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Fair Lending Risk of Disparate Impact

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Is there a Fair Lending risk of disparate impact for a finance company to have a minimum income requirement for applicants?

Possibly, refer to the Appendices to the FFIEC Fair Lending Examination Procedures:

The legal doctrine of disproportionate adverse impact provides that the policy or criterion that causes the impact must be justified by "business necessity" if the institution is to avoid a violation. There is very little authoritative legal interpretation of that term with regard to lending, but that should not stop examiners from making the preliminary inquiries called for in these procedures. For example, the rationale is generally not clear for basing credit decisions on factors such as location of residence, income level (per se rather than relative to debt), and accounts with a finance company. If prohibited basis group applicants were denied loans more frequently than control group applicants because they failed an institution’s minimum income requirement, it would appear that the first four conditions plus 5a existed; therefore, the examiners should consult within their agency about obtaining the institution’s response.

First published on 10/31/11

First published on 10/31/2011

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