We are considering promoting a home equity line with a preferred rate to customers residing in zip codes within one of our markets. The applicant would have to bring in the promotional material to get the rate. Also, this is only being offered within one of our 7 completely different markets we serve. Do we have a fair lending violation for either the rate with materials, or by offering only to individuals within specific zip codes. We are offering this to residents with a certain credit score or higher.

Jim, IMHO, a big YES!, especially if there is a minority or low income tract adjacent to the areas.

Examiners look for equal treatment or opportunities to all. There have been some pretty good posts recently where banks were criticized because they had a recent promotion to higher income areas and nothing to lower income areas. They should have shown the marketing plan which eventually covered all.

Before any decision, look at the interagency exam guidelines under:
Indicators of potential DISPARATE TREATMENT IN MARKETING of residential products, and
Indicators of potential DISCRIMINATORY REDLINING. Then read up on disparate impact in the same guidelines.

Why not open it up to your assessment area?

I can understand the preferred rate based on credit score. When considering all costs with a loan, generally higher scores are current and have less collection efforts and fewer terminal issues. That needs to be documented to pass muster too, indicating the why the difference.

Jim, in my humble opinion, I completely agree with Rocky. Offering "preferred rates" within specific zip codes could open you up to a world of trouble if the neighboring areas are LMI or high minority tracts. (Redlining, disparate treatment, etc.)

You can offer different promotions in different markets to stay competitive, but I would not recommend limiting it to a specific zip code.

Just out of curiousity why were you targeting a specific zip code?