Event Reminders AND Draw the Law – Payment Issues, Part IV: Equal Credit Opportunity Act

Hey everyone before I get to today’s Draw the Law, let me remind anyone in the Honolulu area that I will be having two talks next week.

Events

First, on Monday (12/19), come join me at The Green House Innovation Hub, a center of creativity, innovation, and coworking down in Kaka’ako. I will be talking about CAN-SPAM Act, primarily for small business and marketing points of view. I covered a little bit about it back in this post for Draw the Law. This Law Lunch will be more in-depth and starts at 12PM. Click on the links to find out.

Then the following evening, Tuesday (12/20), starting at 7PM at The Box Jelly, I will be conducting a talk about Succession Planning with fellow attorney and Estate Planner Scott Suzuki. We will primarily focus on what happens to your business and personal assets of when you are gone, and the need to plan for the future. For more information, click here.

If you are a business owner, marketer, curious about advertising or tax planning come join us down in Kaka’ako the place to be for work and play!

Draw the Law: Equal Credit Opportunity Act

So last week I talked about thinking about extending credit, and that you would need a policy and application. Moreover, when you advertised about this credit application process you would be regulated by the Truth in Lending Act (TILA). Today I turn how you must treat a consumer’s  credit application under the Equal Credit Opportunity Act (ECOA).

As a business owner how do you figure out who to grant credit to? You need a process to select out who should and should not get credit.

What is ECOA?

ECOA is a law that prohibits entities that extend credit from discriminating against certain aspects of the applicant.

What are those Factors?

If you are familiar with human resource management or remember the prior discussion on Employee Protection laws, then you can kind of guess what factors ECOA protects.

Do not use these for the basis of your decision to extend credit. In addition, if someone asserts their legal rights you cannot discriminate against that either.

The factors you are prohibited from considering when deciding whether to extend credit or not are as follows:

  • Race
  • Color
  • National Origin
  • Sex
  • Marital Status
  • Age
  • Receipt of Public Aid
  • Exercise of the Person’s Legal Rights as a Credit-Seeker

Age? Does that mean I have to Give Credit to a 14-year old?

No, age as a factor is not a straight-forward analysis; first, the person has to have reached the age of majority (which is 18 in most states) to be protected by ECOA. With that being said, from the age of majority and up, you as the credit grantor cannot discriminate based on the applicant’s age, whether young or old. However, you may be favorable toward older people and may consider their future income stream. Furthermore, retirement complicates matters and generally you should consult an attorney if you are going to have a highly nuanced credit policy with regard to age.

Are there Factors I can Consider?

Yes, there are factors you can consider for granting credit, and they do get to the heart of the matter, which is why did you want extend credit in the first place? To make money, thus here are factors to look at:

  • Assets – what do they have as collateral? If they are asking for a huge extension and have very little to their name, where are you going to get your money if they default? Leads to the next factor –
  • Ability to Repay – what is the applicant’s current job or income source?  (usually, a mortgage lending practice and not consumer credit)
  • Credit History – how much money does the applicant owe? Do they pay bills on time? Have they ever declared bankruptcy?
  • Credit Foundation – do they own a home? How long have they been there? The ability to maintain a home and long residence there usually indicates sound money management by the applicant.

These are factors you can consider when making decisions to offer credit to consumers.


See you next week and look out for announcements for changes to this blog for 2012. If you enjoyed this post or any of my others please “Subscribe” to this blawg!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

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