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Fair Lending - PowerPoint PPT Presentation


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Fair Lending. 2001. Why are you here?. Everyone has contact with customers You may be the first to be approached regarding a loan Know who to refer the customer to Show interest and respect for the customer. Smile :) Speak - follow up Welcome Offer to help Thank the customer.

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Presentation Transcript
why are you here
Why are you here?
  • Everyone has contact with customers
  • You may be the first to be approached regarding a loan
  • Know who to refer the customer to
  • Show interest and respect for the customer
communicate
Smile :)

Speak - follow up

Welcome

Offer to help

Thank the customer

Communicate
the message
The Message
  • You like working here -
    • it’s a good place to be
  • It’s a good place for the customer to be
  • Know and understand the bank’s products and services
  • Communicate respect and interest
the four fair lending laws
The Four Fair Lending Laws
  • Fair Housing Act (FHA-1968)
  • Equal Credit Opportunity Act (ECOA-1974)
  • Home Mortgage Disclosure Act (HMDA-1975)
  • Community Reinvestment Act (CRA-1977)
equal credit opportunity act general purpose
Equal Credit Opportunity ActGeneral Purpose
  • Promote equal availability to credit by all credit worthy applicants
prohibited bases
FHA

Race or color

Religion

National Origin

Sex

Familial status

Handicap

ECOA

Race or color

Religion

National Origin

Sex

Marital status

Age

Receipt of public assistance

Prohibited Bases
covered aspects
Taking applications

Evaluations of apps

Extending credit

Credit Admin. & servicing

Collection activities

Loans to buy, build, repair, improve dwelling

Purchase or rental of residential dwellings

Selling, brokering, or appraising

Covered Aspects

ECOA FHA

types of lending discrimination
Types of Lending Discrimination
  • Overt Discrimination
  • Disparate Treatment
  • Disparate Impact
overt discrimination
Overt Discrimination
  • Openly or blatant discrimination on a prohibited basis
  • Expressing a discriminatory preference, even without acting on the preference
    • “We don’t like to make loans to------but”
    • Credit limits based on age
disparate treatment
Disparate Treatment
  • Different treatment based upon one of the prohibited factors
  • Intent does not matter - More subtle
  • Lender cannot provide a credible and legitimate nondiscriminatory explanation
  • Occurs with marginal borrowers
  • Red-lining and Reverse Red-lining
disparate impact
Disparate Impact
  • Lender applies a policy or practice uniformly to all credit applicants, BUT
  • Creates an adverse impact on applicants from a protected class
  • Example - loan minimums, gross income
  • Manifest business necessity has to be established - “Prove it”
predatory practices
Predatory Practices
  • Unaffordable loans based on assets rather than ability to pay;
  • “Flipping” Inducing repeated refinances - high points, fees; AND
  • Engaging in fraud or deception
  • Taking advantage of “unsuspecting or unsophisticated” borrowers.
household international
Household International
  • May 14 2001 - Advocacy group pickets
  • Nationwide protests - predatory practices
    • Targeting low-income borrowers
    • Exorbitant rates, overpriced credit insurance
    • Misleading terms
  • Urging investors to sell their stock
ford motor credit
Ford Motor Credit
  • December 1999
  • Disparate treatment
  • Discrimination against unmarried co-applicants - not counting both incomes
  • Paid fine of $650,000 to federal government
capital city mortgage
Capital City Mortgage
  • 1998
  • Predatory practices
    • reverse redlining
    • targeted African-American communities
    • high rates, fees, misleading borrowers
  • Products designed to fail - makes housing unavailable
  • Discrimination based on race
hot topics
Hot Topics
  • Predatory practices
  • Subprime lending
  • Credit Scoring
subprime lending
Subprime Lending
  • Important lending product
  • Enhances and meets the needs of borrowers with impaired credit;
  • Reduced repayment capacity -
    • credit report
    • debt-to-income ratios
subprime gone bad
Subprime gone bad
  • Vulnerable borrowers - lean resources
  • Measurements of subprime category applied after loan decision;
  • Steering to subprime products;
  • High rates - High pre-payment penalties
  • Use of non-standard ARM indexes
avoiding fair lending problems
Avoiding Fair Lending Problems
  • Strong written loan policy
  • Strong underwriting standards
    • consistency, level of assistance, overrides
    • Policy V. Practice
  • Fair lending training
    • at least annually for all lenders, front line
  • Second review process - denials
consequences of noncompliance
Civil Action

Class Action

Reputation risk

Regulators

Dept of Justice

HUD

Consequences of Noncompliance
the future
The Future
  • What do we know and where to go from here?
  • Proposed revisions to Truth in Lending and RESPA
  • Closer scrutiny of consumer and commercial loans
  • Consumer loans
  • Vigilance - what is your bank doing, where, with whom and what it means.
curtain down applause
Curtain down - Applause

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