It’s hard to believe that many women alive today couldn’t obtain a credit card, loan, lease, or mortgage without a male co-signer when they were in their 20s, 30s, or even 40s. The Equal Credit Opportunity Act (ECOA) was passed in 1974, and the pivotal piece of legislation shifted how women and other marginalized groups could participate in financial systems.
October 28, 2024, marks the 50th anniversary of signing ECOA into law. Let’s look at where we were, the strides we’ve made, and the gap we’ve yet to close regarding gender equality in finance.
Life Before the ECOA
In the not-so-distant past, banks and lenders could legally discriminate based on personal characteristics other than fiscal worthiness. Financial institutions could even purposefully discourage certain people from seeking loans or credit through advertising or personal interactions. It was common for lenders to seek out irrelevant personal information during calls and meetings that might sway their “credit-worthiness” one way or another.
Before the ECOA, women applying for credit — whether a loan, a mortgage, or even a credit card — ran into all kinds of obstacles. Even if they could manage their own finances, many women were required to have a male co-signer, like a husband or father.
“Even then, the debt was often put in the husband’s name, and the woman was only listed as an authorized user,” says Teresa J.W. Bailey, president of Waddell & Associates, a wealth strategy group in Nashville. Meaning they still weren’t building the credit men had access to.
Enter: The Equal Credit Opportunity Act
This act made it illegal for lenders to discriminate based on sex, marital status, race, religion, national origin, or age. It also protected people receiving public assistance — a group that often faced discrimination in credit approval.
The act also means that banks can’t ask women if they’re pregnant (or planning to be), and they can’t assume a woman won’t return to work after a maternity leave. Lastly, the ECOA requires creditors to give a clear written explanation as to why credit was denied.
The Issue of Credit
For single or divorced women, getting credit was often a nightmare. If they were married, their husband’s credit history would often be the only one that mattered. This put women in a dependent and vulnerable position, making it nearly impossible for them to build their own credit or wealth.
Teresa notes, “It’s not always necessary to use credit to build wealth. However, allowing certain groups of individuals access to credit over others certainly created an unfair playing field.”
Why was this so monumental? As flawed as the credit score system is, credit is a vital piece of the financial independence puzzle in the United States. If you don’t have access to it, buying a home, starting a business, or making other significant investments that can help you build wealth over time is nearly impossible.
Since the ECOA passed, women have owned more homes and gained more capital for new businesses, but the field is not even yet.
A Car-Buying Case Study
“The ECOA laid the groundwork for equitable credit practices, but our work continues in areas such as business lending, obtaining loans during maternity leave, and gender bias in lending algorithms,” Teresa says.
She points us to a study that came out earlier this year executed by The Chicago Booth Review that analyzed the gender gap in car sales from January 2004 to December 2015. “Women were, on average, charged .6 to .73 basis points more than men,” Teresa says.
Teresa found this to be true in her own car dealings, so until he passed a few years ago, she always asked her dad to join her in closing her car deals. “He never resisted or pushed me forward. He knew I was right,” Teresa said. She’d get a better deal with him doing the talking, plain and simple.
This points less to women’s incompetence and more to the still-prevalent societal perception that women either have less money or understand it less.
ECOA Opened The Door to Women Homeowners
Homeownership is one of the most significant ways people build wealth. Once women had access to credit in their own names, they could buy homes, start accumulating equity, and begin creating financial security for themselves and their families. This also allowed women to break free from financial dependency on men, which had ripple effects on their economic empowerment and ability to make long-term investments.
Bankrate thoroughly analyzed women and mortgages and found that the homeownership rate for single women has been steadily increasing since the 70s and is now only five percentage points behind the rate for single men. Women spend a little (2%) more and less for a little (2%) less than men, and they’re less likely to refinance. Women represent a smaller percentage of mortgage borrowers than men, and their loans tend to be more expensive.
And to Business Owners
The ECOA didn’t just impact the homeownership landscape. Women could also take out business loans, which led to a surge in female entrepreneurship. Women with business ideas no longer had to rely on someone else’s approval or resources to get their ideas off the ground. In theory, the ECOA allowed women to access the capital they needed to pursue their ambitions. But what do the numbers actually look like?
Looking at last year’s data from the U.S. Small Business Administration‘s loan allocation, of the $27.5 billion granted, $19.7 billion of that went to male-owned businesses. In 2023, just 32.6% of approved loans and 28.4% of the total loan dollars went to companies with at least one woman in the ownership structure.
The 1974 act was a giant leap forward in leveling the financial playing field, especially for women, but there is a lot of education left to do. The ECOA wasn’t just about fairness; it was about giving women the tools to build their own financial futures and remove the barrier to entry in this male-dominated space.
How can women learn more about bringing their business ideas to life, starting an investment portfolio, buying an investment property, or getting the best deal on a car? We can TALK ABOUT IT.
Keep the Money Talk Flowing!
“One of the most powerful ways women can support each other in opening up about finances, investing, and making smart financial moves is through storytelling and real conversations,” Lauren says. “When women share their personal experiences, whether it’s a financial success, a lesson learned from a mistake, or a struggle they’ve faced, it makes the topic more relatable and less taboo. These real-life stories break down barriers and create a sense of community where vulnerability is welcomed.”
Teresa optimistically points to how far we’ve come in such a short time. “Women born after 1974 are the first generation of women in the United States to have the ability to build a balance sheet in whatever way they like, no matter their marital status.
Understanding the gravity of this situation is magic, and it allows us to be kind to ourselves when we feel insecure about our level of knowledge about money and investing,” she adds.
Money may not be a native language for all women in the United States, but “we are all learning it together,” Teresa says. “Creating your learning community is vital to helping you build long-term wealth. That can be through your financial advisor and tax teams, your girlfriends at a dinner table, or your partner at home.”
Thanks for shedding some light on this cornerstone piece of legislation, Teresa and Lauren.
**********
Give your inbox the Southern makeover it deserves. Subscribe to our daily emails.
