I was reading our banks Loan Policy and it states that we can match another institutions loan rate. My concern is that we might be violating Fair Lending Rules. Is this practice permissible?

If you decision is based on matching another institution's rate, this isn't based on a protected class. I'm not sure how fair lending would tie in here.

I guess my concern is customer "A" comes in and wants us to match a rate from another bank, then customer "B" comes in with the same FICO same income, and we give them a highter rate than customer "A" just because they dont ask us to match it.

This is where the lender documenting the file comes into play. If he/she does so properly there shouldn't be an issue.

This used to confuse me too, but I think as long as the lender for Customer A documents the reason for the rate discount and it is not based on anything protected, you should be ok. Now, getting the lenders to document this stuff is the bigger problem for me!

But you didn't make the decision based on a protected class. As others said, document it.

As stated, the bank does need document rate exceptions and the reasoning. You can get into trouble if requests are only approved for white males, for example. Make sure the exceptions are approved based upon valid business reasons and applied consistently. Having standards for approval and a centralized approval process can help on pricing exceptions but documentation (and tracking) is the most important.