If you’re a company that extends credit to customers, it is important to be aware of the Equal Credit Opportunity Act. The Equal Credit Opportunity Act contains, what some would assume are obvious, rules in order to discourage racism, sexism, ageism and other discriminatory acts. The reasons that you would or would not give credit to a company can range from what their trade references said about their payment history to how much money they currently have in their accounts. However, you never want a customer to think that you may have denied them based on discrimination reasons.
WHEN A CUSTOMER APPLIES FOR CREDIT YOU MAY NOT:
- Discourage someone from applying for credit based on discriminatory reasons
- Use their race, sex or national origin to make your decision on their credit or credit terms
- Create their terms based on race, color, national origin, sex marital status or age. For example, imposing a higher interest rate
- Consider the racial composition of the neighborhood of the business
UNDER THE EQUAL OPPORTUNITY CREDIT ACT YOU MUST:
- Tell the customer the specific reason for the credit rejection within 60 days if they ask, and give them specific reasoning
- Tell the customer why you offered less favorable terms than they applied for if they rejected those terms
- Tell the customer why their account was closed, unless the account was closed because they failed to make payment under the agreed terms failed to make payment under the agreed terms
If you are selling to customers using credit terms it is of the utmost importance that the Equal Opportunity Credit Act is followed. Not only is it against the law to discriminate against an individual or a business because of race, religion, color, sex or age, but it is also immoral. When deciding whether to extend credit or choosing credit terms, the only factors that should come into play are trade references, payment history and the company’s good standing on paying back other debts.