We are a community bank with one Major bank as a competitor. They are offering vehichle loans for (Im just making up the rate) 3.25, our current rate is 8.00. We have a rate sheet that our Loan Officers go by, we do not do Credit rating interest rates. The quesiton is.. if we have a customer that comes in with a high credit score can we match the rate of our competitor and document that is why we did the loan at that rate. Or would this get us into some fair lending issues down the road.

Think sophisticated borrower, who is more likely to shop and know the rates of the competitors, and who from a demographic standpoint likely falls within that group. Shaving several basis points off when someone mentions a competitor is one thing. Lowering the interest rate by more than half and then only for those certain customers that mention it with an over XXX credit rating is another.

I would just re-price my loans to be competitive.

ANYTIME YOU GIVE ANY DISCRETION TO A LOAN OFFICER, YOU HAVE A POTENTIAL FAIR LENDING ISSUE!

It has been proven over and over and over again.
End of story!

Agree with Rocky and RL, don't even think about it. Our auto department had similar discretion a few years back... and let's just say it would be in your best interest TO REMOVE ANY AND ALL AUTHORITY TO CHANGE PRICING.

Also, why do you not base pricing off of credit? 8.00% seems really high for a base rate (at least in our area). If your not pricing based on credit, you're probably already not pricing competitively. Why would you give someone with a 800 CB Score the same rate as someone with a 660?

As RL said, for example, you have a bunch of savvy, educated borrowers come in and discuss competitor pricing and you drop their rates by 2.00%. Then say by chance, all of these borrowers with discounted rates are white middle-aged males.... guess how that story ends.

As a caveat to the above, policy can allow for a price reduction because of other relationships or automatic withdrawal from account, (and/or other bank reason) but they would:
1 - be in the approved loan policy and
2 - apply in all cases where applicable (non discretion)