Fair Lending - Commercial Loans

Posted By: complyorelse

Fair Lending - Commercial Loans - 03/10/08 06:29 PM

We are researching some pricing software to use in our commercial loan department. An issue we want to clarify is if there is any regulatory risk if we deviate from what the model states we should charge a customer...i.e. more favorable terms for large depositors or desirable businesses. The vendor states we do not have that risk with commercial loans.
Posted By: HRH Okie Banker

Re: Fair Lending - Commercial Loans - 03/10/08 06:40 PM

I don't know of any regulatory risk related to pricing on commercial loans. Commercial loans are priced by the lender usually based on deposits, Trust business, future loans/deposits. Any deviation from the norm should always be documented for Directors, Principal Shareholders, Executive Officers...
Posted By: Skittles

Re: Fair Lending - Commercial Loans - 03/10/08 06:51 PM

Although I would thoroughly document the file as to why the better rate was given. Fair Lending issues can occur - even with commercial loans.
Posted By: dblack

Re: Fair Lending - Commercial Loans - 03/10/08 07:04 PM

Even though it is commercial, you still have people that own,control, or operate the buisness.
Posted By: rlcarey

Re: Fair Lending - Commercial Loans - 03/10/08 07:14 PM

All you have to do to prove this point is look at the Interagency Fair Lending Examination Guidelines:

Step Seven: Analyze Commercial Lending Discrimination Risk

Where an institution does a substantial amount of lending in the commercial lending market, most notably small business loans (and the product has not recently been examined or the underwriting standards have changed since the last examination of the product), the examiner should consider conducting a risk factor review similar to that performed for residential lending products, as feasible, given the limited information available. Such an analysis should generally be limited to determining risk potential based on risk factors U4-U8; P1-P3; R4-R7; and M1-M3.

If the institution makes commercial loans insured by the Small Business Administration (SBA), determine from agency supervisory staff whether SBA loan data (which codes race and other factors) are available for the institution and evaluate those data pursuant to instructions accompanying them.

For large institutions reporting small business loans for CRA purposes and where the institution also voluntarily geocodes loan denials, look for material discrepancies in ratios of approval-to-denial rates for applications in areas with relatively high concentrations of minority residents compared with areas with relatively low concentrations.

Articulate the possible discriminatory patterns identified and consider further examining those products determined to have sufficient risk of discriminatory conduct in accordance with the procedures for commercial lending described in Part III, F.
Posted By: complyorelse

Re: Fair Lending - Commercial Loans - 03/10/08 07:32 PM

Great. I appreciate all of the feedback.