Mental Competence, Loans, and Fair Lending

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Question:

We have an elderly man who has contacted us about a loan. When he first came in "to see" if he could get the loan, the lending officer wrote at the top of the application that he would be coming back in 'if he remembered'. In the meantime, his daughter called and said that he was not mentally fit and requested that we not lend him any money. When he came in the next time, his mind seemed pretty clear this time. His payment history is good with us, and he could afford a small payment. Can we refuse the request due to the daughter's request and his mental capacity from the first visit, with violating Fair Lending? I told our lenders to be careful, we are not doctors to determine his mental ability and also would his daughter be willing for us to check on the denial "Information received from another source" if we did refuse him.

Answer:

This is a tough one. If you decline to make the loan, one of the questions would be whether you are discriminating on the basis of age. In this instance, it would appear that you are not basing your decision on the applicant's age, but rather on his mental condition. Your loan officer wrote at the top of the application that the man would be back "if he remembered". Was that a conclusion drawn by your loan officer, or a quote of what the applicant actually said? You don't have any medical evidence of the individual's incapacity or incompetency. You only have his daughter's comments, which may spring from motives you are unaware of. Unless you witness firsthand evidence of diminished capacity, I would urge you to simply tell the daughter that your decision will have to be made on the merits of the application, in the absence of a legal adjudication of incompetency, and if she believes her father should not be obtaining a loan, she may want to visit with him directly about it. Be sure you don't reveal the father's personal affairs to the daughter. I wouldn't even confirm that he had visited with a loan officer. You don't lose your right to financial privacy just because you've added lots of candles to your birthday cake.

First published on BankersOnline.com 5/7/01