Know Your Rights to Fair Lending and Fair Housing
The Guide to Credit Discrimination
For most people, credit is crucial to purchasing a home, attending college and buying a car. But not everyone who needs credit ends up getting a fair deal. Some banks and other lenders actively discriminate against potential borrowers, making it difficult or even impossible for them to get an affordable loan. People of color, women, the elderly and Americans with disabilities are just some of the groups regularly denied access to fair credit, according to the National Consumer Law Center (NCLC). The following guide looks at those who face credit discrimination, their rights under federal law and the specific actions they can take when the prospect of a short shrift becomes an unfortunate reality.
Are You At Risk? Common Groups Vulnerable to Credit Discrimination
Anyone can experience credit discrimination, but some do more than others. These demographic groups represent major swathes of the population who are more vulnerable to credit discrimination. Our guide includes information that enables vulnerable groups to protect themselves when applying for a loan or a line of credit. In addition, these groups may benefit from alternative methods to show creditworthiness without having a credit score.
Consumers with disabilities: There are 61 million American consumers with disabilities today who may be subject to credit discrimination. Americans in this group are protected by federal law, but there is good reason for the protection: discrimination against individuals with disabilities continues to be identified and rectified by state and federal authorities.
Consumers who identify as LGBTQ: About 5.6% of Americans identify as LGBTQ and on this basis are a target group for credit discrimination. In March 2021, the Consumer Financial Protection Bureau issued an interpretative rule clarifying that the protections against discrimination described in the act extend to the LGBTQ community and that lenders cannot discriminate based on sexual orientation or gender identity.
Racial or ethnic minorities: About 40% of Americans identify as members of a racial or ethnic minority group, and this number is only increasing; communities of color have long been subject to credit discrimination, and the fight for equal rights and access continues today.
Senior citizens: Over 52 million Americans are senior citizens and may face unique challenges when applying for credit; for example, no lender is allowed to discriminate against seniors who use Social Security as part of all of their income.
Women: Over half of all Americans are female. While women are a protected group under federal discrimination laws, there is a reason they are protected: until the mid-20th century, women were unable to apply for credit independent of a man. Women who know their rights when applying for credit are better enabled to watch for potentially insidious instances of unlawful discrimination.
Veterans and active-duty service members: American veterans number 19 million and active-duty service members 1.4 million: one would imagine that our men and women in arms are among the most protected groups by law, but not so in the case of credit discrimination. While some states have special laws protecting veterans or service members from discrimination, others do not. And the Equal Credit Opportunity Act does not protect on the basis of military or veteran status.
Can You Spot Credit Discrimination?
There are three types of discriminatory practices outlined under recent laws by the FDIC: overt discrimination, unequal treatment and unequal impact.
This is when a lender discriminates openly against someone for something like their race, age or gender. Usually this involves advertising or statements that spell out the discrimination.
This is when applicants are treated differently because of their race, gender, age or other category that is protected by law. You don't need to prove the creditor intentionally discriminated against you, just that you were treated differently and that there isn't any other good reason that would explain the difference in treatment.
This is when a creditor's policies or practices disproportionally affect certain groups of people, even when the policy is applied equally to all. If the impact of the blanket policy negatively affects a certain group, that can count as discrimination.
Groups Protected by Law
The Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA) are the primary federal laws that specifically prohibit discrimination in lending. Other laws — like the Home Mortgage Disclosure Act, the Truth in Lending Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act and the Electronic Fund Transfer Act — also do their part to enforce fair lending practices. The ECOA has designated a number of "protected" groups who have historically been discriminated against. It is illegal for a lender to refuse a loan or to unfairly charge more for a loan to anyone in these groups. The law applies from the time you apply for a loan until you pay it off, and to any kind of credit — including credit cards, home loans, car loans and student loans.
- national origin
- age (as long as you are old enough to qualify)
- marital status
Federal law does not explicitly ban discrimination on the basis of a person's sexual orientation or gender identity. Still, the Consumer Financial Protection Bureau recently issued an interpretative rule in which it clarifies that the agency does consider sexual orientation protected under the ECOA. Further, about a dozen states do ban such discrimination. Finally, there are congressional efforts underway to amend the ECOA to formally extend the protections against discrimination in the ECOA to the LGBTQ community.
