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Question & Answer
Question: We have conducted a self-assessment for CRA and fair lending and concluded that we need to increase our lending to minorities in our community. Can we create special programs to increase our minority lending even though the borrowers may not be low income?
Answer: Your self-assessment has helped you to identify a loan portfolio weakness and you are right to take steps to strengthen minority lending. However, don't lose sight of the provisions in Regulation B that deal with special purpose credit, §202.8.
The rules for special purpose credit exist to enable targeted lending that is designed to correct for the impact of past discrimination. However, §202.8 has anti-discrimination rules of its own. Be careful not to trip into a violation of these.
Special purpose credit must meet one of several criteria. It must either be a federal or state program, a program offered by a not-for-profit organization (hopefully your bank is not in this category) to benefit an economically disadvantaged class of persons, or a program developed to meet special social needs. To meet this special needs test, the bank must develop a written plan, identify the class of persons that the program is designed to benefit, and set out specific policies and procedures for the program. The special needs test is only met if the targeted group would not receive credit under your ordinary standards of creditworthiness, or if they would receive credit on less favorable terms.
An intensive promotional program designed to reach minorities and attract them to become customers of the bank would not be a special purpose credit program as long as the credit products offered are the bank's standard credit products. However, developing credit products with special terms, such as lower rates or a waiver of closing costs, would raise concerns about discrimination. Any such program would need to survive the scrutiny of §202.8.
Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 20, 12/96
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