I was just informed by one of our lenders that another lender has been denying loan applications on a basis that is not consistent with our loan policy. The practice is not directly related to a prohibitted basis, but I have concerns about the possible problems. How can I stop this practice without getting the whistleblower in trouble? He has already expressed his concern to the supervisor, so if I take action, the supervisor and the other lender will probably suspect him of informing me. I want the problem to be corrected, but I don't want someone to be put in a bad position for doing the right thing. If this blows up against him other people may not want to report on other problems in the future.

Why not do your loan review early this year? Then you
can look at the denied loans and write them up as you
see fit, then you can also explain it to the supervisor
and the errant employee. Hopefully for you, it's not
too ugly...

If a fellow employee informed me that something was being done improperly I would do an audit and 'find' it. It always seemed to work. The unfortunate thing was that some employees loved to 'tell on' their coworkers.

In any case, I recommend that you do a review to verify the validity of the "accusing" employee's claims. They may very well be legitimate, but they may also be "sour grapes". I don't know that you will be able to protect the employee who first told you about this. If you move on this, that employee is going to be suspected regardless. I would recommend that the Board (or Audit Committee) provide a "safe harbor" for employees who wish to report things. Examples, sexual harassment to HR, suspected fraud (or this situation) to the auditor/compliance officer. I hope this helps. Good luck.

Question for you, anon. Has the employee's supervisor taken any sort of action here? If so, I don't think you have a problem, but I assume he has not from your post.

If the supervisor has not contacted you and has not taken action, I don't think YOU have a problem, I'd say the accused employee and the supervisor have the problem. However, it is important that you verify the information "provided" to you. I agree, perform the audit and "find" the problem............if indeed the problem exists.

Thanks for the good advice. I think we'll just have to "stumble" on it in our next review of denials. But before I go too far I want to check to see whether this really is a serious issue or if I'm just going off the deep end. The lender is supposedly denying loans because the applicants will not open a deposit account with the bank. This is not a requirement for credit according to our loan policy. So, while I understand that the federal tying restrictions don't prohibit a bank from requiring the customer to open a deposit account in order to get a loan, I am concerned that a bank should not be doing this on a case-by-case basis, especially with customers who would otherwise qualify for the loan based on pure credit quality criteria. I guess my biggest concern is that we could step in some real fair lending trouble depending on who was denied on these grounds. Is this a valid concern, or am I making too much of this?

PS: The supervisor has not taken action because she doesn't think the practice was incorrect.

The problem could come up that he is denying people from a protected class and other lenders are loaning to non-protected individuals with the same situation who aren't opening deposit accounts. Be careful.

I think it's a valid concern. Especially if you have other lenders who are approving loans under the same circumstances. This is the whole purpose of having an underwriting policy in the first place- to make sure everyone is using the same yardstick.

What is the reason listed for the denial?

Those are my concerns exactly. Depending on who is denied for this reason we could have disparate treatment of women or minorities. I don't know yet what the denial notices say. If the lender thinks he's on solid ground he would likely list the need for a deposit account. If he wants to hide his practices he would have to find some other weakness to cite.

I think this is going to be a difficult one to prove. I would definatley have hard evidence before you proceed.

I'd think you could do a comparative loan file analysis and include "deposit accounts" as an item to check. Your right, it would be difficult to prove, especially if most of the turndowns have other reasons for denial.