How the Law Protects Homeowners & Renters
In addition to the ECOA, which protects homebuyers seeking a mortgage loan, the Fair Housing Act (FHA) prohibits discrimination when you are renting, purchasing or securing financing for housing. This means that landlords, realtors and mortgage brokers must all follow the anti-discrimination laws.
Homeowners: The Home Mortgage Disclosure Act (HDMA) requires financial institutions to disclose data on their public loans, in part to be sure that they are not engaged in discriminatory lending practices. Since its passage in 1975, federal authorities have used the HDMA to look at lending patterns to identify financial institutions that are engaged in discriminatory lending practices.
The discrimination does not have to be intentional or overt for it to be illegal. If a lender's policies or actions disproportionally affect covered classes, they may be illegal.
Renters: All renters should have the same access to housing. Discrimination can come in the form of a landlord refusing to rent to you (because of your race, religion or gender, for example) or refusing to make reasonable accommodations for a disability.
Fair Access to Housing
The Fair Housing Act requires everyone to have access to housing regardless of his or her race, religion, national origin, color, sex, handicap or family situation (for example, if you have young kids or are pregnant). According to the Human Rights Campaign, over 20 states protect people from housing discrimination based on sexual orientation, but federal law still does not protect lesbian, gay, bisexual or transgender (LGBT) people from discrimination. Some local ordinances in some states, such as Michigan, have gone further and prohibit discrimination based on other characteristics like height and weight.
For federally owned buildings the regulations can be more stringent. These buildings have to meet the requirements of the Americans with Disabilities Act (ADA), a law that lays out requirements for accessibility in public spaces and the workplace. In addition, the Fair Housing Act also requires that most apartment buildings be accessible to people with disabilities (i.e., entrances accessible to wheelchairs, usable doors, and so on).
Violations of the Fair Housing Act could involve a landlord refusing to rent to you, giving you different terms than someone else or falsely telling you that a place is not available. Sometimes discrimination is spelled out in an ad. In other cases, the discrimination won't be overt or obvious. For example, you may inquire about renting in a certain building, and the landlord may steer you to a different one because you have kids. That may be illegal.
Protections for People With Disabilities
If you have a physical or mental disability and have a record of that disability, you have additional protections under the law.
"A landlord is not allowed to ask if you have a disability or a mental illness," says Andrew Sperling, co-chair of the Consortium for Citizens With Disabilities Housing Task Force, a coalition of national disability groups. "But you can disclose that you have a disability and therefore need a reasonable accommodation." And your landlord must allow you to make those reasonable modifications to your home (at your expense) so that you can use it.
"If you need a roll-in shower or a widened doorway for a wheelchair and you are willing to pay for it, the landlord has to allow it," says Andrew Sperling. "There are some programs out there to help you with this type of cost, especially if you are a disabled vet." He notes that non-veterans have options, too, including the Council on Independent Living.
You may also be eligible for exceptions to certain rules. For example, even if there is a "no pets" policy, a visually impaired tenant has a right to have a guide dog.
"If you feel you have been discriminated against, you can file a complaint under the Fair Housing Act," suggests Sperling. He also recommends you contact your local Fair Housing Assistance Program (FHAP). "They can do testing and bring suits if a landlord is violating the FHA," he says.
Wouldn't it be great not to have to modify your home to live in it? Many architects are working toward a future in which "universal design" is incorporated into all new housing and makes it safe and accessible to all, regardless of their age, physical ability or stature. This would mean greater freedom and community participation for the elderly and people with disabilities. For now, however, universal design requirements are not part of any federal legislation.
Since 2015, though, HUD has established new rules that require states and public housing officials to develop Assessment of Fair Housing (AFH) plans. This is an effort to go beyond addressing discrimination to develop more inclusive communities that include more housing for people with disabilities.
If you are facing discrimination in housing, go to the HUD website and look up your state to find a fair housing program near you.
How the Law Protects You When You're Applying for Credit or a Loan
The Equal Credit Opportunity Act prohibits discrimination in any type of credit transaction. If you apply for a mortgage, a car loan, a student loan or a credit card, this law protects you.
What are loan and credit officers allowed to ask about?
