IV Fair LendingFair Lending Laws and Regulations - PDF document

1 IV. Fair LendingFair Lending Laws and Re
IV. Fair LendingFair Lending Laws and Regulations FDIC Consumer Compliance Examination Manual March2021IV Fair Lending Laws and RegulationsIntroductionThisoverviewprovidessicandabbreviatdiscssionof federalfairlendinglawsandatioIt is daptedthe InteragencyPolicyStatentFairLendingissin MarchLending Discrimination Statutes and RegulationsTheEqualCreditOpportunity(ECOA)prohibits discrminatiin any Supplement I to 12 CFR part . Undertheit is unlawfulfora lendertodiscrinaon a prohibitedbasisin anyaspecta credittransaction,and underboththeECOAandthe FHAct,it is unlawfulforlenderto discratea prohibitedbasin a residential realestaterelatransactiUnderboththese laws,a lendermaynot,becaa prohibitedfactor:Failto provideinfoatiservicesprov IV. Fair LendingFair Lending Laws and Regulations IV FDIC Consumer Compliance Examination Manual March2021 Usedifferentandardstoevauatecollateral.Treata borrowerdifferentinervicingloanor invokingdefauediUsedifferentandardsforlingpackaga loanin thesecodarymaret.A lenderexpress,orallyin writing,preference basedprohiitedfactorsindicatethatit illtreat applicandifferentlya proibitedbasviolationay stillexistevenif a lendertreatedapplicanualllendermaydiscrminateprohibitedbasbecaf thecharacterapplicant,rospectiapplcant,borrower.A personassatedwithplicant,prospetive applicant,borrower(forexampapplicant, spose,busiesspartner,liinaide).Thepresentprospectupantseitherthe propertyto befinancedtheharacteristof the neighborhoodotherareawherepropertytofinanced is located.Finalltherequireslederstoakeasonble datiofora personwithdisabilitiwhench datioarenecssaryto affordthepersonequal opportunityto pplyforcredit Types of Lending DiscriminationThecourtshaverecognizedthrprooflending discriminatiundertheandthect:Overtevidendisparatetreatment;mparatiidencedispaatetreament;Evidencedisparateimpact.Disparate TreatmentTheexistenceillegaldisparatetreatmentestablished eitherby stateentsrevealithata lenderlicitlyconsieredproibitedfactors(overtevidence)differencesin treatmentthatare notfullyexplainedby legitimateiscriminatoryfactorsparaiveevidene).Overt Evidence of Disparate Treatment.Thereis overt evidendiscrimationena lendernlydiscrinaes prohibitedbasExample:nderoffereda creditcardwithimitto$750forapplicantsagedand$1500forapplicanover30. ThispolicyviolatedtheECOA’sprohibition discriminatibasedThereis overtevidencediscrimationevenwhena lender expressdoesnota discriminatory preference:Example:ndingofficertolda custer,like toortgto Nativeericathelaw cannotdiscriminahaveto cplywiththe law.”ThisstateentviolatedFHAct’shibitionstatementspressinga discrminatorypreferewellSection1002.4Regulatiwhichprohibits discourgingplicantsohibitedsis. CompatiEvidenceDisarateatmet. Disparate treamentoccuwhenlendertreatscreditapplicant differentlybasedonetheprohibitedbasIt doesnot requireanyshowingthatthetreatmentmotivatedby preudiceonsciintentdiscrimateagaia personthedifferencein treatmentselDisparate treatment may more likely occur in the treatment of applicants who are neither clearly wellqualified nor clearly unqualified. Discrimination may more readily affect applicants in this middle group for two reasons. First, if the applications are “close cases,” there is more room and need for lender discretion.Second, whether or not an applicant qualifies may depend on the level of assistance the lender provides the applicant in completing an application. The lender may, for example, propose solutions to credit or other problemsregarding an application, identify compensating factors, and provide encouragement to the applicant. Lenders are under no obligation to provide such assistance, but to the extent t

2 hat they do, the assistance must be prov
hat they do, the assistance must be provided in a nondiscriminatory wayExample:inoritycoupleappliedforautobile loan.Thelenderfoundadverseinforationin thecouple’s creditreport. Thelenderdiscsedthecreditportwiththm anddeteinedthattheadverseinforation,judent againsttheple,wasincorrbecathejudmenthad beenvacaed.Thenoritycouplegrantedtheirloainoritycoupleappliedforimilarloaniththee lender. Upondiscoveriadveinfoationn the inority couple’screditreport,thelenderdeniedtheloanapplicationthebastheadverseinforwithoutgivingthe coupleoppotunityto discussthereport. Theforegoingis andisparatetreaof similarly situatapplicantsapparentlybasedprohibited factor,in theassanceandinfothelener provided.If a lenderhasapparentlytreatedimappliantsdifferently onthebasa prohibitedfactor,it providean explanatiforthedifferencein treatment.If thelender’s explanatiis foundto becredible,theagencyfind thatthelenderdiscriminaed. IV. Fair LendingFair Lending Laws and Regulations FDIC Consumer Compliance Examination Manual March2021IV Redliningis a illegaldisparatetreatmein