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Copyright 2011 First National Compliance Solutions Inc.
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First National
Compliance Solutions Inc.
Fair Lending Violations By Jonathan Pinard & Bonnie Nachamie
From the
National Mortgage Professional Magazine  July 2011 Issue

There can be no more noble a mission than to create a society in which its all people are
afforded equal treatment regardless of their background. And yet, more than 200 years after our
nation’s founding and almost 50 years after the enactment of our nation’s key fair lending laws,
we are still working to ‘get it right’. State and federal regulators have renewed their focus in the
fair lending arena and are committed to enforcement of the fair lending laws.  Improvements in
technology and more detailed reporting requirements such as HMDA reporting and NMLS Call
Reports make fair lending violations easier to detect.   

There are three types of Fair Lending Violations described in the law. Overt Discrimination; this
is where one or more groups of people are excluded from receiving financing. Disparate
Treatment; this is where a particular group is singled out by imposing a different standard of
treatment. These first two are easy to avoid. The third type of Fair Lending Violation is Disparate
Impact; this happens when there is a policy or procedure that ends up impacting members of a
protected class in an adverse way and where there is no legitimate business reason to do so. An
example of disparate impact is when customers are charged a higher fee for loans in one county
over another and that county has a higher concentration of minority borrowers and there is no
legitimate business reason for the higher costs. Disparate Impact Violations are usually
unintentional which make them the hardest to avoid.    

How do you protect your organization from the expensive process of defending claims
of discrimination?   

Implement and maintain a Fair Lending Policy: Every organization should have a detailed fair
lending policy.  The policy premise is simple: do not discriminate.  However, it is a carefully
crafted Fair lending plan describing the rules and procedures that are to be followed will help
guide your employees in maintaining a discrimination free environment.  The plan should be
comprehensive and remain relevant.  Procedures concerning advertising and marketing
strategies should be addressed.

Provide Fair Lending training for your employees: Without adequate training and education, a
fair lending program cannot succeed.  Fair lending compliance is fed by an educated staff.
Employees can only carry out their duties and responsibilities if they understand what those are.
Implement a non-discriminatory pricing policy: “Put your money where your mouth is” by ensuring
that all persons have equal access to credit opportunities.  Setting standards for loan price and
fees helps ensure such equality.

Test to ensure non-discriminatory practices or pricing: Implement a procedure to review loan
files and loan data to detect patterns or trends which may indicate disparate results of lending
activities. Self-testing and monitoring limits a company’s liability and encourages corrective
action, when necessary. This review should include not only closed loans but applications that
are either withdrawn or denied.

Put it in writing! Fair lending policies, like all policies, should be written documents.  
Avoiding fair lending violations is inexpensive; violating fair lending laws is very expensive. Even
the mere allegation of a violation can cost thousands of dollars in legal fees, fines and penalties.
By incorporating a meaningful fair lending plan into day-to-day business operations, mortgage
brokers and bankers take a giant step towards preventing allegations of wrongful discrimination.  
There are several compliance companies including, First National Compliance Solutions, that
can provide you with the necessary tools to remain compliant. Take a proactive approach to fair
lending compliance and protect your reputation and your profit margins!