IV. Fair Lending —Fair Lending Laws And Regulations
IV. Fair Lending — Fair Lending Laws and RegulationsFair Lending Laws and RegulationsIntroductionThis overview provides a basic and abbreviated discussion offederal fair lending laws and regulations. It is adapted fromthe Interagency Policy Statement on Fair Lending issued inMarch 1994.NOTE: Further information regarding the technicalrequirements of fair lending are incorporated into thesections ECOA V 7.1 and FCRA VIII 6.1 of this manual.The Fair Housing Act (FHAct) prohibits discrimination in allaspects of “residential real-estate related transactions,”including but not limited to: Making loans to buy, build, repair, or improve adwelling; Purchasing real estate loans; Selling, brokering, or appraising residential real estate; or Selling or renting a dwelling.Lending Discrimination Statutes and RegulationsThe Equal Credit Opportunity Act (ECOA) prohibitsdiscrimination in any aspect of a credit transaction. Itapplies to any extension of credit, including extensions ofcredit to small businesses, corporations, partnerships, andtrusts.The ECOA prohibits discrimination based on:The FHAct prohibits discrimination based on: Race or color; Race or color; Religion; National origin; National origin; Religion; Sex; Sex; Marital status; Age (provided the applicant has the capacity to contract);Familial status (defined as children under the age of 18living with a parent or legal custodian, pregnant women,and people securing custody of children under 18); or The applicant’s receipt of income derived from anypublic assistance program; or Handicap. The applicant’s exercise, in good faith, of any rightunder the Consumer Credit Protection Act.The Consumer Financial Protection Bureau’s Regulation B,found at 12 CFR part 1002, implements the ECOA.Regulation B describes lending acts and practices that arespecifically prohibited, permitted, or required. Official staffinterpretations of the regulation are found in Supplement I to12 CFR part 1002.The Dodd–Frank Wall Street Reform and ConsumerProtection Act of 2010 further amended the ECOA andcovers: Data collection for loans to minority-owned andwomen-owned businesses (awaiting final regulation); Legal action statute of limitations for ECOAviolations is extended to five years (effective July 21, 2010);and A disclosure of the consumer’s ability to receive acopy of any appraisal(s) and valuation(s) prepared inconnection with first-lien loans secured by a dwelling is to beprovided to applicants within 3 business days of receiving theapplication (effective January 18, 2014).FDIC Consumer Compliance Examination Manual – March 2021The Department of Housing and Urban Development’s(HUD) regulations implementing the FHAct are found at 24CFR Part 100. Because both the FHAct and the ECOAapply to mortgage lending, lenders may not discriminate inmortgage lending based on any of the prohibited factors ineither list.Under the ECOA, it is unlawful for a lender to discriminateon a prohibited basis in any aspect of a credit transaction,and under both the ECOA and the FHAct, it is unlawful for alender to discriminate on a prohibited basis in a residentialreal-estate-related transaction. Under one or both of theselaws, a lender may not, because of a prohibited factor: Fail to provide information or services or providedifferent information or services regarding any aspect ofthe lending process, including credit availability,application procedures, or lending standards. Discourage or selectively encourage applicantswith respect to inquiries about or applications forcredit. Refuse to extend credit or use different standardsin determining whether to extend credit. Vary the terms of credit offered, including theIV – 1.1
IV. Fair Lending — Fair Lending Laws and Regulationsamount, interest rate, duration, or type of loan. Use different standards to evaluate collateral. Treat a borrower differently in servicing a loanor invoking default remedies. Use different standards for pooling or packaging a loanin the secondary market.A lender may not express, orally or in writing, apreference based on prohibited factors or indicate that itwill treat applicants differently on a prohibited basis. Aviolation may still exist even if a lender treated applicantsequally.A lender may not discriminate on a prohibited basis becauseof the characteristics of An applicant, prospective applicant, or borrower. A person associated with an applicant, prospectiveapplicant, or borrower (for example, a co-applicant,spouse, business partner, or live-in aide). The present or prospective occupants of either theproperty to be financed or the characteristics of theneighborhood or other area where property to be financedis located.Finally, the FHAct requires lenders to make reasonableaccommodations for a person with disabilities when suchaccommodations are necessary to afford the person an equalopportunity to apply for credit.Types of Lending DiscriminationThe courts have recognized three methods of proof of lendingdiscrimination under the ECOA and the FHAct: Overt evidence of disparate treatment; Comparative evidence of disparate treatment; and Evidence of disparate impact.Disparate TreatmentThe existence of illegal disparate treatment may be establishedeither by statements revealing that a lender explicitlyconsidered prohibited factors (overt evidence) or bydifferences in treatment that are not fully explained bylegitimate nondiscriminatory factors (comparative evidence).Overt Evidence of Disparate Treatment. There is overtevidence of discrimination when a lender openly discriminateson a prohibited basis.Example: A lender offered a credit card with a limit