Question 27

A lender is prohibited by the ECOA from asking a borrower, "What racial category best describes you?"

The Equal Credit Opportunity Act (ECOA) prohibits lenders from inquiring about a borrower's race, which is why asking "What racial category best describes you?" is not allowed.

A) "What is your ethnicity?"

This question is related to a borrower's background but does not directly ask for the racial category. While lenders must tread carefully regarding questions about ethnicity, they may sometimes ask about it under specific circumstances, particularly if it's needed for demographic reporting purposes, provided it is not used to discriminate.

B) "Are you divorced, widowed, or never married?"

Inquiries about marital status are permissible under ECOA. Lenders may ask about a borrower's marital status because it can be relevant to assessing creditworthiness and financial stability. Therefore, this question does not violate the ECOA.

C) "What is your gender?"

Asking about gender is not explicitly prohibited by the ECOA, as it does not directly pertain to race or ethnicity. Lenders may gather demographic data for various reasons, including compliance with fair lending regulations, although they must be cautious not to use this information discriminatorily.

D) "What racial category best describes you?"

This question is explicitly prohibited by the ECOA as it pertains directly to race. The act is designed to prevent discrimination based on race, color, religion, national origin, sex, marital status, or age, making this inquiry a clear violation of the regulations.

Conclusion

In summary, the correct answer is D, as it directly addresses the racial category of the borrower, which the ECOA prohibits lenders from inquiring about. Options A, B, and C are permissible under the ECOA guidelines, while D stands out as a violation of the act's intentions to prevent discrimination. Understanding these distinctions is crucial for ensuring compliance with fair lending laws.