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There’s this emphasis that I’m going to be really brief here, but the CFPB has been a key player in keeping an emphasis with fair lending, and that trickles down to all of your regulators. So it’s an emphasis that the regulatory agencies have placed and continue to place on fair lending. It’s not going to go away anytime soon. So just a paragraph reminder on that.
Let’s go to Roman numeral II, the regulations. I want to start here just to make sure that we all are on the same page with this. Every time I do fair lending training, it seems we have to go back to this if we skip over it, because we need to make sure we’re all on the same page with the basics.
So there’s two regulations that are really key players, maybe three, but two that we’re going to talk about today as it relates to fair lending. The base of all fair lending is going to be the Equal Credit Opportunity Act Reg B. That applies to all credit, whether it’s consumer, commercial agricultural, it doesn’t matter. Reg B is our foundation from a fair lending standpoint. We’re going to go into fair housing here on the next page. But I mentioned there’s three. The third one, and we’re not going to get into it today, is the Home Mortgage Disclosure Act, HMDA. Not all of you necessarily will be HMDA covered banks, but if you are, that’s an additional fair lending regulation that comes into play.
Now let’s go back to our foundation, which is Regulation B, page number one. You read underneath letter A, what it’s going to talk about there is that it prohibits discrimination based on eight things. It’s simple. These eight things you are not to consider when you make credit decisions. When you’re doing pricing, when you’re trying to figure out the underwriting, these are not players. You need to stay away from these. Now, if you look at this list, it’s things that make sense: Race, religion, national origin, sex, marital status, age. Age is one that comes up often in a discussion. They have to be of legal age to enter into a contract. Outside of that, age should not be considered in relation to making a credit decision. Now, there are a few exceptions when it comes to people, once you get to a certain age. If I am 90 years old and want a 30 year home loan, that you can consider. And so there are certain times it can be included. So it’s not like it’s an all out, but in most cases, you need to stay away from age.
And now I want to draw your attention to something here. Number four talks about sex. Want you to pick up your pens and next to that, write down sexual orientation. The reason for that is the Supreme Court recently made a ruling that now includes sexual orientation within one of the prohibited characteristics underneath that item, which is sex. Male, female, that sort of thing. So make sure you’re not taking into account sexual orientation with respect to your credit decisions. You’re likely aren’t doing that, but that’s the new player here.
I’m also going to have you write down another one at the bottom of the page underneath number eight. This is not one that has been identified directly through any court ruling or regulatory enforcement, but it’s kind of this one that’s always recognized informally and that’s going to be service members. So think military, military service members and dependents of service members. They’re not directly protected classes, but those people that fit in that bucket, you want to make sure you’re not discriminating against them either. That will get you in a lot of hot water.
So the key here is do not consider it. Don’t take these things into account when you make a credit decision. There’s a whole lot of things you can consider: Credit score, debt to income, loan to value, and all the other things that are outlined in your loan policy. You discriminate based on those things every day. And that’s okay, providing you do it consistently. And we’ll talk more about that in a bit, but these items here need to stay out of the decision-making.