What are the consequences of violating fair lending requirements?
Failure to comply with the Fair Lending requirements may result in fines and penalties, harm the bank’s reputation, and be a violation of the Code of Conduct, which could result in corrective action, up to and including termination of your employment.
What are three types of consumer credit discrimination?
The Federal Trade Commission (FTC), the nation’s consumer protection agency, enforces the Equal Credit Opportunity Act (ECOA), which prohibits credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or because you get public assistance.
What is comparative disparate treatment?
Comparative evidence of disparate treatment occurs when a protected class applicant is treated less favorably than other applicants and is typically discovered through a comparative analysis during a fair lending examination.
Who do fair lending laws apply to?
8 The prohibitions apply to anyone regularly extending credit or arranging for the extension of credit. The ECOA is broader than the FHAct since the ECOA covers virtually all lenders while the FHAct covers only real estate-related lending. Housing lenders are subject to both statutes.
What are unfair lending practices?
For example, the following actions can constitute unfair lending practices: taking advantage of an unsophisticated borrower. financing excessive points and fees (an excessive cost of credit), and. engaging in unfair, fraudulent, or deceptive conduct at any time during the loan origination process.
What are the major differences between disparate treatment and disparate impact?
Both disparate impact and disparate treatment refer to discriminatory practices. Disparate impact is often referred to as unintentional discrimination, whereas disparate treatment is intentional. The terms adverse impact and adverse treatment are sometimes used as an alternative.
Why is credit important to business and consumers?
The better your business credit the more financial opportunities your business will receive. For one, if your business has good credit history, lenders will be more likely to loan your business money. Your business’ credit score will prove that your company is reliable.
How do you establish proof of disparate impact?
To establish an adverse disparate impact, the investigating agency must (1) identify the specific policy or practice at issue; (2) establish adversity/harm; (3) establish significant disparity; [9] and (4) establish causation.
What are the pros and cons of consumer credit?
Advantages & Disadvantages of Consumer Credit
- Pro: Financial Flexibility.
- Con: Temptation to Overspend.
- Pro: Perks and Rewards.
- Con: Interest Payments and Penalties.
What is an example of discrimination in lending?
Lending discrimination is when a lender receives a mortgage application and bases their decision on factors other than creditworthiness, such as race, color, sex, religion or national origin.
What are examples of disparate treatment?
Disparate treatment refers to intentional discrimination, where people in a protected class are deliberately treated differently. This is the most common type of discrimination. An example would be an employer giving a certain test to all of the women who apply for a job but to none of the men.
What are the two primary fair lending laws?
The federal fair lending laws—the Equal Credit Opportunity Act and the Fair Housing Act—prohibit discrimination in credit transactions, including transactions related to residential real estate.
How is credit important?
Credit is part of your financial power. It helps you to get the things you need now, like a loan for a car or a credit card, based on your promise to pay later. Working to improve your credit helps ensure you’ll qualify for loans when you need them.
What are three common forms of consumer credit?
He uses the credit card to pay for goods and services, then he repays the credit card company at a future date.
- Noninstallment Credit. Noninstallment credit is either secured or unsecured, depending on the company offering the credit.
- Installment Closed-End Credit.
- Revolving Open-End Credit.
What is the definition of fair lending?
Fair Lending is the unbiased treatment of all customers when making credit-related decisions. Fair Lending laws ensure that financial institutions provide fair and uniform services and credit decisions.
What are the disadvantages of consumer credit?
Disadvantages of Consumer Credit The main disadvantage of using revolving consumer credit is the cost to consumers who fail to pay off their entire balances every month and continue to accrue additional interest charges from month to month.
What is overt evidence of disparate treatment?
Overt evidence of disparate treatment is the first type of discrimination recognized by the courts and probably the easiest one to identify in an organization. This means that a lender publicly makes a statement or publishes an advertisement that is a blatant statement of discrimination.
What is overt discrimination?
Overt Discrimination, which occurs when a consumer is openly and/or actively discriminated against on a prohibited basis factor. Disparate Treatment, which occurs when members of a prohibited basis group are treated differently than others.
What are the two types of consumer credit?
There are two types of consumer credit: revolving credit and installment credit.
How can we prevent disparate impact?
Dos and Don’ts of Hiring to Avoid Disparate Discrimination
- DO: Clearly define job responsibilities.
- DON’T: Require specific physical traits or genders.
- DO: List specific job skills.
- DON’T: Go overboard with requirements.
- DO: Ask everyone the same interview questions.
- DON’T: Ask Illegal questions.
What are sources of consumer credit?
- Commercial Banks. Single-payment loan.
- Companies. Personal installment loans.
- Credit Unions. Personal installment loans.
- Companies. Single-payment or partial.
- Federal Savings Banks. (Savings and Loan.
- Associations) Personal installment loans.
What does the Fair Housing Act prohibit lenders from doing?
Fair lending prohibits lenders from considering your race, color, national origin, religion, sex, familial status, or disability when applying for residential mortgage loans.
Why is credit important to businesses?
Having access to business credit is the lifeline for a business. It enables you to obtain the capital you need to expand, cover day to day expenses, purchase inventory, hire additional staff and allows you to conserve the cash on hand to cover your cost of doing business.
What is Consumer Credit discrimination?
The Equal Credit Opportunity Act (ECOA) makes it illegal for a creditor to discriminate against you in any aspect of a credit transaction on the basis of your race, color, religion, national origin, sex or marital status, your age, and if you receive income from a public assistance program.
Why is consumer credit important?
Consumer credit is an important element of the United States economy. A consumer’s ability to borrow money easily allows a well-managed economy to function more efficiently and stimulates economic growth.
What is the 30 day ECOA rule?
A creditor must notify an applicant of action taken on the applicant’s request for credit, whether favorable or adverse, within 30 days after receiving a completed application.
What is fair lending risk?
A Fair Lending Risk Assessment is simply a review of your current Fair Lending risk exposure. It documents all of your Fair Lending risk exposure, the factors that are increasing or reducing that risk, and the remaining risk posed to your financial institution.