Topic: Fair Lending
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Can a bank have a policy not to open accounts for non-U.S. citizens, even if they have documentation establishing their legal right to work in this country?
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While we are not aware of any federal or Illinois law that expressly prohibits a policy to not open deposit accounts based on the non-citizenship status of a person, some courts or regulators still could consider such a policy to constitute unlawful discrimination. The federal Civil Rights Act states that “all persons within the jurisdiction…
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We know that the Military Lending Act (MLA) does not preempt state laws that provide service members with greater protections. Are there any such laws in Illinois?
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Yes, there are several Illinois laws that provide military members greater protections than the federal Military Lending Act that should be on your radar. For example, the Illinois Human Rights Act has made military status a protected class, providing broader protection than its counterpart federal law. In addition, the Illinois Service Member Civil Relief Act…
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Are we permitted to retain copies of driver’s licenses in our files for deposit accounts? Should we be retaining these copies?
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Yes, we believe that you may retain copies of driver’s licenses in deposit account files, although it is not required. There may be some risk when retaining copies of driver’s licenses or other IDs in loan files or with loan applications, as we discuss below, but those risks do not apply to deposit account files.…
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We are considering not offering military service members any of the products covered by the revised Military Lending Act, but military status is a protected class in Illinois. Does the Military Lending Act preempt Illinois fair lending laws? If there is no preemption, can we avoid fair lending issues by declining to offer MLA-covered products to all customers?
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No, the Military Lending Act (MLA) does not preempt the Illinois Human Rights Act, which protects borrowers based on their military status. The MLA preempts inconsistent state laws and regulations, but not state laws or regulations that provide service members more protection. In this case, the Illinois law provides broader protection for military members than…
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Can we impose higher interest rates and shorter loan terms on loans for manufactured homes? Or would this be considered redlining or disparate treatment?
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Yes, we believe that you may vary interest rates and loan terms for loans secured by manufactured homes, provided that these policies are rooted in valid business considerations that have been carefully documented. We recommend monitoring your manufactured home loans for signs of a disparate impact on protected classes and geographical areas (for example, where…
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When a loan is up for renewal, are we required to obtain evidence of joint intent? Or is that required only at the initial application?
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Yes, Regulation B requires creditors to collect evidence of joint intent anytime there is an application for an extension of credit, including an application for a renewal. Regulation B defines the term “extension of credit” to include a “refinancing or other renewal of credit,” as well as “the continuance of existing credit without any special effort to collect…
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We closed on a mortgage loan refinancing on July 1, and the borrower asked us to lower the interest rate on July 5. We refused, and the borrower is threatening to rescind the transaction on the last day of the right of rescission period — July 6. If the borrower reapplies for the refinancing after rescinding, can we reject the customer’s application?
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Yes, we believe that you may reject the customer’s application, which will require you to provide an appropriate adverse action notice. Regulation B does not prohibit a creditor from rejecting an applicant due to the applicant’s previous exercise of the right of rescission. Regulation B permits creditors to consider “any information obtained” in connection with…
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We are purchasing a portfolio of indirect auto loans from another bank, which permitted discretionary dealer markups for the loans’ interest rates. What due diligence do you recommend from a fair lending perspective? Could we be held liable for fair lending issues from the purchased loans? Should we perform statistical analysis on the loans before purchasing?
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We believe it would be prudent to perform a statistical analysis as part of your institution’s decision to purchase the auto loan portfolio to help assess the potential legal and reputational risks involved. Purchased auto loans could pose fair lending risks to your institution, even though your institution did not originate the loans. The Equal…
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Can we make a mortgage loan secured by property in Illinois to a nonresident alien couple who are Illinois residents?
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Lending to a non-U.S. citizen is a business decision that depends on the amount of risk your institution is willing to accept. Here, we think the risks are relatively low, because the borrowers and, more importantly, the collateral securing the mortgage loan are located in Illinois. We note that in considering the customer’s ability to…
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How are financial institutions able to offer special loan programs only to state employees? Wouldn’t that raise fair lending concerns or UDAAP issues?
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No, the fact that a special loan program is offered only to state employees, without any other facts, would not raise fair lending or UDAAP concerns. In fact, the federal banking regulatory agencies have encouraged banks to provide special assistance to borrowers affected by government shutdowns, most recently during the 2013 federal government shutdown. Because…