Facts for Business from the Federal Trade Commission

Getting Business Credit -- October 1993

As a business owner, or a person planning to start a business, you may need to borrow money to get started or to help your business develop or expand. If so, you should know about a law that protects you against illegal discrimination in business credit.

The Equal Credit Opportunity Act (ECOA) prohibits creditors from discriminating on the basis of certain factors unrelated to creditworthiness. This law also permits you to find out why your application was denied and to sue creditors who discriminate illegally. Here is a summary of what the law provides:

Credit cannot be denied on the basis of sex, marital status, race, age, national origin, or religion. This applies to you and to the people you deal with. For example, if you request a loan for a store in an ethnic or minority neighborhood, creditors cannot deny your application based on your race or the race of your customers.

If your application for business credit is rejected, you can find out why by making a written request for the reasons within 30 days after you are denied credit. The creditor must give you the specific reasons in writing within 30 days after you ask. If you do not agree with the reasons, discuss your concerns with the lender. Complaints frequently can be resolved at this level.

If your business is small (less than $1 million in gross revenues), the lender must keep records of your credit application for a year after telling you of the credit decision.

If your business is larger, the lender must keep your records for only 60 days after a credit denial, and if you do not request reasons within 60 days, the creditor may destroy your records. However, if you request that records be kept longer, or ask for a written statement of the reasons for denial, the lender will maintain records relating to your application for one year. These records are important for any future legal action you may consider against a lender.

If you believe your rights have been violated, you may wish to seek legal advice. You have the right to sue a creditor who violates the ECOA. If your complaint is about a governmental lender, public utility company, small loan and finance company, travel and expense credit card company, or other non-bank creditor, you may also wish to contact the Federal Trade Commission. Although the FTC cannot help you resolve your individual dispute, it may be able to provide you with some useful information and to take enforcement action against the company if it is warranted. Write to: Correspondence Branch, Federal Trade Commission, Washington, DC 20580.

To obtain a free copy of our Best Sellers -- a complete listing of all consumer and business publications from the FTC -- contact: Public Reference, Federal Trade Commission, Washington, D.C. 20580; (202) 326-2222.


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