Have you ever been turned down for a credit card and wondered why? Or gotten approved for a car loan or mortgage but suddenly the interest rate and fees are much higher than in the initial quote?
There are many legitimate reasons why people are denied credit — insufficient income or a poor track record on past loan repayments, for example. But sometimes people are denied credit because of discriminatory lending practices — which are not always easy to spot.
Fortunately numerous federal and state laws prohibit lenders from discriminating in any part of a credit transaction on the basis of many personal characteristics. What’s more, the Consumer Financial Protection Bureau (CFPB) and other governmental agencies provide avenues for filing complaints if you feel you’ve been discriminated against. And offending lenders face lawsuits and stiff penalties if found to be discriminatory.
Under the Equal Credit Opportunity Act (ECOA) it's illegal for creditors to discriminate against credit applicants based on their race, color, religion, national origin, sex, marital status or age, because they receive income from a public assistance program, or because they have in good faith exercised any right under the Consumer Credit Protection Act.
Based on those criteria, lenders cannot:
• Refuse you credit if you qualify for it.
• Discourage you from applying for credit.
• Offer you credit on terms that are less favorable than those offered to someone with similar qualifications.
• Close your account.
Another federal law, the Fair Housing Act (FHA), prohibits discrimination by direct providers of housing, such as landlords, real estate companies, municipalities, banks or other lending institutions and homeowner's insurance companies.
Look out for warning signs. Red flags that may indicate credit discrimination include:
• 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 what 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.
• Your deal sounds too good to be true.
• You feel pushed or pressured to sign.
If you believe a lender has discriminated against you for any reason, you can submit a complaint to the CFPB (www.consumerfinance.gov/complaint), which will review and route your complaint to the lender and work on your behalf to get a response. Once your complaint is logged, you will receive email updates and can log in to monitor the status of your complaint.
To better protect yourself against credit discrimination — or from pursuing credit products that aren't right for you:
• Learn about the various features and downsides of the credit product you want. Research current interest rates and compare products from several lenders.
• Creditors make decisions based on your credit history, so make sure there are no mistakes or missing items in your credit reports.
• Be sure you understand the rates and fees you’ll pay over the long run and ask whether they could change in the future. If a creditor doesn't want to answer your questions, this could be a bad sign.
• Don’t let lenders make you feel rushed or unnecessarily delay action on your application.
Bottom line: Before you sign on the dotted line, make sure the credit product is right for your needs — both today and down the road.
Alderman directs Visa's financial education programs.