What Are Fair Lending Laws and Regulations?

How Fair Lending Laws Help Protect Homebuyers and Homeowners

Buying a house is a huge financial decision, and because it’s such a big investment, the government has regulations to help protect consumers. Fair lending laws, such as the Fair Housing Act (FHA) and Equal Credit Opportunity Act (ECOA), help ensure all credit-worthy individuals can access financial products like mortgages without discrimination. Understanding how these laws work can boost confidence during the homebuying process.

How Federal Fair Lending Laws Protect Consumers

When you’re ready to buy a home, two primary laws protect you from unfair lending practices: the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA). The Home Mortgage Disclosure Act (HMDA), the Community Reinvestment Act (CRA), and the Dodd-Frank Act offer additional protections to aspiring homeowners.

What Does the Fair Housing Act Do?

The Fair Housing Act (not to be confused with the Federal Housing Administration, which insures FHA loans) protects borrowers from discrimination in mortgage lending and any residential real estate-related transaction. These transactions include:

• Mortgages to buy a home
• Mortgages to refinance a home, including home equity loans
• Loans to build, repair, or maintain a home
• Selling or renting a home

The FHA prohibits discrimination based on race, color, national origin, religion, sex, familial status, and disability.

The FHA also covers mortgage brokers, property appraisals, and homeowners insurance.

What Does the Equal Credit Opportunity Act Do?

The ECOA protects consumers from discrimination in credit transactions, which include transactions related to residential real estate. The ECOA prohibits discrimination based on age, marital status, race, color, religion, national origin, and sex. It also prohibits discrimination based on income from public assistance and the exercise of rights under the Consumer Credit Protection Act.

The ECOA applies to credit from banks, lenders, stores, and credit card companies. It also applies to businesses, corporations, partnerships, and trusts, as well as individuals.

Other Supporting Laws

Other federal regulations extend protection for homebuyers and homeowners:

• Home Mortgage Disclosure Act (HMDA): The HMDA was enacted in 1975. It requires mortgage lenders to report various information, including the borrowers’ demographics and property details. This helps in policymaking and aids in preventing discriminatory practices.
• Community Reinvestment Act (CRA): Enacted in 1977, the CRA requires lenders to support the entire community they serve. This includes providing credit to low- and moderate-income areas.
• Dodd-Frank Act: Signed into law in 2010, the Dodd-Frank Act protects consumers from predatory lending practices. It also established the Qualified Mortgage rule, meant to protect lenders against defaults.

Borrowers can always ask their lenders how these laws apply to them and what protections are in place.

What’s Fair Lending Discrimination?

Despite the existence of fair lending laws, there is still a risk of discrimination, which aspiring homeowners should be aware of to help protect themselves. Fair lending discrimination is intentionally treating certain applicants less favorably based on protected characteristics like race, sex, religion, etc.

This type of discrimination is illegal and can take many different forms. Some examples are:

• Discouraging a person from applying for credit solely because of their protected characteristic, such as a disability
• Refusing to offer credit to a person due to their sex even if they qualify
• Offering less favorable terms to different persons with similar qualifications based on their religion
• Basing approval decisions on the applicant’s race
• Directing someone toward financial products with less favorable terms because of their place of origin

How to Address Fair Lending Discrimination

If you believe you have faced discrimination, you can take action. Some options include filing a complaint with the Federal Trade Commission (FTC) and with the Consumer Financial Protection Bureau (CFPB). You can also notify the U.S. Department of Housing and Urban Development (HUD), which can investigate claims of discrimination. Lastly, you can consult a lawyer who specializes in fair housing or consumer law.

Taking out a mortgage is a major life decision, so it’s crucial to work with a lender you can trust. At Freedom Mortgage, we are dedicated to helping all individuals understand their options, offering support to confidently determine the best home loan for you and your goals.

Final Thoughts: How Fair Lending Laws Help

As a homebuyer or homeowner, you’ll have legal protections provided through fair lending laws and regulations. These laws ensure equal access to credit and fair treatment. It’s important to find a lender who values and upholds these laws. At Freedom Mortgage, we’re committed to the fair treatment of all our customers as you explore your mortgage options.

Please see our Legal Disclosures for more details on our policies and procedures.