of up to 750 for applicants aged 21-30 and 1500 for applicants over30. This policy violated the ECOA’s prohibition ondiscrimination based on age.IV – 1.2There is overt evidence of discrimination even when a lenderexpresses — but does not act on — a discriminatorypreference:Example: A lending officer told a customer, “We do not liketo make home mortgages to Native Americans, but the lawsays we cannot discriminate and we have to comply with thelaw.” This statement violated the FHAct’s prohibition onstatements expressing a discriminatory preference as well asSection 1002.4(b) of Regulation B, which prohibitsdiscouraging applicants on a prohibited basis.Comparative Evidence of Disparate Treatment. Disparatetreatment occurs when a lender treats a credit applicantdifferently based on one of the prohibited bases. It doesnot require any showing that the treatment was motivatedby prejudice or a conscious intention to discriminateagainst a person beyond the difference in treatment itself.Disparate treatment may more likely occur in the treatment ofapplicants who are neither clearly well-qualified nor clearlyunqualified. Discrimination may more readily affect applicantsin this middle group for two reasons. First, if the applicationsare “close cases,” there is more room and need for lenderdiscretion. Second, whether or not an applicant qualifies maydepend on the level of assistance the lender provides theapplicant in completing an application. The lender may, forexample, propose solutions to credit or other problemsregarding an application, identify compensating factors, andprovide encouragement to the applicant. Lenders are under noobligation to provide such assistance, but to the extent that theydo, the assistance must be provided in a nondiscriminatoryway.Example: A non-minority couple applied for an automobileloan. The lender found adverse information in the couple’scredit report. The lender discussed the credit report withthem and determined that the adverse information, ajudgment against the couple, was incorrect because thejudgment had been vacated. The non-minority couple wasgranted their loan. A minority couple applied for a similarloan with the same lender. Upon discovering adverseinformation in the minority couple’s credit report, the lenderdenied the loan application on the basis of the adverseinformation without giving the couple an opportunity todiscuss the report.The foregoing is an example of disparate treatment ofsimilarly situated applicants, apparently based on aprohibited factor, in the amount of assistance andinformation the lender provided.If a lender has apparently treated similar applicantsdifferently on the basis of a prohibited factor, it mustprovide an explanation for the difference in treatment. If thelender’s explanation is found to be not credible, the agencymay find that the lender discriminated.FDIC Consumer Compliance Examination Manual – March 2021
IV. Fair Lending — Fair Lending Laws and RegulationsRedlining is a form of illegal disparate treatment in whicha lender provides unequal access to credit, or unequalterms of credit, because of the race, color, national origin,or other prohibited characteristic(s) of the residents of thearea in which the credit seeker resides or will reside or inwhich the residential property to be mortgaged is located.Redlining may violate both the FHAct and the ECOA.ensure their effective implementation. While these proceduresapply to many examinations, agencies routinely use statisticalanalyses or other specialized techniques in fair lendingexaminations to assist in evaluating whether a prohibited basiswas a factor in an institution’s credit decisions. Examinersshould follow the procedures provided by their respectiveagencies in these cases.Disparate ImpactFor a number of aspects of lending — for example, creditscoring and loan pricing — the “state of the art” is more likelyto be advanced if the agencies have some latitude toincorporate promising innovations. These interagencyprocedures provide for that latitude.When a lender applies a racially or otherwise neutral policyor practice equally to all credit applicants, but the policy orpractice disproportionately excludes or burdens certainpersons on a prohibited basis, the policy or practice isdescribed as having a “disparate impact.”Example: A lender’s policy is not to extend loans for singlefamily residences for less than 60,000.00. This policy hasbeen in effect for ten years. This minimum loan amountpolicy is shown to disproportionately exclude potentialminority applicants from consideration because of theirincome levels or the value of the houses in the areas inwhich they live.The fact that a policy or practice creates a disparity on aprohibited basis is not alone proof of a violation. When anAgency finds that a lender’s policy or practice has a disparateimpact; the next step is to seek to determine whether the policyor practice is justified by “business necessity.” Thejustification must be manifest and may not be hypothetical orspeculative.Any references in these procedures to options, judgment, etc.,of “examiners” means discretion within the limits provided bythat examiner’s agency. An examiner should use theseprocedures in conjunction with his, or her, own agency’spriorities, examination philosophy, and detailed guidance forimplementing these procedures. These procedures should notbe interpreted as providing the examiner greater latitude thanhis, or her, own agency would. For example, if an agency’spolicy is to review compliance management systems in all ofits institutions, an examiner for that agency must conduct sucha review rather than interpret Part II of these