The Equal Credit Opportunity Act (ECOA) was established in order to ensure that all individuals have an equal opportunity to obtain credit. The ECOA prohibits creditors from discriminating against individuals based on their sex, age, race, or marital status. Therefore, creditors cannot deny credit to an individual for any reason that is deemed unacceptable.
An acceptable reason to deny an applicant credit, as harsh as it may seem, is low income. However, there are some instances in which a creditor is not permitted to automatically deny an applicant credit based on their income. In order to avoid age discrimination, the ECOA prohibits creditors from denying an individual credit simply because they rely on Social Security benefits or retirement packages as their primary means of income.
Also, part-time employment cannot automatically disqualify an individual from obtaining credit. These measures have been taken primarily to protect the elderly from age discrimination.
The ECOA defines an elderly person as an individual who has reached the age of 62. In most cases, once an individual reaches this age they will start to consider retirement. An individual who has retired no longer has a steady income as a result of employment, but survives through Social Security benefits, retirement savings plans, and pension plans.
An elderly individual may choose to continue to work part-time in order to keep himself/herself busy or to make some extra money. In either situation, his/her income will be lower relative to the wages earned while he/she was employed in a full-time position.
Creditors generally consider granting credit to elderly individuals to be a risk because they fear that they will be unable to pay the debt that they accrue. As a result, many creditors refuse to extend credit to elderly individuals outright. Since the ECOA was enacted in 1974, however, creditors have been prohibited from discriminating in this manner.
Though the ECOA expresses concern about age discrimination against the elderly, this legislation unfortunately does little to protect young individuals from age discrimination. A creditor may refuse to grant a young adult credit based on their lack of financial experience. If a college student maintains a low income because they only work a limited number of hours every week, a creditor may deny the applicant credit because of their low income.
In most cases, a young adult will be unable to obtain a loan for expensive property, such as a motor vehicle or a house because they have not yet had the opportunity to establish positive credit or because they have not maintained a well-paying job for a long period of time.
Generally, creditors argue that extending large quantities of credit to a young adult is a very risky move, as there is often no evidence that they are financially responsible. However, many individuals feel that denying a young adult credit based on their inexperience is a form of age discrimination, as inexperience does not necessarily equate to irresponsibility. Therefore, although the ECOA has taken steps to prevent age discrimination against the elderly, more needs to be done to combat the same discrimination against young adults.