Which act requires lenders to provide a detailed explanation of why credit was denied?

The Equal Credit Opportunity Act (ECOA) is the legislation that mandates lenders to communicate to applicants the reasons for denying credit. This act is designed to promote fairness in lending practices by prohibiting discrimination based on race, color, religion, national origin, sex, marital status, age, or because an applicant receives public assistance. When a credit application is denied, the ECOA requires lenders to provide a clear explanation, allowing consumers to understand the basis of the decision, which promotes transparency and helps individuals rectify any issues affecting their creditworthiness.

Understanding the importance of this requirement reflects the ECOA’s broader goal of ensuring equitable treatment in the lending process, allowing consumers to know their rights and providing them the opportunity to address any inaccuracies or issues present in their credit profiles. This is a core aspect of consumer protection in lending.