintentional discrimination doesn't just occur in underwriting departments. If a lender's customer is offered coffee by the receptionist, coffee should be offered to all. If a loan agent shakes a borrower's hand, he or she should be prepared to treat every client with just as much respect. If male clients are greeted with "Good morning, Mr. Jones," female clients can't be addressed, "Hi, Jane," unless the lender wants to incur the wrath of the government auditors who pose as clients in order to ferret out such treatment and eliminate it. If lenders don't hire people who represent the communities they serve, individuals from those communities feel less comfortable applying for loans. Much of this unintentional discrimination can make members of protected groups feel less welcome or that their business is less desirable. This can be instrumental in pushing them into the arms of predatory lenders or discourage them from negotiating the best mortgage rates.
The Federal Reserve states, "While the banking industry is not expected to cure the nation's social and racial ills, lenders do have a specific legal responsibility to ensure that negative perceptions, attitudes, and prejudices do not systematically affect the fair and even-handed distribution of credit in our society. Fair lending must be an integral part of a financial institution's business plan."
Mortgage lenders that decline your mortgage application have to:
- Specify the exact reason for the rejection if you ask within 60 days. Acceptable: "Your income was insufficient" or "You haven't been employed long enough." Unacceptable: "You didn't meet our standards."
- State the reason for an offer of less favorable terms than you applied for -- for example, a smaller loan or higher interest rate. You have the right to know why, but only if you don't accept the lender's counteroffer.
- Give you a copy of the property appraisal. Mortgage applications can be declined because of low appraisals.
- Tell you if you were declined because of your credit history. The lender also has to give you the name, address and phone number of the consumer reporting company that provided the information. You are entitled to a free copy of that report if you request it within 60 days.
If you feel that a lender has treated you unfairly:
- File a complaint with the Federal Trade Commission (FTC) at www.ftc.gov or call 1-877-FTC-HELP (1-877-382-4357).
- Civil suits for unlawful credit discrimination may be brought within two years of the date of the occurrence of the alleged violation. Damages include actual damages and punitive damages of up to $10,000 in individual actions.
- Check with your state attorney general's office to see if the creditor violated state laws. Many states have their own equal credit opportunity laws.
- For FHA violations, contact the U.S. Department of Housing and Urban Development at www.hud.gov/fairhousing.
Fair lending is good business. By drawing attention to discriminatory practices, you the consumer can actually help mortgage lenders accomplish their goals of doing better on the fairness front.
Gina Pogol has been writing about mortgage and finance since 1994. In addition to a decade in mortgage lending, she has worked as a business credit systems consultant for Experian and as an accountant for Deloitte.