Decline Consumer for Credit Even if They Qualify?

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Question:

Can a consumer be declined for credit when they qualify for the credit or if they have been approved for credit at the institution previously? Situation - Applicant has applied several times for credit with the financial institution. All loans have been paid according to terms on the two loans currently on the books. Prior paid off loans always paid off as agreed. Never any late pays. The bank approved the two prior loans with their credit score in upper 500 range due to a deed in lieu of foreclosure on a previous property. The applicant has now increased their score to upper 600's to lower 700's depending on which credit report you look at. There are no past dues on their CB reports other than the deed in lieu from a couple years ago. Their DTI ratio is within policy guidelines with the bank. The one of the loans on the books has two policy exceptions that were already approved and being tracked. The same applicant applied to increase this particular loan and extend out one more year. The bank declined them; however has not yet given them a reason why. Can this be considered a fair lending issue since they qualified with income and due to bank already approving prior loans with the above mentioned exceptions? The same two exceptions would exist on this new loan with no new exceptions to mention. Seems like discrimination to me.

Answer:

It would all depend on how you would treat similarly situated applicants. If the loan has exceptions (which you haven't defined), then increasing the amount of the loan may be deemed an unacceptable risk. Fair lending would only come into play if you didn't treat another similarly situated applicant in the same manner. You are under no obligation to continue to extend credit when there are policy exceptions. The current loan with the policy exceptions and not the new loan is probably your actual fair lending risk, if you have previously denied other applicants that were similarly situated.