interagencyprocedures as leaving the review to the examiner’s option.The procedures emphasize racial and national origindiscrimination in residential transactions, but the keyprinciples are applicable to other prohibited bases andto nonresidential transactions.Factors that may be relevant to the justification could includecost and profitability. Even if a policy or practice that has adisparate impact on a prohibited basis can be justified bybusiness necessity, it still may be found to be in violation if analternative policy or practice could serve the same purposewith less discriminatory effect. Finally, evidence ofdiscriminatory intent is not necessary to establish that alender’s adoption or implementation of a policy or practice thathas a disparate impact is in violation of the FHAct or ECOA.Finally, these procedures focus on analyzinginstitution compliance with the broad,nondiscrimination requirements of the ECOA and theFHAct. They do not address such explicit ortechnical compliance provisions as the signature rulesor adverse action notice requirements in Sections1002.7 and 1002.9, respectively, of Regulation B.These procedures do not call for examiners to planexaminations to identify or focus on potential disparate impactissues. The guidance in this Introduction is intended to helpexaminers recognize fair lending issues that may have apotential disparate impact. Guidance in the Appendix to theInteragency Fair Lending Examination Procedures providesdetails on how to obtain relevant information regarding suchsituations along with methods of evaluation, as appropriate.Consistent with the Federal Financial InstitutionsExamination Council Interagency Fair Lending ExaminationProcedures, FDIC examiners evaluate fair lending riskduring the scoping process by completing three generalsteps:General GuidelinesThese procedures are intended to be a basic and flexibleframework to be used in the majority of fair lendingexaminations conducted by the FFIEC agencies. They are alsointended to guide examiner judgment, not to supplant it. Theprocedures can be augmented by each agency as necessary toFDIC Consumer Compliance Examination Manual – March 2021Part I — Examination Scope Guidelines Background1. Examiners develop an institutional overview to assess aninstitution’s inherent fair lending risk. As part of thisprocess, examiners become familiar with an institution’sstructure and management, supervisory history, loanportfolio, and credit and market operations. Once examinersunderstand a financial institution’s lending operations theycan identify the level of inherent risk. Inherent risk for fairlending is broad-based and would impact a range of productsif no controls or other mitigating factors were in place tocontrol the risk. Inherent risk arises from the generalIV – 1.3
IV. Fair Lending — Fair Lending Laws and Regulationsconditions or the environment in which the institutionoperates. The risk could be present based on an institution’sstructure, supervisory history, the composition of the loanportfolio, and the credit and market operations2. If an examiner believes that an institution has more thanminimal inherent fair lending risk, the examiner should thenidentify the product(s) or product group(s) to review. Theproducts or product groups selected may differ based on thetype of discrimination. For example, for purposes of pricing,an examiner may select HMDA loans for further review,while for underwriting, the examiner may select consumerloans. Examiners are not expected to review all products fordiscrimination risk if there is more than minimal inherentrisk. Rather, examiners should use their judgment andconsider the following when deciding which loan productswarrant further review. Examiners would then identify anydiscrimination risk factors and assess an institution’scompliance management system (CMS) for fair lending.Understanding the strength of an institution’s CMS isnecessary to properly assess whether an institution hassufficiently mitigated applicable discrimination risk factors.If there is minimal inherent risk, no additional analysis isnecessary and the fair lending review can conclude.3. For those discrimination risk factors that have not beenfully mitigated, examiners compile a list of potential focalpoints and identify which should be pursued as a focal point.The FDIC has developed the Fair Lending Scope andConclusions Memorandum (FLSC) to implement a standardnationwide format for documenting the scope andconclusions of fair lending reviews. FLSC has been adoptedas a means of focusing the examiner’s attention to the areasthat pose the greatest unmanaged fair lending risk to theinstitution. It incorporates the Interagency Fair LendingExamination Procedures 1 and assists in documenting thetypes of fair lending risks that are present; the controls thatmanagement has put in place to manage the risk; theeffectiveness of these controls; why the particular focalpoint(s) are chosen; the level of review conducted; and theresults of any additional analysis that was conducted. TheFLSC is included in section IV-3.1 of this manual.The scope of an examination encompasses the loanproduct(s), market(s), decision center(s), time frame, andprohibited basis and control group(s) to be analyzed duringthe examination. These procedures refer to each potentialcombination of those elements as a “focal point.” Setting thescope of an examination involves, first, identifying all of thepotential focal points that appear worthwhile to examine.Then, from among those, examiners select the FocalPoint(s) that will form the scope of the examination, basedon risk factors, priorities established in these procedures