Fees & Fair Lending

Question: If we charge different fees to loan customers depending on the services they request are we vulnerable under fair lending?

Answer: Whether you are vulnerable under fair lending laws depends on the services, how you make customers aware of them, the pricing, and whether customers make choices in groups.

Several of the fair lending cases brought by the Department of Justice were based on different pricing or product offerings for different customer groups. The fact pattern in the Vicksburg case showed a high correlation between minority borrowers and a higher priced product. The Long Beach case was based on pricing differentials by prohibited basis. Following these cases, lenders should pay close attention to the pricing, terms of credit, and advertising of credit products.

First, you should closely scrutinize fees and pricing differences between products to make sure that there is a sound basis for the costs. One example of a legitimate cost would be a surcharge for an expedited flood hazard certification, discussed in the question above.

Second, look closely at how these different services are advertised and made available to customers. The key to fair lending is to always make the customer aware of what is available and give all customers the information they need to make sound choices. A product with a surcharge, such as the rapid flood certification charge, that is only advertised in minority newspapers begins to look suspiciously like a charge imposed on minorities. On the other hand, if the service is widely advertised to all potential customers, there shouldn't be fair lending questions based on the bank's advertisement of the product. Finally, include this fee in you fair lending audit to make sure that less sophisticated customers - particularly minority and low-income applicants - are not being steered to the more expensive product or service.

Copyright © 1997 Compliance Action. Originally appeared in Compliance Action, Vol. 2, No. 2, 2/97