whicha lenderprovidesunequalcessto credit,qualteof credit,becausetherace,color,nationalorigin,other prohibitedchaacteristictheresidentheareain whichthecreditseekerresiwillresidein whichtheresidential property to be mortgaged is located. Redlining mayviolate both the FHAct and the ECOA.Disparate Impacthenlenderappliesa racialotherwiseneutralpolicyor practiceequallyto allcreditapplicants,thepolicyor practicedisprortionatelyexcludesburdecertainpersons on a prohibited basis, the policy or practice is described as having a “disparate impact.”Example:nder’spolicyis notto extendloansforsingle ilyresidenforlessthan$60,000.00.Thispolicyhas been in effectfortenears. Thisinimulopoliy is shoto disproportionatelyexcludeinority applicanconsideratibecatheirincleveor the value of the houses in the areas in which they live.The fact that a policy or practice creates a disparity on prohibited basis is not alone proof of a violation. When anAgency finds that a lender’s policy or practice has a disparate impact;the next step is to seek to determine whether the policy or practice is justified by “business necessity.” The justificationmust be manifest and may not be hypothetical or speculative.Factorsthayrelevantto theustificationcould includeprofitabilitEvenif a policypracticethat hasdisarateimpprohibitedbasustifiedbusinnecssitit stillayfoundto bein violationif an alternativepracticecouldservethepurpose with lessdiscratoryeffect.Finallevidencediscriminatoryintentis notnecessaryto establisthatlender’s adoptionimpentationa policypraticethathasa disparateimpis in violationtheFHActECOA. Theseproceurescallforersto planexaminationsto identifyfocuspotentialdisparaimpissu. TheguidanceinthisIntroductionis intendedto helpexaminersrecognifairlendingissthathavepotential disparateimpt.Guidancein theAppendixtotheInteragencyFairndinginaionProceduresprovidesails onto obtainrelevantinforregardisuch situationsalongwithethevaluation,asappropriateGeneral GuidelinesTheseproceuresareintendedto bea basicflexible orkto beusedin the maorifairnding inationductedby theFFIECagenciTheyarealso intendedto guinerent,to supplantit. The procedurentby eachagencynecssaryto ensuretheireffectiveimementation.hiletheseprocedurespplytoanyations,agecies routinelyusestatisticalyseotherspecialized techniques in fairlendingminationsto in evaluating whetherprohbitedbasfactorinaninstitution’s credit decisins.Exanersuldfollowtheprocedures providedby theirrespectiveenciin these Forberaspeclendingforexampcredit scoringandlopricingthetatetheisorelikely to beadvancedif theagencie

3 shaveatitudeto incorporateomisinginnoons
shaveatitudeto incorporateomisinginnoons.Theseinteagency procedurprovideforthatlatitude.Anyreferencesin theseproceto options,ent,etc., iners”ansscretiwithintheimitsprovidedby thatiner’sagenc. Anexashouldthese procedurin conunctionwithhisherownagenc’s priorities,examinationphilosanddetailedguidancefor imlementingheseproedures.Theseprocedresshouldnot interpretedprovidingtheinergreaterlatitudethan hisherownagencywould. Forif agenc’s policyis to revplianagestein allof itsinstitutioinerforthatagencyconductsuch a reviewratherthaninterprPartII theinteragency proceduravingtherevito theer’soption.Theproceduressizeraciandnationalorigin discriminatiin residentialtrnsactins,butthekeyprinciples are applicable to other prohibited bases and to nonresidential transactions. Finalltheseproceduresfocanalzinginstitution cplianthebroad,nondiscriminatrequirf theECOAandFHAct.Theyaddresssuchplicittechnicalmplanceprovsionsthe sigaturerulesor adversectionnoticerequirmentsin Sectio1002.7and1002.9, respectively, of Regulation B.Part I Examination Scope GuidelinesBackgroundConsistent with the Federal Financial Institutions Examination Council Interagency Fair LendingExamination Procedures, FDIexaminers evaluate fair lending risk during the scoping process by completing three general steps:1. Examiners develop an institutional overview to assess an institution’s inherent fair lending risk. As part of this process, examiners become familiar withan institution’s structure and management, supervisory history, loan portfolio, and credit and market operations. Once examiners understand a financial institution’s lending operations they can identify the level of inherent risk.Inherent risk for fair lending is broadbased and would impact a range of products if no controls or other mitigating factors were in place to control the risk. Inherent risk arises from the general IV. Fair LendingFair Lending Laws and Regulations IV FDIC Consumer Compliance Examination Manual March2021 conditions or the environment in which the institution operates. The risk could be present based on an institution’s structure, supervisory history, the composition of the loan portfolio, and the credit and market operations2. If an examiner