Equal Credit Opportunity Act

Federal statutes enacted to govern consumer transactions have recently been extended to commercial (business) credit transactions. The Equal Credit Opportunity Act (ECOA) is a federal statute that prohibits credit grantors from discriminating on the basis of race, color, religion, national origin, gender, marital status, or age (collectively referred to as the "prohibited basis"). The statute also requires creditors to comply with certain notifications and retain records for specific periods of time.

Under the ECOA, a credit grantor must provide notice to the applicant of action taken with the request for credit within 30 days after a completed application is received by the credit grantor. The applicant has 60 days from receipt of the credit grantor's "adverse action" letter to request an explanation of adverse ruling.  If an applicant requests an explanation of adverse ruling within 60 days, the credit grantor must provide a statement of reasons for the decision to decline the credit request within 30 days. The credit executive may provide an explanation such as these:  "adverse credit history," "lack of business experience," "lack of working capital," or "too much secured debt."

Under the ECOA, creditor companies must retain records for applicants denied credit. The period of time that the records must be retained depends on the amount of the gross revenues of the applicant.

(Source: Scott Blakeley, a principal of Blakeley & Blakeley, LLP of Southern California, practices creditors' rights and bankruptcy law.)