Question & Answer

Question: Customers are asking our bank to refinance their loans with us at rates below what we generally offer. Would negotiating favorable mortgage rates or terms with existing customers raise fair lending concerns?

Answer: Customers are becoming increasingly savvy about negotiating for favorable credit terms. Many banks are feeling pressure to provide favorable terms at a customer's request - particularly if the customer threatens to move accounts unless the bank offers a better rate. Many consumers would rather negotiate with "their bank" than use the more time consuming and expensive method of shopping for credit from lender to lender. The bank's problem is how to respond to this customer's request - and keep the customer - without violating fair lending laws.

First, it is possible to accommodate customer needs and requests. You should have a policy on how the bank will respond to these situations. Loan officers should not be negotiating terms without some sort of framework. The policy should provide a rationale for customer negotiations, and guidance on the degree of latitude any employee may have in negotiating terms. The goal of such a policy is to ensure that there is a business reason for deviations from rates and terms, and that there will be some consistency in the result.

Your policy should identify the circumstances under which a rate or terms can be negotiated. It should also specify the extent to which rates and terms can be modified. The policy should also provide for review by a designated officer within the bank (the fair lending officer would do nicely). The review should serve two purposes: ensure safety and soundness, and ensure consistency with the bank's fair lending program.

Your greatest defense when facing a fair lending challenge will be the ability to show a connection of a single decision to a consistent policy and to sound business decisions.

Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 5, 3/96