Is it a possible fair lending issue and/or discriminitory practice to approve an unsecured credit card for an applicant with no credit history (which is our usual policy as a decline) because they are employees of a big corporation?

I think it could be, but I would like an experts opinion.

Thanks

Disclaimer - not an expert...

...but it seems that if you have a special lending program for employees of a large corporation, you wouldn't have a fair lending issue - as long as the program's special underwriting provisions were documented and made available to all employees of that corporation.

I'm going to tiptoe around this a bit because there may be a lot of other details or caveats.

This will not fall into a special purpose credit program under 202.8.

Like EmilyAnn said, the fact that you will be extending similar credit to all employees of that large corporation (especially if they are a large business customer, have payroll accounts which bring in a lot of deposits, etc.) may not be an issue. What could be problematic is if there are minority large (or almost as large) companies that are not offered the same benefits/breaks to their employees.

Fair lending is all about consistency - what you do for one you need to do for all. The fact that someone works for a large company has no bearing if they have the character to repay their obligations. (As far as the large company, no credit scenario - every 19 year old new employee starting at Ford is working for a large company and because of the new laws, guaranteed does not have a credit history.)

Rant time - I once heard a loan officer bragging that he was softhearted and gave an underwriting break to a customer. That loan officer and bank in essence just discriminated against similarly situated applicants who were denied because they did not get the same break. I would encourage all to read the American Banker article on August 1 titled "Bankers Fear 'Witch Hunt' in Government's Pursuit of Fair Lending Cases", where American Bankers talks about the DOJ's new fair lending [terrorist] task force. There were more referrals in the past year than cumulatively over the past 20 years. I wouldn't want to take the risk and jepordize the bank.

My opinions.

Odds are you will not have many customers with zero credit that work for a large corporation that you have a relationship with (unless as SB states above you have a relationship with Ford with a bunch of 19 year old employees-then you should have a specific policy for those customers). If this is a one off scenario - you need to document the rationale for the approval. In the event that you have another zero credit score application, the application may not be similarly situated (i.e. DTI, time on job, disposable income, deposit relationship with individual, any other comp factor). The more you have documented, the better prepared you will be in the event you have a regulator asking questions.

"If this is a one off scenario - you need to document the rationale for the approval."

And what exact rationale would that be that the bank would be able to defend? Just because one person can rationalize the situation does not mean that would not be found disciminatory, unless as you pointed out they are not similarly situated.

Who they may work for is not normally a determining factor for creditworthiness. Southern Banker hit it right on the head. I just had a bank referred to the DOJ for two outlyiers and these were consumer loans based on surname only.

The witch hunt exists........

Randy and SouthernBanker - do you think, then, that it is too risky to have a special lending program for employees of various companies in a bank's marketplace? I know of banks that have had "workplace banking" arrangements with some of their customers, whereby they make special deposit and loan account relationships available to employees of these customers. Typically, I think it's more of a special rate situtation, rather than a break on underwriting criteria.

We are not currently doing anything like this, but I've heard the idea floated in the past. My thoughts have been that as long as the special lending program is documented and available to all employees of the company that is a customer of the bank, we should be fine. And also as long as we would make the special program available to other companies that may be interested in having it available to their employees. Is such a thing too risky these days?

IMHO in today's environment I believe that it creates considerable risks. I have seen these types of programs before, but they have been basically more geared to the deposit side of the business.

Thank you Randy.

rl is exactly right. F-L gone amuck. Pushed from its original roots to morph into whatever suits our overseers. Beware, play at your own risk.