Fair Lending
Compliance 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)
1. Race
2. Color
8. Receipt of Public
Assistance
•
3. Religion
4. National Origin
5. Sex
6. Marital Status
7. Age
If all or part of the applicant's
income is derived from any
public assistance program
9. 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 Buck’s 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 – I’m Ed Needsit.
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Ed Needsit’s Statements
1. “I have never had a checking
account, credit card, or loan.”
2. “I think I look old for my age.
I’m 21, but think I look 35.”
Can Lender Buck
consider?
 Yes
 No
 Yes
 No
 Yes
 No
 Yes
 No
3. “I am a member of the Church
of Ed, a religious order founded
on the premise that people
named Ed have divine powers.”
4. “I am married but sometimes
wishes I weren’t”.
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Ed Needsit’s Statements
Can Lender Buck
consider?
5. “I know I look African
American, but I’m actually
Eskimo, Scandinavian, and East
Indian.”
 Yes
 No
 Yes
 No
 Yes
 No
6. “My current income is all
derived from social security
payments.”
7. “I plan to use the loan funds to
develop a machine that extracts
the last ounce of ketchup from
the bottle.”
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Ed Needsit’s Statements
Can Lender Buck
consider?
8. “I’m interested in a single
payment loan, due in 13.5
years.”
 Yes
 No
 Yes
 No
9. “I’m not sure whether the earth
is truly round, but believe it is
actually shaped like a lifesaver .”
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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

“I’m 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 couple’s 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 couple’s credit
report, the lender denied the loan application on the basis of
the adverse information without giving the couple an
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opportunity to discuss the report.
Is it discrimination?
1. 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
2. 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!
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