Bank A offers a special senior citizen deposit package of benefits that includes free checks, free travel agency services, and a credit card with no annual fee.  Bank A generally charges a $25 annual fee for its credit card.  The senior citizen deposit package is available to all persons who are at least 55 years of age.  There are no income requirements, but there is a minimum deposit balance requirement.  Are there any fair lending violations in this practice?

A. No.  Provided Bank A does not have any income requirements, there is no disparate impact on the community.

B. No.  Even though there is an age requirement, provided elderly persons are treated more favorably, there is no violation of law.

C. Yes.  Because Bank A has a minimum deposit requirement, there is a disparate impact on low-income consumers.

D. Yes.  The age requirement constitutes age discrimination and is not legal under ECOA.

D. Yes.  The age requirement constitutes age discrimination and is not legal under ECOA.

Fair Lending: 12 CFR 202.4 and 12 CFR 202.6(b)4

Regulation B allows creditors to treat elderly applicants (applicants who are 62 years of age or older) more favorably.  Bank A’s program favors persons who are too young.  Because age is a prohibited basis under the ECOA, the program does not meet the fair lending requirements.

Bank B is a community bank heavily involved in consumer lending.  It offers overdraft lines of credit, unsecured loans to creditworthy borrowers, and installment loans secured by automobiles and other consumer goods.  The senior lender at Bank B believes that loans under $1,000 are too costly for the bank and would like to prohibit loans of this size as part of bank policy.  A minimum loan amount might adversely affect low-income consumers.  What should the senior lender do to exclude such loans from bank policy without creating a fair lending problem?

A. Because loan minimums are not prohibited by law, the senior lender should write a policy prohibiting such loans and ensure loan officers make no exceptions.

B. The lender should not set minimum loan amounts in order to remain in compliance with the fair lending guidelines.

C. The bank should conduct an analysis to determine whether loans of under $1,000 are really too costly to make.  If they are, the bank should then determine if there is any other way to meet the credit needs of consumers who would apply for these loans.  If there is an alternative, the minimum loan policy may be implemented.

D. The bank should have an informal policy regarding minimum loan amounts and allow each loan officer to implement it.  Without a written policy, the bank can better protect itself against fair lending problems.

C. The bank should conduct an analysis to determine whether loans of under $1,000 are really too costly to make.  If they are, the bank should then determine if there is any other way to meet the credit needs of consumers who would apply for these loans.  If there is an alternative, the minimum loan policy may be implemented.

Joint Policy Statement on Lending Discrimination

Because the policy has the possibility of adversely affecting a protected group, the bank should consider whether there is a business necessity for the policy.  This can only be accomplished by analyzing the costs of making small loans against the income received from these loans.  Only by formally analyzing the process can the bank determine whether there is a business necessity mandating the proposed policy.  If these small loans are too expensive to make, the next step is to determine if there is an alternative.  Perhaps applicants for small loans could be offered an overdraft line of credit for the amount because this product is already in place.  Only if there is a business necessity for the policy and no less discriminatory alternatives should the policy be implemented.

Bank C is a $250 million bank in a large city.  Recently the compliance officer of Bank C performed a review of consumer loans made during the previous 12 months.  She also reviewed adverse action notices generated during the same period.  She compared denied applications for persons with Hispanic surnames to loans made to persons without Hispanic surnames.  She noted that in some cases the credit histories of loans on the books were similar to those of applicants denied for delinquent credit.  What should be a concern for this compliance officer?

A. That there were too many loan applications denied

B. That the bank is engaging in disparate treatment

C. That the bank’s practices are having a disparate impact on the community

D. That the bank’s credit standards are too vague

B. That the bank is engaging in disparate treatment

Joint Policy Statement on Lending Discrimination

When there is no other explanation for the treatment of credit applicants except a prohibited basis, then the bank could be engaging in disparate treatment.

Which of the following provisions is MOST likely to raise fair lending questions if found to be in a written loan policy?

A. Minimum income requirement

B. Maximum debt-to-income ratio

C. Policy against lending out of market area

D. Half-point loan discount for automatic payment plans

A. Minimum income requirement

The minimum income requirement is more likely to disparately impact lower income applicants that are more likely to be in protected classes.

Which of the following elements would NOT be a potential indicator of redlining?

A. The absence of census tracts with a racial minority character within an institution’s assessment area

B. The presence of census tracts with a racial minority character immediately adjacent to but outside of an institution’s assessment area

C. A special marketing program aimed at racial minority groups within an assessment area

D. Non-minority geographies that appear to have been given favorable treatment

C. A special marketing program aimed at racial minority groups within an assessment area

Interagency Examination Procedures (revised 2009)

An institution that implements a special marketing program aimed at racial minorities is actively encouraging loans to protected classes.  This is not an indicator of redlining.