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#2270481 - 05/16/22 06:15 PM Income below poverty level - decline?
JoeG Offline
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DuPage county, IL
We are reviewing our underwriting guidelines. Is there an issue if all individual applicants are denied credit when their income falls below the poverty level? In our state, the poverty line is $13,000 annually for an individual.

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#2270484 - 05/16/22 06:40 PM Re: Income below poverty level - decline? JoeG
Rocky P Online
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As long as it is researched, appropriately documented for risk, approved and realistic, it may not be a huge problem. HOWEVER The bank also needs to condsider the disparate impact part. While your policy affects everyone, it has a greater impact on minorities and elderly, who may make up the lower end of the income chain.

An elderly long time customer with a 720+ credit score, no debts and on $1,083 monthly SS would be excluded, correct? Any deviation, and there could be an issue.

It's an easy filter, but may not be in the interest of the bank
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#2270526 - 05/17/22 03:31 PM Re: Income below poverty level - decline? JoeG
Inherent_Risk Offline
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This sounds like it will play really well at a CRA Exam.

Depending on your market this will almost certainly create a disparate impact, so you're going to have to show why this serves a legitimate business need that cannot reasonably be achieved as well by means that are less disparate in their impact.

Seems like a bad idea.

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#2270549 - 05/17/22 07:27 PM Re: Income below poverty level - decline? JoeG
raitchjay Offline
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If i make $12,500 and live well within my means; apply for a loan with your bank and my DTI would be 33% after the loan, you're still going to deny me? I just don't understand the point in having such an arbitrary cut-off, not to mention the concerns previously stated.
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#2270582 - 05/18/22 02:38 PM Re: Income below poverty level - decline? JoeG
Dan Persfull Offline
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Bloomington, IN
so you're going to have to show why this serves a legitimate business need

This is a key statement. Can you show a legitimate business analysis for your institution why it is necessary to establish this minimum income level and that it will not have a disparate impact on LMI individuals in your market area?

You are basically "redlining" by income because 95% of the persons at the level are going to live in LMI census tracts.
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#2270591 - 05/18/22 03:56 PM Re: Income below poverty level - decline? JoeG
John Burnett Online
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Cape Cod
When you do that business need analysis, you need to consider whether this is just a simple expedient to avoid having to look at other financial information such as assets that might be available to repay a loan. I strongly suspect that a legitimate business need will be hard to identify.
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#2270627 - 05/19/22 01:23 PM Re: Income below poverty level - decline? JoeG
JoeG Offline
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Joined: Nov 2013
Posts: 122
DuPage county, IL
Thank you for everyone's input. Fortunately, we are continuing to use DTI guidelines to so as to avoid a potential disparate impact on LMI census tracts.

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