believes that an institution has more than minimal inherent fair lending risk, the examiner should then identify the product(s) or product group(s) to review. The products or product groups selected may differ based on the type of discrimination. For example, for purposes of pricing, an examiner may select HMDA loans for further review, while for underwriting, the examiner may select consumer loans. Examiners are not expected to review all products for discrimination risk if there is more thanminimal inherent risk. Rather, examiners should use their judgment and consider the following when deciding which loan products warrant further review.xaminers would then identify anydiscrimination risk factors and assess an institution’s compliance management system (CMS) for fair lending. Understanding the strength of an institution’s CMS is necessary to properly assess whether an institution has sufficiently mitigated applicable discrimination risk factors. If there is minimal inherent risk, no additional analysis is necessary and the fair lending review can conclude. 3. For those discrimination risk factors that have not been fully mitigated, examiners compile a list of potential focal points and identify which should be pursued as a focal point.The FDIC has developed the Fair Lending Scope and Conclusions Memorandum FLSC) to implement a standardnationwide format for document

4 ing the scope and conclusions of fair le
ing the scope and conclusions of fair lending reviews. FLSC has been adopted as a means of focusing the examiner’s attention to the areas that pose the greatest unmanaged fair lending risk to the institution. It incorporates the Interagency Fair Lending Examination Proceduresand assists in documenting the types of fair lending risks that are present; the controls that management has put in place to manage the risk; the effectiveness of these controls; why the particular focal point(s) are chosen; the level of review conducted; and the results of any additional analysis that was conducted. The FLSC is included in section IV3.1 of this manual.Thescopean eaminationsestheoanproduct(s), et(s),decisioncenter(s),tiandprohibitedbass andcontrolgroup(s)to beanalduringtheamination. Theseproceuresreferto eachpotentialnationthose elfocalpoint.”Settingthescopeexaminationinvolves,first,identifingallthepotentialfocalpoints thatappearthwhileto exmine.Then,fromthe, exaineelecttheFocalnt(thatwillthescopeof theinatibasedriskfactors,prioritiesestblisin theseproc The interagency examination procedures are presented in their entirety in Part III of this section of the manual.by theirrespectivencitherecord frpastminations,andherrelevantguidance.This phaseincobtainingerviewaninstitution’s pliancenageentstemit relatesto fairlending.henselectingfocalpointsforreview,ersmay deteinethatinstitutionperformeelftests”or elfevaluatiorelatedto scificlendingproducts.The differencebetelftestsandelfevalutionsis discsedin theUsingSelfestandSelfEvauationsto Stremlinethe ExaminationctiontheAppendixIntitutionshareallinforationregardingelfevaluatiocertainimitedinfoationelatedto “selftests.”Instiutichooseo voluntarilysclse additionalinforaboutelftests.” minersshousurethatnstitutioundrstandthatvolntarilysharing theresultsselftestswillresltin a lossconfidential stattheseests.Infoatielfevaluatioor elftests”ay allowthescopto bestreamlined. Referto UsingSelfestSelfEvauationsto Stremlinethe Examinationin theAppendixforadditionaltails. Scopingmaydiscltheistencecircstancsuch as theusecreditscoringa largevolresidential lendingwhiunderagencpoliccallfortheuseof regressanalysotherstatisticalethidentifying potentialdiscriationwithrespto oneor oreloan products.herethatis thecase,theagencspecalizedproceduruldploforsuchloanproductsrather thantheproceuressetforthlow.Settingtheintensityexaationdeteinithe breadthandtheanalthatwillnductedthe selecloanproduct(s).Thisprocessentaioreinvoved analistheinstitutionanceriskmanageprocesses,particularlyitrelatesto selectedducts,to reach aninfocisionregardilargeplefilesto reviewin anytransctionalanalysperformeandwhether certainectsthecreditprocessdeserveghtened scrutinPartI oftheseproceduresprovdesguidnceon establishing thescopethe examination. Partiance ManemeReview)providguidanceteinithe intensitytheexainatiThereis naturallyinterdepenenbetweenthtwophasUltimelythe scopeandinteitytheexainationwilltherecordperforncethatservesthefountionforagencyconclsioabinstitutionalpliancefairlending obligatioTheineruldtheseproceduresto arriveat a wellreasonandpracticalclusaboutto conduct a particular institution’s examination of fair lending performance. IV. Fair Lending — Fair Lending Laws and Regulations FDIC Consumer Compliance Examination Manual – March2021IV Incertain ces whereagey alreadypossssesinformationwhichproidesaminerswithguidance prioritiesand risksforplannupcomingamination,suchinfoexpedite the scopingproandmakeitunnecssaryto carryallthesteps below. Forexample,thereportthe previousfairlendingexamationhave includedreco

