What is fair and not fair when it comes to lending?
by: Mike Tanner
In the past, fair lending and redlining were terms you only heard about when mortgage lending was discussed. Financial institutions simply needed to gather the required information for the Home Mortgage Disclosure Act (HMDA) and put controls in place to ensure they did not discriminate when approving or declining loans. Those were the simple days.
Currently, the Consumer Finance Protection Bureau (CFPB) has taken the lead in interpreting what is fair and not fair when it comes to lending. The result is fair lending concerns and violations now extend to pretty much every loan product that is offered. Complex logarithms are used by the CFPB to determine race and ethnicity to uncover fair lending violations. In addition, not only do you have to be concerned about approvals and denials you need to be concerned about the terms.
So what can you do ensure you are meeting the CFPB’s new fair lending standard? Here are few things to consider when reviewing you fair lending plan:
- Is the loan approval process automated or manual?