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Indirect Loans and Fair Lending Concerns
by Lucy Griffin, BOL Guru
BIO AND CONTACT INFO
Question: The bank I work for has a huge dealer loan portfolio and works directly with a large number of dealers. We recently rolled out a "Preapproved Program" in which dealers are allowed to pre-approve loans on the bank's behalf using bank issued guidelines. They are also considering expanding the pre-approved program to include our mortgage broker relationships. I have been searching for articles that discuss indirect loans and fair lending concerns and cannot locate any. Can you recommend any resources I can use to develop a management presentation that outlines the "fair lending concerns" associated with these activities? In addition, is there a checklist any where that can be used as review outline of fair lending issues/concerns to consider as management continues to develop new and/or more competitive loan programs?
Answer: Indirect lending is subject to all of the fair lending concerns that you would look at in a direct loan portfolio. There are several additional concerns for indirect lending.
First, your guidelines and lending policies should be clear and leave as little room as possible for the lenders to introduce differences. For example, giving a 4-point spread allowance for B credit invites the seller/lender to treat some applicants, such as women, differently from other applicants, such as men.
Second, have a clear policy of non-discrimination and communicate this to the originators regularly. Be sure that they know you don't want any discrimination on your behalf.
Third, audit the results. You should look at each car dealer separately, using all the factors you would usually consider (price, date, rate, downpayment, etc.) and also the dealer. Then compare dealers to each other. When doing this, take into account the dealership's location and product. In other words, don't compare the Mercedes dealer with a used car dealer.
This is an area where you should be creative. I would also suggest that you take different approaches to your audits each year. That way, you are less likely to miss something.
First published on BankersOnline.com 9/2/03
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