I have an unsecured loan that was made to a director. He was given a rate lower than our normal matrix rate. The reasons stated for this were that he had paid loans in the past as agreed, he had a really good credit score, and had a low DTI. We sometimes do lower rates for regular customers for the same reasons, or to match a rate from another bank. Is this a violation? The rate was a little over 1% less than it should have been, because we would normally have taken 1% off anyway, as that is something we do for all employees on loan rates.

There may be two thoughts - Reg O and fair lending.

Are the lower rates with the reasons why in policy?
If similar reductions are offered to other customers, indicate that in the file, and be ready to show proof during an exam. Be sure that the reduction is not arbitrary - it's in policy, and offered to all meeting the criterion.

It is not in policy, it is just something that we do for people on a case by case basis. If they request a lower rate for whatever reason, if they have those qualifications, we will do it for them.

The bank is teetering on fair lending issues. Days where "friend" discounts were arbitrarily gives have pretty much ended. Regulators are looking for consistency, and the pricing matrices should be available to all and used. If (hypothetically of course) there are different rates/fees to similarly situated applicants and a prohibited basis applicant is charged more , the regulators will not necessarily turn the other cheek.

Regulators are more often than not checking pricing disparities. Yesterday, FDIC had 3 enforcement actions to banks, all for pricing higher to Hispanics, and/or Blacks. 1 was on unsecured credit and 2 were based on auto loans. ALSO - headlines yesterday - "Chevy Chase Bank Agrees to Pay $2.85M to African-American and Hispanic Discrimination Victims".

Further in the article was the following: "The Civil Rights Division, the U.S. Attorney’s Office for the Eastern District of Virginia, and the OCC are members of the Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources."

Don't risk the DOJ because of arbitrary pricing.

Back o the original question. Unless you can line up one, if not a couple of non-insider loans that are priced in the same manner under the same circumstances, you have a problem. The fair lending discussion is not germane to the original question.

Thanks RL Carey, I will begin looking for similar loans. Wish me luck, lol!!!