Are employee loans considered during a fair lending exam? I am of the opinion that those loans would be exempt from the exam, as it is assumed the bank would give a preferred rate to their employees as an employment benefit. Or would that only be the case if there was a written policy regarding employee loans?

During any examination, the examiners can choose any loan they wish. If you tell them not to select some loans (for whatever reason) guess what peaks their curiousity?

Pricing is only one of the lending considerations. If the selection is made from HMDA data, there is nothing to identify an employee loan other than possibly NA recorded as income.

So if all employee loans are priced at prime, even those with marginal credit, and a non-employee with similar marginal credit is priced higher, then the bank could have a fair lending issue if that non-employee borrower was in a protected class? Or if the non-employee in a protected class is denied when the employee is approved?

No. At that point, the loan would be identified as an employee loan. That would be the explanation for difference in treatment.

This is one instance where wild speculation can only cause you too many sleepless nights.

Employee loans are a "class" or "type" of loans. Only loans of a similar class or type are compared with each other, so Employee loans would be compared to other Employee loans for a Fair Lending review.

Now, if you have similarly qualified employees, and one got a more preferential rate that the other did not, and the only difference is a prohibited factor, then you may have a problem.

Generally speaking, most institutions would not have enough Employee loans to be considered for a separate Fair Lending exam analysis. Or put another way, the amount of employee loans pales in comparison to the amount of Mortgage loans, or HELOCs, or auto loans, or credit cards.

The Fair Lending exam procedures are based on the relative risk for fair lending issues. Absent any glaring evidence of overt discrimination in policy, advertising, or complaints, the higher risk is going to be in those portfolios that are larger.