Fair LendingCompliance Training Materials: Sharon M. McMichael, VP & CRA Officer and Design & Layout: Kristen L. Killoran, Regulatory Compliance Training Administrator National Penn Bank
Introduction to Fair Lending • Why is it important to discuss equal treatment and fair lending? • Treating all customers equally and fairly is veryimportant. • As a bank employee, it is illegal to treat customers differently based on a prohibited bases factor. • What laws or regulations do we have? • Equal Credit Opportunity Act (ECOA) – Regulation B • Fair Housing Act • Community Reinvestment Act (CRA) – Regulation BB • Home Mortgage Disclosure Act (HMDA) – Regulation C • Fair Credit Reporting Act
Equal Credit Opportunity Act (ECOA)Regulation B • What is the purpose of ECOA? • To prevent discrimination and promote the availability of credit to all creditworthy applicants without regard to any of the “prohibited bases”. • What are prohibited bases? • Factors that we are forbidden to discriminate upon in any aspect of a credit transaction. • Group Activity - How many do you know?
Prohibited Bases (under ECOA & Reg B) • Race • Color • Religion • National Origin • Sex • Marital Status • Age • Receipt of Public Assistance • If all or part of the applicant's income is derived from any public assistance program • Consumer Credit Protection Act • If the applicant has in good faith exercised any right under the Consumer Credit Protection Act
Lender Buck’s Loan Applicant • Ed Needsit applies for an unsecured loan and he talks way too much. In his conversation with Lender Buck, he shares several pieces of information. • Determine whether or not Lender Buck can consider the information or if he is prohibited from considering it. Hi – I’m Ed Needsit.
Ed Needsit’s Statements Can Lender Buck consider? • “I have never had a checking account, credit card, or loan.” Yes No • “I think I look old for my age. I’m 21, but think I look 35.” Yes No • “I am a member of the Church of Ed, a religious order founded on the premise that people named Ed have divine powers.” Yes No • “I am married but sometimes wishes I weren’t”. Yes No
Ed Needsit’s Statements Can Lender Buck consider? • “I know I look African American, but I’m actually Eskimo, Scandinavian, and East Indian.” Yes No • “My current income is all derived from social security payments.” Yes No • “I plan to use the loan funds to develop a machine that extracts the last ounce of ketchup from the bottle.” Yes No
Ed Needsit’s Statements Can Lender Buck consider? • “I’m interested in a single payment loan, due in 13.5 years.” Yes No • “I’m not sure whether the earth is truly round, but believe it is actually shaped like a lifesaver .” Yes No
Equal Credit Opportunity Act (ECOA)Regulation B • What is the scope of this law? • Discrimination is forbidden in ANY aspect of a credit transaction. • Everyone is involved! • Individual who greets customer • Loan Originator • Credit Underwriting • Person setting up new loan account on the computer system
Lending Discrimination • The courts recognize three methods of proof of lending discrimination under the ECOA and the Fair Housing Act (FHA). • Overt discrimination • Disparate treatment • Disparate impact (effects test)
Lending Discrimination • Overt Discrimination • When a lender openly discriminates on a prohibited basis • “No loans to Methodists.” • When a lender expresses a discriminatory preference • “I’m more comfortable with people who can speak English.”
Lending Discrimination • Disparate Treatment • When a lender treats a credit applicant differently based on one of the prohibited bases. • A non-minority couple applied for an automobile loan. The lender found adverse information in the couple’s credit report. The lender discussed the credit report with them and determined that the adverse information was incorrect. The non-minority couple was granted their loan. A minority couple applied for a similar loan with the same lender. Upon discovering adverse information in the minority couple’s credit report, the lender denied the loan application on the basis of the adverse information without giving the couple an opportunity to discuss the report.
Is it discrimination? • A lender offered a credit card with a limit of up to $750 for applicants aged 21-30 and $1500 for applicants over 30. Yes No • A non-minority couple applies for a loan to purchase a home. The loan officer provides them with information on a number of loan programs to which they may be eligible. A minority couple also applies for a loan to purchase a home. The loan officer discusses only FHA financing. Yes No
Thank you for your time and attention. Please contact the Compliance Department at any time with questions!