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Question & Answer
Question: Is it legal to have a policy of offering loan terms for existing customers that are more favorable than the terms offered for new customers? If we do this, must it be uniform for all customers or may we negotiate a favorable rate with a customer who requests it in order to keep his or her business with our bank?
Answer: This question takes us into the uncharted areas of fair lending. There are really two considerations here. First, the bank needs to attract and retain customers. You do this by offering products and services that customers want. Some customers are sufficiently sophisticated to go beyond shopping for credit and actually negotiate for terms. When you are faced with a customer like this, you must balance the issues of fair lending with the bank's business interest in keeping the customer. The bank regulatory agencies have, to date, supported the view that the bank should be able to make some exceptions to its policies in order to retain customers.
The second consideration is the bank's legal obligation to treat all customers fairly. While retaining customers is a business necessity, any exceptions to policy should be monitored to ensure that they do not establish over time a pattern of discrimination. In fact, it would be a good idea to have a fair lending review of any such deviation from the bank's quoted rates and terms.
When customers negotiate for more favorable terms, they may be calling something to the bank's attention. It may be notice that the bank's rates or loan products are not competitive. If this begins to happen with some regularity - or even if it only happens once or twice - it may be time to take a hard look at your market and review your offerings.
If you are placed in a position of offering favorable terms to a customer, be sure to thoroughly document the customer's request and any negotiations. You want that file to tell the story and present the bank's reasoning.
Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 6, 4/96
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