Fair Lending Compliance Training

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Fair LendingCompliance Training

• Materials Sharon M. McMichael, VP CRA Officer
• and
• Design Layout Kristen L. Killoran, Regulatory
  Compliance Training Administrator
• National Penn Bank

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Introduction to Fair Lending

• Why is it important to discuss equal treatment
  and fair lending?
• Treating all customers equally and fairly is very
  important.
• 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

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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?

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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

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Lender Bucks 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 Im Ed Needsit.
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Ed Needsits 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. Im 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 werent.

? Yes ? No
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Ed Needsits Statements
Can Lender Buck consider?

• I know I look African American, but Im 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
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Ed Needsits Statements
Can Lender Buck consider?

• Im interested in a single payment loan, due in
  13.5 years.

? Yes ? No

• Im not sure whether the earth is truly round,
  but believe it is actually shaped like a
  lifesaver .

? Yes ? No
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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

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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)

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Lending Discrimination

• Overt Discrimination

• When a lender openly discriminates on a
  prohibited basis
• No loans to Methodists.

• When a lender expresses a discriminatory
  preference
• Im more comfortable with people who can speak
  English.

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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 couples 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 couples 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.

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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

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Thank you for your time and attention.

• Please contact the Compliance Department at any
  time with questions!