Question & Answer
Question: I recently went to a seminar on fair lending in which a speaker stated that we should not be taking copies of loan applicants' drivers licenses. However, some loan programs, such as FHA or VA, require us to do this. What should we do?
Answer: You should not make a general practice of making copies of an applicant's drivers license. By taking a copy of the license, which usually has a picture of the applicant, you are collecting information about the applicant, such as race and gender, that may be prohibited by Regulation B.
The easy compliance procedure would be to adopt a policy that the bank will never make copies of loan applicant's drivers licenses or any other picture identification. That way, no one would be collecting information when it is prohibited. However, as you point out, there are certain situations when obtaining the picture is required, such as by some federal loan programs.
The requirement imposed by FHA and VA does not actually violate Regulation B because it applies only to situations that are subject to either Regulation B's monitoring data requirement of Regulation C's reporting requirement. As a practical matter, the information on the picture ID would be collected anyway for monitoring data and the loan application register.
This means that if your bank participates in those federal loan programs, you need to provide clear guidance on when the copies may be made and when they may not. The easiest procedure to implement is one that prohibits any copies of the picture ID unless it is required by the specific loan program. That way, lending staff doesn't need to think through whether the application is for a HMDA-reportable loan. You minimize the possible number of mistakes and also send a strong message to avoid compiling prohibited inadvertently.
Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 18 & 19, 12/96
First published on 12/01/1996