We will be offering a small-dollar low interest loan for up to $2,500 to those in need of help. Retail is proposing the applicant needs to be a customer in order to qualify. I'm certain this presents Fair Lending issues by not making it available to everyone - of course only after they meeting certain credit underwriting criteria such as a minimum credit score of 650 and other typical metrics.

I am having difficulty locating documentation in the law to support this requirement. Any ideas? I've already been reading through the Interagency Fair Lending Guidelines (the OCC version even though we are FDIC). I'm not expecting it to be there in black and white (you have to make the loan program available to all who qualify vs. applicant must be a customer).

I realize we can have them open a DDA account along with the loan, but retail / management specifically stated this is for existing customers.

Any suggestions?

This seems a little tricky, doesn't it? There are other things that come into play here, particularly a bank's obligation to meet the needs of its local community.

From strictly a Fair Lending standpoint, it is not necessarily a discriminatory lending practice to require applicants to be customers. If that's your policy, just be sure you don't discriminate within that population. However, if you currently don't limit applications to customers, then doing so for Coronavirus hardships, is something to be careful about.

For example, if you normally don't require someone to be a customer to apply for a loan, and if you have minority census tracts in your AA, but most of your customers don't live in those areas, then limiting it only to customers might be viewed as a problem. Is my comment too confusing?

The key is consider carefully all the angles about how policy changes like this might affect your Fair Lending and CRA obligations.

That's my free advice, it might be worth the cost. Good luck! (Edited: Stupid auto correct.)

One of the issues might be that minorities generally banked at a substantially lower percentage than non-minorities.

We only want to lend to customers could be a potential disparate impact issue. Although it applies to all borrowers, it has a greater effect on minorities as fewer are banked.

Disparate Impact. A disparate impact occurs when a lender applies a racially (or otherwise) neutral policy or practice Federal Fair Lending Regulations and Statutes: Overview equally to all credit applicants but the policy or practice disproportionately excludes or burdens certain persons on a prohibited basis.

I agree, Rocky. That is the definition of Disparate Impact, but I don't know whether this case is clear cut. Many variables may come into play, including the market, the market players, CRA, size and resources of the bank and how many people are underbanked. I think a final answer comes down to performing a risk assessment. A small bank might be able to do this with less risk, but only if their branches are a fair distance away from the minority tracts. For example, if the minority tracts are all clustered at one end of a county, and the bank's locations at the other end of the county that is more rural and less accessible to people in the minority tracts.

I will say that our bank is not offering loans like travelgirl1's bank is doing/considering. So it's academic for me, I suppose.

I agree homestar. That is a reason for a risk analysis, the same that should be performed for all offerings. If a product is offered without one, regulators can come up with any conclusion they want. The rush analysis should include the analysis and compelling arguments why they don’t apply

I absolutely agree. A good risk analysis can stave off criticism from the regulators or at least make it less formal. They are one of the most powerful tools in our arsenal, but only if we do something real to mitigate identified risks. A risk assessment that sits on the shelf and collects dust is worse than no risk assessment at all. IMHO.