Side by Side: A Guide to Fair Lending
The Federal Deposit Insurance Corporation recognizes the efforts undertaken by many financial institutions to improve fair lending performance. Every day our examiners and community affairs staff work with compliance officers, loan officers and others who want to ensure equal opportunity in lending. Although few lenders believe that intentional discrimination is prevalent, we know that they all share a genuine concern about the other more subtle or inadvertent forms of discrimination. People treat other people differently and differences in treatment can lead to illegal discrimination. We are also aware of the questions asked by lenders when they begin to address this concern. Does it happen here? How do we know? What can we do?
In this guide, which we first distributed in August of 1994, we provide alternative means that an institution may use to discover uneven customer service or inconsistent lending practices that may be discriminatory. This guide is not about finding discrimination, that is, violations of the fair lending laws. It's about tools that a lender can use to compare the treatment of loan applicants, identify differences and correct potential problems. Financial institutions may decide to use other methods or take a different approach to those we outline here. The process is not mandatory nor are the tools that are discussed in this guide all inclusive. A self-analysis program of detecting and preventing potentially discriminatory practices should not be undertaken to placate regulators or others. Instead, it should be used to help assure equal access to loans. We encourage institutions to employ whatever methods may work best for them to detect and prevent lending discrimination.
The Federal Deposit Insurance Corporation wants to help financial institutions seek ways to know whether discrimination occurs. We have distributed over 35,000 copies of this guide to financial institutions -- compliance officers and senior executives --, to community organizations, and to others. The guide was originally developed to provide a place to begin, take some of the mystery out of the process, and help answer some of the more basic questions. Based on the demand for the guide, we believe the procedures and processes described herein continue to be appropriate tools for financial institutions.
Carmen J. Sullivan
Division of Compliance and Consumer Affairs
TABLE OF CONTENTS
- 1 INTRODUCTION
- 3 PART ONE: PRE-APPLICATION TESTING
- 4 WHAT IS PRE-APPLICATION TESTING?
- 7 PLANNING THE TEST
- 10 CONDUCTING THE TEST
- 13 EVALUATING THE TEST
- 17 PART TWO: A COMPARATIVE ANALYSIS OF LOAN FILES
- 18 PLANNING THE ANALYSIS
- 20 COMPARING THE FILES
- 23 EVALUATING THE RESULTS
- 26 PART THREE: OTHER GUIDES TO FAIR LENDING
- 34 PART FOUR: ENFORCEMENT ACTIONS AND REMEDIAL MEASURES
- 39 CONCLUSION
- 41 APPENDIX A: TESTER IDENTITY
- 45 APPENDIX B: LENDING GLOSSARY FOR TESTERS
- 49 APPENDIX C: TESTING REPORT FORM
- 51 APPENDIX D: MORTGAGE LENDING DECISION ANALYSIS WORKSHEET
- 55 ACKNOWLEDGEMENT AND SELECTED REFERENCES