Consumer Credit

Discriminatory practices in the granting of credit led to the enactment of legislation to ensure that all qualified applicants have the same opportunity to receive credit.

Sex In the past, women were systematically denied credit regardless of whether they would be able to repay their loans. It was not uncommon for bankers to refuse to consider a married woman's income when a couple applied for a loan or a mortgage. Banks made the assumption that a woman of childbearing age was an automatic credit risk.

Single women had greater difficulty than single men in obtaining credit, particularly home mortgages. Creditors were also reluctant to extend credit to married women in their own names and refused to count a woman's income when calculating the creditworthiness of a married couple. Women also had a difficult time reestablishing credit upon DIVORCE or widowhood.

In 1974, Congress enacted the Federal Equal Credit Opportunity Act (15 U.S.C.A. § 1691 et seq.), which prohibits credit discrimination based not only upon sex and marital status, but also upon race, religion, and national origin. It has, however, very detailed prohibitions against discrimination based upon sex and marital status. Creditors are not permitted to (1) assign a value to sex or marital status in calculating an applicant's creditworthiness; (2) assign a value to having a telephone in the name of the applicant; (3) question a married couple's childbearing plan; (4) alter the terms of credit or require a reapplication when there is a change in an individual's marital status; (5) refuse to consider the total income of the couple who are making the application; (6) delay action on an application or refuse to consider it; or (7) discourage an individual from making an application for credit.

Federal agencies such as the FTC can guard against violations of this law through the issuance of restraining orders. In addition, consumers can commence an action against creditors who have denied them an equal opportunity to acquire credit. Where credit discrimination is prohibited by a state law also, the consumer can choose whether to pursue the state or the federal remedy.

Other Types of Discrimination Subsequent amendments to the Equal Credit Opportunity Act were concerned with race and age discrimination. The act provides that a creditor can take an applicant's age into consideration only in a situation where older people are given a preference or where a specific type of credit is allowed someone because that person is elderly. The law also requires that public assistance benefits be counted by creditors as a portion of an applicant's income. The race of an applicant cannot be used as a ground for the denial of credit.

Disclosure of Terms Until the late 1960s, there was considerable variety as to the information given consumers about their credit arrangements. The greatest lack of uniformity was in the statement of the rate of interest charged. Some creditors did not disclose the rate of interest, telling consumers only the number and amount of monthly payments. Those creditors that did state the rate of interest stated it in a variety of ways.

In response, Congress enacted the TRUTH IN LENDING ACT as Title I of the Consumer Credit Protection Act of 1968. The law is essentially a disclosure statute, offering little substantive protection to consumers. A creditor is free to impose any charges for credit permitted by state law. In addition, the statute does not restrict or confine the terms and conditions of the extension of credit. All that the Truth-in-Lending Act requires is that the consumer be informed of the terms and conditions of the credit transaction.

Under the statute and FTC regulations, the creditor must describe the credit terms clearly and conspicuously in a disclosure statement. At the time of disclosure, the creditor must furnish the customer with a copy of the statement. The disclosure requirements of the act are detailed and complex, because they deal with many types of credit transactions. In general, the creditor must disclose the amount financed, the annual percentage rate, and any finance charges associated with the extension of credit to the consumer. Any charges payable in the event of late payment must also be disclosed.