Topic: Fair Lending
-
One of our loan officers wants to reject a loan applicant on the basis of age. The borrower is an elderly person. Isn’t that illegal?
—
by
Yes, both federal and Illinois laws prohibit discrimination in lending activities on the basis of age. As to federal law, the Equal Credit Opportunity Act states that “it shall be unlawful for any creditor to discriminate against any applicant . . . on the basis of . . . age (provided the applicant has the…
-
Do you see any problems with making a mortgage loan secured by an Illinois home to a non-U.S. citizen who lives in Illinois? How would we collect if the borrower defaults on the loan? Would we have to litigate in a foreign country?
—
by
Lending to a non-U.S. citizen is a business decision that depends on the amount of risk your institution is willing to accept. Should the borrower default on the loan, you may have to litigate in U.S. federal court, where rules and procedures will differ from Illinois state courts. The choice between initiating a collection action…
-
Based on the recent CFPB guidance on fair lending and indirect automobile lending, what steps should a smaller regional bank take to lessen our fair lending risks? Do we need to switch to a flat rate of compensation for dealers, or are there other options?
—
by
While the CFPB’s Indirect Auto Lending Bulletin does not directly apply to your institution, since you are not supervised by the CFPB, we agree that all financial institutions should be taking the CFPB’s guidance seriously. While the other federal banking regulators have released some helpful materials on discrimination and auto lending, which we discuss below,…
-
Do you see any problems with allowing bankers to create exceptions to our credit score requirements to allow certain customers to open deposit accounts, such as those who have participated in our financial literacy programs?
—
by
The program you described, in which bank employees are using individual discretion to create exceptions for certain customers, has some potential for raising concerns about discrimination. Such use of discretion might result in a “disparate impact” on a protected class (even if no one at the bank has any intent to discriminate). Even though fair…
-
To encourage customers to renew their CDs, we would like to offer some customers a CD that will not impose a withdrawal penalty on one withdrawal during the CD’s term. Do you see any compliance issues?
—
by
We do not see any problem with offering a CD with the option to withdraw one time without a penalty, provided that it would not be an option until six days have passed since opening the account (which would ensure that it fits under the definition of “time deposit” under Regulation D, 12 CFR 204.2(c)).…
-
Are there any fair lending or disparate impact issues in setting a minimum loan amount for a new loan program?
—
by
The program you described could have the potential for fair lending issues stemming from the minimum loan amount, which might result in a “disparate impact” on a protected class (even if no one at the bank has any intent to discriminate). In fact, the FFIEC Interagency Fair Lending Procedures, p. iv used a minimum loan…
-
Can we use a form to ask applicants for secured credit whether they are a party to a civil union, given that Regulation B allows us only to ask whether the applicant is married, unmarried, or separated?
—
by
We finally heard back from a CFPB attorney about whether banks are permitted to ask about the civil union status of loan applicants (provided that the application is for secured or joint credit). The CFPB’s informal guidance is that this is a permitted question, if it is asked on a separate form from any questions…
-
Should we use the word “gender” or “sex” in the Home Mortgage Disclosure Act notice/sign? We say “gender,” but the FFIEC suggests “sex”.
—
by
Regulation C does not require use of the model HMDA disclosure and allows you to use “any text that meets the requirements of the regulation.” Comment 1, Official Staff Commentary, 12 CFR 1003.5(e). If you do want to follow the model form, note that the 2002 amendment to Regulation C replaced the word “gender” with…
-
What documents can we ask a loan applicant who is a party to a civil union to sign?
—
by
In response to your question, we asked a CFPB attorney about whether banks are permitted to ask about the civil union status of loan applicants (provided that the application is for secured or joint credit). She said that the CFPB’s informal guidance is that this is a permitted question, if it is asked on a…
-
Does Illinois law have more protected classes for fair lending purposes than federal law?
—
by
Illinois does provide broader protections against discrimination by financial institutions than federal law. The federal Equal Credit Opportunity Act prohibits discrimination the basis of an applicant’s “race, color, religion, national origin, sex or marital status, or age,” on the basis that an applicant receives public assistance income, or on the basis that the applicant has…