Fair Lending Flashcards
Disparate Treatment is:
Either overt discrimination or there is comparative evidence of discrimination. Overt discrimination is when a lender openly discriminates on a prohibited basis, this can be in a written policy or an oral statement. An example of overt discrimination would be that a credit card company has a written policy that anyone who is we 21-27 can only have a credit limit of $1,000 but anyone over 30 automatically gets a credit limit of $5,000.
Comparative Evidence is:
The treatment of a credit applicant differently based on one of the prohibited basis, differences in treatment that are not fully explained by legitimate non-discriminatory factors and does not require any evidence that the treatment was motivated by prejudice or that the creditor intended to discriminate against a person. An example of comparative evidence is that someone with the same credit file but perhaps one is white and the other Hispanic has a higher interest rate even though their credit profile is the same as the non-Hispanic applicant.
Disparate Impact occurs when:
A facially neutral policy or practices is applied equally to all applicants but the policy or practices disproportionately excludes or burdens certain groups of people in a prohibited basis. An example is a lender has a minimum loan amount that they will lend on, say that is $150,000 but the average home value in a minority neighborhood is $100,000 so the lender does not help anyone in the minority neighborhood. The result is disparate impact and discrimination.
What are the two pillars of federal law regarding fair lending and discrimination?
The ECOA and the HMDA
Redlining is:
An unethical practice where the financial institution makes it extremely difficult or impossible for residents of a particular neighborhood to borrower money, gain approval for a mortgage, take out insurance or gain access to other financial services because of a history of high default rates. This typically occurs in poor inner city neighborhoods. In the case of redlining, an individual’s qualifications and creditworthiness are not considered.
Reverse Redlining is:
The opposite; it is where a financial institution lends specifically in poor inner city neighborhoods with the intention of charging them more than a comparable white consumer.
Blockbusting occurs when:
Real estate agents and building developers attempt to convince white property owners to sell their houses at low prices by promoting fears in those homeowner that racial minorities would soon be moving into the neighborhood.
