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Thursday, September 26, 2013

ECOA: Definitions of “Applicant” and “Application”

QUESTION
 I would like to know how to define an “applicant” and an “application” under the Equal Credit Opportunities Act (“ECOA”). Also, what is a “completed application,” according to the ECOA?

ANSWER
The Equal Credit Opportunities Act, and its implementing regulation, Regulation B, set forth guidelines for entities that extend credit with respect to preventing discrimination on the basis of sex, marital status, race, color, religion, national origin, age, applicant’s income derived from a public assistance program, and any right the applicant may have pursuant to the Consumer Credit Protection Act. [15 USC § 1691(a), Title 15, Ch 41, Sub IV]

Although it is believed that this ECOA requirement only pertains to the lender, as creditor, this notion is erroneous. Regulation B holds that a mortgage broker is considered a creditor, too, since the term “creditor” also “includes a person who, in the ordinary course of business, regularly refers applicants or prospective applicants to creditors, or selects or offers to select creditors to whom requests for credit may be made.” [12 CFR 202.2(l), Title 12, Ch II, Sub A, Part 202]

Under ECOA, an “applicant” is any person (i.e., natural person, corporation, government agency, trust, estate, partnership, cooperative, association) “who requests or who has received an extension of credit from a creditor, and includes any person who is or may become contractually liable regarding an extension of credit.” [12 CFR 202.2(e), Title 12, Ch II, Sub A, Part 202]

The definition of an “application,” for the purposes of the ECOA, is “an oral or written request for an extension of credit that is made in accordance with procedures used by a creditor for the type of credit requested.” (My emphasis.)

The term “application” does not include the use of an account or line of credit to obtain an amount of credit that is within a previously established credit limit.

A “completed application” means an application in connection with which a creditor has received all the information that the creditor regularly obtains and considers in evaluating applications for the amount and type of credit requested. This includes, but is not limited to, “credit reports, any additional information requested from the applicant, and any approvals or reports by governmental agencies or other persons that are necessary to guarantee, insure, or provide security for the credit or collateral.” (My emphasis.) [12 CFR 202.2(f), Title 12, Ch II, Sub A, Part 202]

Jonathan Foxx
President and Managing Director
Lenders Compliance Group