Fair Lending Emerging Issues

Managing a compliance program for fair lending has always been difficult because so much of fair lending turns on the fact situation and how it is viewed. During 1996, the number and type of issues under scrutiny increased dramatically. Fair lending now seems like one of those monsters from outer space that keeps changing shape just when you think you have figured out how to get it.

For 1997, there are two areas to watch closely. First, the impact of overages and pricing. The Long Beach case opens overages to comparison by any prohibited basis and makes the lender responsible for different actions by independent brokers. Clearly, the compliance program must monitor the pricing structure of all loans by source. Questions will rise in the arena of the secondary market. For example, will the lender be liable for originating loans on different terms for different purchasers. Increasingly, fair lending advocates are using related consumer protection laws such as the Truth in Lending Act and the Real Estate Settlement Procedures Act as tools in comparing loan disclosures.

The second area to watch is the question of referrals to related mortgage or finance companies when applicants are not considered to be qualified for a loan from the bank. Consumer groups have already begun to analyze the referral pattern by prohibited basis. This has been raised as a factor in the latest CRA protest against NationsBank's proposed acquisition of Boatman's. For banks that are part of a holding company that includes a mortgage bank or finance company, the alert compliance program should include an analysis of referrals. The most effective method for reviewing referrals could be in a second review program.

Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 18 & 19, 12/96