Skip to content
BOL Conferences
Thread Options
#477167 - 12/30/05 08:06 PM Fair Lending Issue?
Jan94 Offline
Platinum Poster
Joined: Mar 2001
Posts: 828
USA
Bank has a situation with a lender who rather than credit scoring his loans as required, he "reworked" them into commercial loans. The reason he did not want to credit score was because the customers had bad or questionable credit and he knew they would be declined. There's more to this (of course) and the lender is no longer with the bank. I'm concerned with whether there could be fair lending issues and any impact on those customers who were scored and declined and not overriden. The majority of the loans identified were unsecured or automobile loans with a few involving principal dwellings. Would appreciate any thoughts on fair lending impact. Thank you.

Return to Top
Lending Compliance
#477168 - 12/30/05 09:17 PM Re: Fair Lending Issue?
Jack Holzknecht Offline

Gold Star
Joined: Aug 2001
Posts: 330
Louisville, KY
The situation described constitutes disparate treatment. The question is whether the disparate treatment constitutes illegal discrimination. Who got favorable treatment and who did not? If a group (minority or female applicants for examle) received less favorable treatment, then fair lending concerns exist. If there is no pattern to the disparate treatment, then fair lending is a remote concern.

Return to Top
#477169 - 12/30/05 09:17 PM Re: Fair Lending Issue?
Peeps Offline
100 Club
Peeps
Joined: Sep 2002
Posts: 145
I agree you can have a fair lending issue if the folks who were scored and declined were from protected classes. Of course there is also the credit quality issue for the bank, but I am curious why the commercial standards would be less stringent on credit? Perhaps that is typical, I'm not sure.

Return to Top
#477170 - 12/31/05 06:34 AM Re: Fair Lending Issue?
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,219
Galveston, TX
1) You have a severe breakdown in your control environment if a loan officer can book consumer purpose loans as commercial loans. Who reviews the loans before document preparation?

2) If these are consumer loans and they were not disclosed properly, fair lending may be the least of your worries.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#477171 - 01/02/06 08:49 AM Re: Fair Lending Issue?
Princess Romeo Offline

Power Poster
Princess Romeo
Joined: Jun 2001
Posts: 8,272
Where the heart is
Quote:

1) You have a severe breakdown in your control environment if a loan officer can book consumer purpose loans as commercial loans. Who reviews the loans before document preparation?

2) If these are consumer loans and they were not disclosed properly, fair lending may be the least of your worries.




This is an all-too-common occurance at smaller institutions that do not have strong controls in their documentation or note departments.

I have seen cases where the documentation person, or the person boarding the loan REPORTS to the Branch Manager or Loan Officer. The loans get boarded according to how the manager or loan officer dictates.

Even more absurd is when bank management supports this type of environment by claiming that it makes them more "flexible" and "competative."

Any new compliance or audit person going into a smaller bank that does not have strong controls on documentation or boarding is well advised to review "commercial" loans for fair lending and compliance issues.
_________________________
CRCM,CAMS
Regulations are a poor substitute for ethics.
Just sayin'

Return to Top
#477172 - 01/11/06 03:18 AM Re: Fair Lending Issue?
Jan94 Offline
Platinum Poster
Joined: Mar 2001
Posts: 828
USA
Yes this happened in a small institution and it all came to light during a loan review. It was also found that the lending assistant was also involved but she left the bank long before he did. In some of the loans there may have been some fraud. We have been asked to consider the "compliance" issues of non-disclosure. These loans all would have been subject to Reg Z but since they were booked as commercial I am not clear on whether there would be reimburseable issues? The disparate treatment concerns me but we haven't been directed to pursue this at this time.

Return to Top
#477173 - 01/11/06 03:23 AM Re: Fair Lending Issue?
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,219
Galveston, TX
Quote:

These loans all would have been subject to Reg Z but since they were booked as commercial I am not clear on whether there would be reimburseable issues?




From "ADMINISTRATIVE ENFORCEMENT OF THE TRUTH IN LENDING ACT—RESTITUTION"

Violations Involving the Non-Disclosure of the APR or Finance Charge

1. In cases where an APR was required to be disclosed but was not, the disclosed APR shall be considered to be the contract rate, if disclosed on the note or the Truth in Lending disclosure statement.
2. In cases where an APR was required to be disclosed but was not, and no contract rate was disclosed, consumers will not be required to pay an amount greater than the actual APR reduced by one-quarter of one percentage point, in the case of first lien mortgage transactions, and by one percentage point in all other transactions.
3. In cases where a finance charge was not disclosed, no adjustment will be ordered.
Last edited by rlcarey; 01/11/06 03:24 AM.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#477174 - 01/11/06 04:11 AM Re: Fair Lending Issue?
Princess Romeo Offline

Power Poster
Princess Romeo
Joined: Jun 2001
Posts: 8,272
Where the heart is
Quote:

These loans all would have been subject to Reg Z but since they were booked as commercial I am not clear on whether there would be reimburseable issues?




Oh..oh...oh!!! Can I answer this one too???

Ahem.......

ATTENTION COMMERCIAL LOAN OFFICERS AND BANK MANAGEMENT!

There is NOTHING magical about HOW you book your loan, or on what "system" you book the loan, that will grant you mysterious immunity to federal regulations.

To paraphrase Shakespeare, a Reg Z loan is a Reg Z loan no matter WHAT you call it, what loan documents you use, or where you book it.

A rose by any other name still has thorns, and they HURT when they stick you!
_________________________
CRCM,CAMS
Regulations are a poor substitute for ethics.
Just sayin'

Return to Top

Moderator:  Andy_Z