Credit Discrimination

1. (Mark all that are true) In its 1972 report, the National Commission on Consumer Finance (NCCF) said that

a. single men have more trouble getting credit than single women
b. creditors generally require women, on remarriage, to reapply for credit, usually in their husband's name
c. creditors are often unwilling to extend credit to a married woman in her own name
d. when a married couple apply for credit, creditors often refuse to count the wife's income in full, if at all
e. men who are separated or widowed have trouble re-establishing credit
f. women who are divorced have a difficult time establishing credit in their own names


2. For each of the following classes of persons, indicate whether they are protected from discrimination and whether the protection comes from:

    -the Equal Credit Opportunity Act (ECOA) as originally passed in 1974
    -the ECOA as amended in 1976
    -Vermont law

a. race (ECOA '76; V)
b. religion (ECOA '76; V)
c. sex (ECOA '74; V)
d. marital status (ECOA '74; V)
e. sexual preference (V)
f. age (ECOA '76; V)
g. youth
h. handicapping condition (V)
i. national origin (ECOA '76; V)
j. receipt of public assistance (E '76)
k. good faith exercise of rights under the Consumer Credit Protection Act (CCPA) (ECOA '76)

    -(Vermont law: sex, marital status, race, color, religion, national origin, age, sexual orientation or handicapping condition)


3. As was the case with Truth-in-Lending, Congress passed a law and gave rulemaking authority to
a. the FTC, which adopted Reg. B
b. the Federal Reserve Board, which adopted Reg. B
c. the Federal Reserve Board, which adopted Reg. C
d. none of the above; the only law on credit discrimination is the ECOA



4. The following are subjects that a creditor was likely to ask about in an application for credit prior to passage of the ECOA. Which ones would be allowed, and which not, under the law today
a. sex (i.e., Mr., Miss, Mrs., Ms.) (if on form and form says it's optional)
b. pregnancy
c. intention to have children
d. ability to have children
e. number and ages of current dependent children (because it affects ability to pay)
f. race (only in mortgage transaction; it's required; purpose is to prevent redlining)
g. color
j. national origin
k. marital status (if for joint credit; not for individual, unsecured credit; unless in community property state)
l. current or former spouse (only where relying on spouse's income or child support to justify amount of credit applied for)



5. You have just been hired to work in the credit department of a bank. Your job will be to evaluate applications for auto loans. The person who is training you is going through some loan applications and explaining why she would accept or reject them. Indicate whether you agree or disagree with the statements, based on the ECOA
a. He's only 17, too young
b. He's male, 62, life expectancy is only 77, we can't give him a loan (can't use age negatively)
c. He's 62 so he gets extra points on our scoring system
d. He's 62 and mandatory retirement in his profession is 65; we can't consider his total income
e. She's 32, married and has no children; we reduce her income by 50% because statistics say she's likely to have children in the next 10 years
f. Her income is from social security and child support; we can't count it at 100% (unless the child support is scheduled to run out)
g. All of the credit cards are in her husband's name, even though she uses them; we can't consider them as part of her credit history
h. He's married, so we can't give him an account in just his name; it has to be joint with his wife


6. (True or False) The creditor must approve or deny the application within 45 days of receipt of the application

    -30 days



7. If the creditor rejects the credit application, it must include the following information in a letter to the applicant
a. a statement of the action taken (e.g., "credit denied")
b. the name of the ECOA enforcement agency and an outline of the provisions of the Act
c. a statement of the reasons for the adverse decision or of the consumer's right to such a statement; such a statement must be specific
d. all of the above

    -ties in with FCRA, which requires that name and address of credit bureau be given if report is reason for denial



8. (True or False) If a creditor reports information to a credit bureau, it must report information in the names of both spouses if both use or are contractually liable for the account

    -purpose is to address the "widowed spouse" problem



Questions 9-18  relate to the opinion of the U.S. Court of Appeals in Markham v. Colonial Mortgage Service

<>9.  Who were the plaintiffs and what was their marital status?

    -engaged couple



 10.  What were they trying to purchase?

    -house


11.  Why were they denied a mortgage?

    -neither earned enough individually to qualify


12.  If they had been married, would Illinois Federal have granted them the mortgage?

     -yes
    -in fact, approval made contingent on submission of marriage certificate


13.  Why? What difference would it have made in the way the bank considered their incomes?

    -bank would have "aggregated" their incomes


14.  Under what law did the Markhams sue and what type of discrimination did they allege?

     -ECOA
    -marital status


15.  How did the trial court rule?

     -summary judgment for bank


16.  On appeal, the court based its decision in part on the fact that plaintiffs were applying as “joint applicants.”  What is the significance of the fact that they were applying jointly?

    -each party would be "jointly and severally liable"
    -each responsible for the entire amount
    -thus bank would have no greater rights against them had they been married


17. The bank argued that this was not the kind of case the law was intended to deal with.  Were they right?  Who was the law passed to protect?

    -yes
    -intended to protect married women (see * p. 3)


18.  If that's so, why did the court rule in favor of the Markhams?

    -cuz they were treated differently based on marital status (see ** p. 3)


 
Questions 19-28 relate to the opinion of the U.S. Court of Appeals in Miller v. American Express Co.
 
19. Who was Mrs. Miller and what type of an American Express (Amex) credit card did she have?

    -a widow; a "supplementary" card (to her husband's "basic" account)
    -different account #
    -different expiration date
    -separate annual fee
    -for all intents and purposes, it was a separate account


20. Was Mrs. Miller "contractually liable" on the account, or was she merely a "user" of her husband's account?

    -she was contractually liable
    -it meant she had to pay all the charges on the bill


21. What did Amex do that caused Mrs. Miller to sue?

    -cancelled her card upon the death of her husband
        --was informed at the store by a clerk! (imagine your gradmothers in that position!)


22. What was Amex’s policy that led to their action in this case? Did it apply only to widows?

    -automatically terminated account of supplementary cardholder upon death of basic cardholder
    -applied to all such accounts, not just widows (e.g., siblings and children)


23. What provision of the law did Mrs. Miller claim Amex violated?

    --202.7 (c) (1) and (2) (go to statute linked in lecture notes)


24. Was there any evidence of Mrs. Miller’s inability or unwillingness to pay?

    -no; in fact, she was given a card when she re-applied


25. How did the trial court rule?

    -awarded summary judgment to Amex (without specifying reasons)


26. Amex argued on appeal that there was no evidence of an intent to discriminate; its policy applied regardless of the gender of the owner of the supplementary account. How did the Court of Appeals respond to that argument?

    -not necessary
    -usually discrimination in credit is unintentional


27. What did the Court of Appeals say was the policy behind this section of the law?

    -loss of credit due to widowhood


28. Did the court indicate this was the kind of case that section was intended to cover?

    -yes (see * p. 4)



Discuss credit scoring and assignments
Note that credit scoring should minimize discrimination, since no personal judgments should come into play

Go over information in file on the way scores are determined by FICO (visual)