Loan officers are allowed to ask questions that help them determine your ability to pay off your loan. In other words, they will collect information about your income, assets, debts and credit history to determine if you are a good credit risk, and if so, what the terms of your loan will be. They must apply their standards impartially, without discrimination. They may ask you about your:
- Employment: Lenders may ask you who you work for, how long you've worked there, and how much you make.
- Expenses: Your rent/mortgage payments and other expenses and debts (such as car payments or student loans).
- Credit History: Lenders will usually run a credit history check, which includes information on past borrowing, whether you paid your debts on time, how much you have borrowed and how often you've applied for credit.
In addition, lenders may ask you questions that seem personal and irrelevant, but they can impact your level of credit risk. For example:
- Immigration status: You may need to prove that you are legally in the country and are able to stay long enough to pay the loan. Assuming you are, they may not take your immigration status into account.
- Marital status: In some cases, a lender may ask if you are married, unmarried or separated. This can be relevant if you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), if you are applying for a joint account, or if you are securing your debt with property that may be co-owned.
- Children: A lender may ask about your expenses, including expenses for taking care of your dependents.
- Alimony/child support: A lender can ask if you have to pay alimony, child support or separate maintenance payments since that is part of your expenses.
- Age: Loan officers can ask your age to make sure you are old enough to enter into a legal agreement. They can also take your age into account if you are near retirement, which may impact your income. But they can't use your age against you if it doesn't affect your ability to pay your debts.
What are loan and credit officers not allowed to ask about?
The law prohibits creditors from making lending decisions based on your race, gender, national origin, religion or receipt of public assistance. But that doesn't always mean they can't ask questions about them. In some cases, lenders will ask your race or gender on an application, but it is up to you whether you want to answer these questions. This data can help federal authorities monitor lending practices and enforce anti-discrimination laws. But disclosure should be voluntary and should not influence the loan decision. Questions about your personal characteristics that do not impact your ability to pay, such as religion and country of origin, are off-limits.
List of things lenders cannot do
- Give you different loan terms or conditions — like higher interest rates or fees — because of your race, color, religion, sex, age, national origin and marital status, or because you receive public assistance.
- Ask if you're widowed or divorced.
- Ask about your marital status if you're applying for a separate, unsecured account and you don't live in a community property state. Ask for information about your spouse, unless your spouse is applying with you, will be allowed to use the account, provides part of your income, or if you live in a community property state.
- Ask about your plans for raising children.
- Ask about alimony or child support payments without first telling you that you don't have to answer if you aren't relying on these payments to secure the loan.
Most commonly, discrimination takes the form of either being denied credit or being charged higher interest rates or worse terms. The ECOA requires that the lender reply to your application for credit within 30 days. If you are denied credit, they must explain why.
Often the discrimination is not overt and therefore not immediately clear. For example, a mortgage company may be involved in redlining — denying mortgages to people seeking to buy homes in certain neighborhoods because of the racial or ethnic makeup of the area. It is often hard for a single individual to prove they were discriminated against without showing a pattern — for example, a pattern of providing better credit terms to white people than to African Americans with similar credit histories. That's why federal laws have been developed to identify patterns of discrimination. For example, the Home Mortgage Disclosure Act requires lenders to report mortgage data. This allows federal officials to monitor lending patterns and promotes better enforcement of anti-discrimination laws.
To protect yourself from credit discrimination, it's a good idea to be prepared before seeking credit. The CFPB offers these tips for being prepared:
Learn about the types of loans, interest rates and products that are available. Talk to friends and family members about the deals they have gotten.
Get a copy of your credit report before you approach a lender.
If there are any mistakes on it, get it cleaned up before seeking credit. You are entitled to one free copy of your credit report every year from each of the three national credit-reporting agencies.
Ask questions about interest rates, fees, and other loan terms.
Be sure you understand the full cost of the loan and any circumstances that could change your payments. Don't rush into signing anything, and be sure that the loan will work for you in both the short and long terms.
If you go to a bank or credit union for a personal loan, you can feel confident that the loan officers are aware of anti-discrimination laws. But increasingly consumers are seeking loans from peer-to-peer lending markets. These online platforms link individual lenders to borrowers and provide a growing source of credit for many people who may not be eligible for a personal loan from their bank. Although federal fair credit laws apply to all lenders, there is some concern that the relative lack of oversight of peer-to-peer lenders may pave the way for discrimination.
