Fair Lending
In one way or another, all lending regulations and their required disclosures are designed to protect consumers. As a result, significant compliance violations in the lending process can result in further investigations as to whether they also constitute violations of the principles of Fair Lending. The Consumer Financial Protection Bureau (“CFPB”) continues to emphasize the Equal Credit Opportunity Act and the Fair Housing Act as the primary drivers of Fair Lending. Within these two Acts, the government provides a list of reasons for which a person cannot be denied the opportunity to apply for credit, cannot be denied credit, or given credit terms different to someone else who is similarly situated.
While it may seem surprising that any financial institution in this day and age would discriminate against a borrower or potential borrower, the fact remains that it does occur. If the discrimination is done with the express purpose to discriminate, it’s called Overt Discrimination. Alternatively, if the discrimination is more subtle, it is knows as Covert Discrimination. In these instances, the institution sets up a scenario that seems fair and equal on the surface, but underneath, it is a situation known as Disparate Treatment or Disparate Impact, which is a situation where two similarly situated people receive two different credit outcomes.
Overall, it is important to recognize that while “Fair Lending” has been in existence for quite some time, it is given new life in the more consumer friendly regulatory environment that currently exists. As such, our review process is specifically designed to analyze the underlying data to gain a thorough understanding of your institution’s lending practices to help identify potential risks to prevent Overt or Covert Discrimination.