IBA Compliance Connection

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We obtain our credit reports through a vendor, not directly from the credit bureaus. The vendor provides merged credit reports for married co-applicants, but not for unmarried co-applicants (for unmarried co-applicants it requires us to obtain two individual credit reports). We currently charge loan applicants the exact credit report fees that the vendor charges us. The vendor’s charge for an individual report is slightly more than half the cost of a merged report; in other words, married co-applicants receive a slight pricing advantage over unmarried co-applicants. Does this create a fair lending issue?

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Yes, we believe that a pricing disparity between a merged credit report for two married co-applicants (commonly misnomered as a “joint credit report”) and two individual credit reports for unmarried co-applicants would pose a fair lending issue, since the cost of the less expensive merged credit report is made available on the basis of the co-applicants’ marital status.

We are not aware of any formal guidance on this issue, but we are aware that many examiners have cited banks on this issue in recent years. The FDIC has published slides from a 2012 fair lending presentation in which it expressed fair lending concerns about this pricing structure. The FDIC’s presentation stated that if married co-applicants pay different fees than unmarried co-applicants, “an overt discrimination violation would be cited since a different credit report fee is charged on the basis of marital status.”

Many lenders address this issue by passing on the same lower charge to both sets of co-applicants (for example, if the cost of an individual credit report was four dollars and the cost of a merged report was seven dollars, they would charge seven dollars to both sets of co-applicants). This not only averts the fair lending issue, but also avoids other issues regarding the unearned fee limitations and additional disclosure requirements found in Regulation X and Regulation Z. Following this approach, essentially your bank would be lowering the price for individual credit reports to equal exactly one half of the fee for the merged credit reports, which would remove the pricing disparity between individual and merged reports. Needless to say, however, this approach would result in your bank absorbing the excess costs that it pays its vendor. Alternatively, your bank could ask its vendor to change its pricing structure to harmonize the costs of two individual credit reports and a merged credit report.

For resources related to our guidance, please see:

  • Equal Credit Opportunity Act, 15 USC 1691 (“It shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction (1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract); (2) because all or part of the applicant’s income derives from any public assistance program; or (3) because the applicant has in good faith exercised any right under this chapter.”)

  • FDIC, Fair Lending Update (2012), slides 53–55:

Emerging Issue 1: The first issue has been when banks charge a different credit report fee to married joint applicants who obtain a merged credit report (ex. $30) than is charged to unmarried joint applicants who obtain two individual credit reports (ex. $30 each or $60). In such cases, an overt discrimination violation would be cited since a different credit report fee is charged on the basis of marital status. The fact that the charge for credit reports is different substantiates the violation, not whether one group was harmed.

Emerging Issue 2: The second issue has been when banks do not charge a different credit report fee (merged vs. individual) or when the same fee is charged for joint applicants, regardless of marital status. Since there is no difference in fees charged, you might initially conclude that no violation exists. However, analysis of the fees charged is only the first step in determining whether discrimination is present.

Emerging Issue 2 (Continue): The next step is to determine whether the bank’s evaluation or analysis of credit bureau reports is different based on marital status, regardless of fees charged. Any difference in the evaluation process between married and unmarried joint applicants would constitute a violation for different treatment on the basis of marital status. Therefore, examiners will analyze a bank’s process for evaluating credit reports (merged vs. individual) for married joint applicants and unmarried joint applicants during the fair lending review.

  • ABA Staff Analysis: Joint Credit Reports and Fair Lending to Joint Applicants (April 2010) (This ABA staff analysis summarizes reports from bankers about examiner criticisms, as well as the ABA’s meetings with the federal regulatory agencies and its discussions with a trade group, the Consumer Data Industry Association.)