Our loan rates differ based on product type, and on some products we have tiered pricing. It has been our practice to price all loans under $5000, regardless of type or credit score, at 12.95%. This rate is not arbitrary - it was set as a rate that would make the loans profitable. As long as this is applied across the board, and we can demonstrate the reasoning for the rate in terms of not losing money on the loan, does anyone see any fair lending issues with this?

I could see an examiner saying this could be disparate impact. Low/Mod income borrowers are more likely to apply for lower amounts of credit, and therefore, are more likely to be charged a higher rate.

However, profitability of the loan should qualify for the legitimate business need exception.

I agree with TMatt87 ... while this may be a UDAAP issue. The regulations do not require anyone to make bad loans.

I would be sure to have lots of documentation on how you came up with that rate - it's pretty high. And, take a look at how many loans you are making and denying based on that rule. Maybe you could lower the amount...do an annual review.

I, too, can see the dispatate impact and the UDAAP issue.