orby their respective agencies, the record from past1The interagency examination procedures are presented in their entirety in PartIV – 1.4examinations, and other relevant guidance. This phaseincludes obtaining an overview of an institution’scompliance management system as it relates to fair lending.When selecting focal points for review, examiners maydetermine that the institution has performed “self-tests” or“self-evaluations” related to specific lending products. Thedifference between “self-tests” and “self-evaluations” isdiscussed in the Using Self-Tests and Self-Evaluations toStreamline the Examination section of the Appendix.Institutions must share all information regarding “selfevaluations” and certain limited information related to “selftests.” Institutions may choose to voluntarily discloseadditional information about “self-tests.” Examiners shouldmake sure that institutions understand that voluntarilysharing the results of self-tests will result in a loss ofconfidential status of these tests. Information from “selfevaluations” or “self-tests” may allow the scoping to bestreamlined. Refer to Using Self-Tests and Self-Evaluationsto Streamline the Examination in the Appendix foradditional details.Scoping may disclose the existence of circumstances —such as the use of credit scoring or a large volume ofresidential lending — which, under an agency’s policy, callfor the use of regression analysis or other statistical methodsof identifying potential discrimination with respect to one ormore loan products. Where that is the case, the agency’sspecialized procedures should be employed for such loanproducts rather than the procedures set forth below.Setting the intensity of an examination means determining thebreadth and depth of the analysis that will be conducted on theselected loan product(s). This process entails a more involvedanalysis of the institution’s compliance risk managementprocesses, particularly as it relates to selected products, toreach an informed decision regarding how large a sample offiles to review in any transactional analyses performed andwhether certain aspects of the credit process deserveheightened scrutiny.Part I of these procedures provides guidance on establishingthe scope of the examination. Part II (ComplianceManagement Review) provides guidance on determining theintensity of the examination. There is naturally someinterdependence between these two phases. Ultimately thescope and intensity of the examination will determine therecord of performance that serves as the foundation foragency conclusions about institutional compliance with fairlending obligations. The examiner should employ theseprocedures to arrive at a well-reasoned and practicalconclusion about how to conduct a particular institution’sexamination of fair lending performance.III of this section of the manual.FDIC Consumer Compliance Examination Manual – March 2021
IV. Fair Lending — Fair Lending Laws and RegulationsIn certain cases where
provided to applicants within 3 business days of receiving the application (effective January 18, 2014). NOTE: Further information regarding the technical requirements of fair lending are incorporated into the sections ECOA V 7.1 and FCRA VIII 6.1 of this manual. The Fair Housing Act (FHAct) prohibits discrimination in all
Fair lending guarantees the same lending opportunities to everyone. Is there a law that protects my fair lending rights? Yes. The federal Fair Housing Act protects your fair lending. rights. The Oice of Fair Housing and Equal Opportunity. enforces the federal Fair Housing Act and state and local enforcement agencies enforce fair housing laws .
Training Outline Reintroduction to Fair Lending Debunking the Eight Common Fair Lending Myths: -"Our written policies and procedures have us covered." -"Fair Lending is really about the underwriting process." -"Our bankers fully understand fair lending compliance." -"We don't have diversity in our market area."
Fair lending prohibits lenders from considering your race, color, national origin, religion, sex, familial status, or disability when applying for residential mortgage loans. Fair lending guarantees the same lending opportunities to everyone. Is there a law that protects my fair lending rights? Yes. The federal Fair Housing Act protects your .
IV. Fair Lending — Fair Lending Scope and Conclusions Memorandum FDIC Compliance Examination Manual — February 2015 IV - 3. Examiner Summary: Describe the bank's method of underwriting (e.g., centralized, decentralized, manual, automated, etc.) noting whether discretion is permitted, how guidance is provided to lending staff, and how discretion is monitored.
Fair Lending Enforcement LBA Bank Counsel Conference December 14, 2012 . DOJ Fair Lending Enforcement In the next 15 minutes you can learn about: 1. The types of fair lending cases DOJ recently has filed 2. A bank-related disability discrimination settlement agreement 3. .
Fair Lending Policy. The Board is not kept informed on the status of the Credit Union's Fair Lending Program. X X X The Board of Directors has approved a Fair Lending Policy and is kept informed on the status of the program. XX 5 Policies and Procedures Policies and procedures contain overtly discriminatory statements and subjective
Group-lending villages Individual-lending villages Control villages Uvs Khovsgol Bulgan Khentii Ulaanbaatar Arkhangai Group-lending villages Individual-lending villages Control villages 04 The experiment Mongolia is the most sparsely populated country in the world and this makes disbursing, monitoring and collecting small loans very costly.
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