Topic: Fair Lending
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Most of our branches are located in Illinois, but one branch is located in another state. Can we offer a certificate of deposit (CD) promotion just at the out-of-state branch? We would advertise the promotion on lobby signs only in that branch. Also, the promotional terms of the CD would be included in the rate sheet for just that branch.
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Yes, we believe that your bank may offer a promotional CD only at your out-of-state branch. We should note that, in general, any promotion that singles out a group of customers creates some potential for fair lending concerns. Although a customer base is not a protected class, a promotion offered only to customers of a…
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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…
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We would like to target customers of a nearby bank that is closing by offering them a free order of checks when they open a checking account at our bank. We would require proof that the customers are coming from the other bank. Could this be viewed as a discrimination issue? Also, can we mention the closing bank’s name in advertisements?
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It is possible that your contemplated promotion could create fair lending concerns, but a full analysis would require additional facts comparing your bank’s customer base with the closing bank’s customer base. Although a customer base is not a protected class, a promotion offered only to customers of a particular bank conceivably could have a disparate…
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Are we required to display a sign stating “ANY INQUIRERS HAVE THE RIGHT TO FILL OUT AN APPLICATION AND TO RECEIVE A COPY OF THE INSTITUTIONS UNDERWRITING STANDARDS”?
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The regulations for federal savings associations require your institution to “inform each inquirer of his or her right to file a written loan application, and to receive a copy of the association’s underwriting standards.” However, we do not believe this information needs to be displayed on a sign at your institution. Back in 1979, the Federal Home…
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Can we provide realtors with coupons to hand out in relation to our home loans (e.g., a coupon offering a free appraisal or a waived loan origination charge)? We know there may be some fair lending risks because the realtors can select who will receive the coupons, but could we alleviate that risk by making the coupons available in our lobby? In addition to fair lending issues, are there any RESPA Section 8 concerns?
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We recommend instituting safeguards addressing possible fair lending and UDAAP concerns, but we do not believe this practice would violate the RESPA prohibition of kickbacks for referrals of mortgage services. The coupon program you described does raise some fair lending concerns, particularly because disseminating the coupons has the potential to have a “disparate impact” on…
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Our external auditors told us that we must ask all consumer and mortgage loan applicants from a community property state whether they have a prenuptial agreement. Is that required?
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We are unaware of any requirement to inquire about a potential borrower’s prenuptial or premarital agreements in a community property state. Still, we can see how this information could be helpful, as prenuptial or premarital agreements may contain information needed to underwrite a loan. For example, a prenuptial agreement could clarify the ownership of property…
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Occasionally we have consumer (non-real estate) loan applicants who report having zero housing expenses — for example, because a significant other pays the rent. Can we add a hypothetical housing expense in our debt-to-income (DTI) calculation for these applicants?
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While we do not believe this practice is expressly prohibited or otherwise per se unlawful, it would entail some risk for the bank, and we recommend proceeding with caution if you use this approach. Adding hypothetical housing expenses to a loan applicant’s DTI calculation has the potential to create a disparate impact on (or to…
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Certain geographic areas have more instances of debit card fraud than others. Can we change our rules to require customers living in those areas to use a PIN when using a debit card as a credit card? If so, do we need to disclose the change?
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Requiring the use of debit cards PINs only for customers residing in particular geographic areas (here, areas with higher crime rates) could raise concerns under the fair lending laws. Although residents located in specific geographic areas are not per se protected classes based on their locations, a practice singling out particular geographic areas could result…
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Our marketing department is working on a promotion for deposit accounts opened by teachers. We would like to provide an account opening bonus of $100, as well as a $100 gift card donated to the teacher’s classroom. Would the $100 gift card be treated as a donation? Should we donate it to the teacher or to the school? How would we disclose the bonuses to the customers and the schools?
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Whether the gift card is donated to the school or to the individual teacher is up to the bank. If donating to the school, it may be possible to designate that the gift card must be used in a particular teacher’s classroom, but that will depend on the school district’s policies. We recommend contacting the…
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We are considering offering local civil service employees and teachers a discounted mortgage loan origination fee. This would not be a short-term advertising campaign, but a long-term program to build loyalty with civil employees within our village. Would there be any fair lending or other regulatory concerns with this type of program? Could we include our village board members in the program?
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Yes, you may run into fair lending concerns regarding this type of discount program. Neither federal nor state anti-discrimination laws treat “occupation” as a protected class. In other words, you are not prohibited from giving preferential treatment to an individual based their occupation. However, such a policy may create a fair lending challenge if it…