One study of the online platform Prosper.com found that African American applicants who posted their pictures as part of their applications were 30 percent less likely to receive a loan than their white counterparts with similar credit histories. Their interest rates were also 60 to 80 basis points higher than those of similar white borrowers.
In March 2016 the CFPB announced that it would begin accepting complaints from borrowers who have faced problems with online lenders. You can file a complaint online, and the CFPB will work with the marketplace lender to resolve the issue.
When you apply for a credit card, the lender can and will take your credit history, income, expenses and debts into account. But they are not allowed to ask you about your race, religion or other personal characteristics that have no bearing on your ability to pay back a loan.
After a home, a car is usually the second-most important purchase a consumer will make. According to the Consumer Financial Protection Bureau (CFPB), discriminatory markups in auto lending may cause tens of millions of dollars in losses to consumers each year. Often discrimination takes the form of "dealer markup" policies that allow dealerships to add points to the base interest rates they charge consumers. The CFPB says research suggests that minorities are being charged higher markups than similarly situated white consumers.
Unlike the mortgage loan industry, which is required by law to collect demographic data to help uncover any potential discrimination, the auto loan industry is prohibited from collecting such data. As a result, it is more difficult to prove patterns of discrimination. But the CFPB has still been able to go after several lenders for discriminatory markups. In February 2016, for example, Toyota's financing arm agreed to pay close to $22 million to black and Asian customers who paid more for their loans than their white counterparts.
Filing a Discrimination Complaint
It's important to register a complaint if you think you may have been affected by discrimination. Your experience could be an anomaly, but it also may be part of a larger pattern of discrimination. The CFPB provides a list of warning signs to look out for if you feel you are being discriminated against. If you feel these red flags apply to you, it may be time to file a complaint:
- 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 the one 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.
- You feel pushed or pressured to sign.
If you feel you have been discriminated against in your search for fair housing, there are steps you can take:
- You can file a complaint with the Department of Housing and Urban Development here, in English or en Español or by phone at 1-800-669-9777; TDD: 1-800-927-9275.
- You can also file with the Consumer Finance Protection Bureau. CFPB offers support for both homeowners and renters.
- You can contact a local fair housing organization that assists people in your area. For a list of such agencies, visit HUD's website here.
- Contact your office of your state's Attorney General.
Credit or Loan Complaint
If you feel you have been discriminated against in accessing credit for any sort of purchase:
- File a complaint with Consumer Financial Protection Bureau or by phone at 855-411-2372.
- File a complaint with the Federal Trade Commission. They do not handle individual complaints, but your complaint will be entered in a database that is used by many enforcement agencies.
- Contact your state's attorney general.
Consider retaining an attorney. A private attorney can be expensive, but if you are the victim of credit discrimination, a successful legal claim may be well worth the cost of an attorney.
Low-income consumers may be able to get low-cost legal assistance from their state or local legal aid office. To find a legal aid office near you, use Legal Services Corporation's interactive map by typing in your zip code.
The National Consumer Law Center also provides a list of organizations and websites you can visit to find legal assistance for your particular issue.
Expert Insights About Credit Discrimination
MoneyGeek talked with Jerry Battle, a staff attorney at National Consumer Law Center, to discuss how credit discrimination hurts people and the best ways to protect them.
- Who is most often hurt by discrimination in credit?
- What has the federal government been doing to protect people from discrimination in credit?
- How can people protect themselves from discriminatory "mark-ups" on car loans?
- How can consumers protect themselves from discrimination?
- Where should people go for help if they feel they have been discriminated against?
Staff attorney, National Consumer Law Center
Assistant Professor of Psychology at the University of Hawaii-West Oahu
About the Author
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- Gallup. "LGBT Identification Rises to 5.6% in Latest U.S. Estimate." Accessed May 28, 2021.
- Visual Capitalist. "Visualizing the U.S. Population by Race." Accessed May 28, 2021.
- Population Reference Bureau. "Fact Sheet: Aging in the United States." Accessed May 28, 2021.
- U.S. Census Bureau. "Quick Facts: United States." Accessed May 28, 2021.
- Pew Research Center. "The changing face of America’s veteran population." Accessed May 28, 2021.
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