5 mmendationsforthefocus tnextexamation. H
mmendationsforthefocus tnextexamation. However, exiners shovalidatethattheinstitution’s operational structure,productofferings,policies, andrisks havenot changedsince tpriorexamationbeforecondensthe copingprocess.The scoping processperforeitheroff-site,ite,both,dependingwhateveris dete appropriateand feasible. Intheinterestof inimizburdens boththe examination team andthe instiution,requests finforation om theinstituionshould carefullythoughtto includeonlytheinforationthatwillclearlyusefulin the examination process. Finally, aoffsiteinforrequsts shouldbe made sufficientlyinadvance thesite scheduto peitinstitutionsadeuatetime to semblenecessary infoationandprovideit to the exaination tin a timely fashion. (SeePotentialScopingInformation” in the Appendixforguidanceaddtionalinfothatthe examiner mightwishto consierincludingin a request).ners shouldfocustheexamation basedon:understthecreditoperations the institution;Theriskthatdiscriminatoryconduct moccurin each areathose operations;andThefeasibilitydevelopinga factuallyrelialerecordof aninstitution’s performan and fairlending complance in areathoseoperatons.Understanding Credit OperationsBeforeevaluatthepotentialfordiscriminaoryconduct,aminer shld reviewsufficentinformationaboutthe institutionand its arketto understandtheditoperationsf theinstitution atherepresenationprohibitedbasis group residents withinthe arkets wheretheinstitutdoes business. Theleveldetailobtainedat hisstage shousufficientto identifywhetheranytheriskfactorsin the steps beloware present. backgroundnfoatin includ• The typesandtes creditproductsoffered, differentiating among broadegoriescredsuchas residential,nsumer, commercal,wellproduct variationswithin suchgories(fixedvs.variable,etc.).• Wethertheintitutionhas a specialpurposecredit progr, otherprogram thatis spcificallydesigned to assistcertain underservedpulations.Thevole of,growthin, lendingforthecredit productsofferThe demograpics(i.e.,race,nationalorigin,etc.)the credit mets in whichtheinsitutionis doingbusiness.Theinstitution’s organization itscreditdecisionking process,includidentification thedelegationof separalending authorities and theextentto which discretionin prcingsetting credittes and conditions is delegato variouslevels of manaers,mploor indepenentbrokersdealers.Theinstitution’s loanofficerbrokerompesation progr. The typesevantumentation/datathat aavailablefor variousloanprouctsand whis therelative quantity, qualityandaccessibiitysuchinformat (i.e., forwhichloanproduct(s)willtheinfoation availablebe likelyto supporta soundandreliablefairlending analis).Theextentto whichinfoation requests can be readily organizedand coordinatedwithotherpliination cponents to reduceunduethe institution. (Donotrequest more infoation ththe exam team expected to utilizeduringthe anticipated coursetheamination.)Inhinkingaboutstitutiocredit marketheexaminer shouldrecoze thatthese markets my coincide withinstituton’s Comty Reinvestment(CRA) assessare(s). Whereappropriate,theexaminshould reviewthe demographics for a broadergeogrphicareathan theassessmarea. hereinstitutionhas multpleunderwriting loan processingerssubsidaries,with fullyindependent creditgrantingauthority, considerevaluatingcenterand/orbsidiary separately, providedsufficent numberof loansist to spport a meagfulanalysis. Indeterminig thescopethe examination for suchinstitutins,amines shouldnsiderwhether:Subsidiaries shouldamined. Theagencies willholda financialinstittionresposibleforviolationsby itsdirect subsidiaries, but typically forthoseby itsaffiliates (unlesstheaffiliatehastheagentfortheinstitutiontheviolationby affiliatekno

6 wnor shouldve en knownto theinstitutionb
wnor shouldve en knownto theinstitutionbefore it became involved in thetransacionpurchased the affiliate’sloans). Whenseeking to determinean institution’s relationship withaffiliatesthatarenot supervfinancialinstitutions, limittheinqiryto what learned in theinstitutionandcontactthe IV. Fair LendingFair Lending Laws and Regulations IV FDIC Consumer Compliance Examination Manual March2021 affiliatewithoutpriorconsultatwithagencystaff.Theunderwritingstandarproceduresin the entitybeingreviewedareusedin relatedentitiesnot scheuledfortheplannedmination.Thiswillhelp inetorecognizetheentialscopolicbased violations.Theportfolioconstsapplcationsa purchased institution. If so,forscopingrposinshould consitheapplicatioif theywereadeto the purchasinsttution.Forcomparpurposes, applicatioaluatedundthepurcinstitution’s standshoucomptoapplicatons evaluatedthepurininstitution’sandarTheportfolioincludespurhasloans. If so,iners shouldlookforindicatiothattheinstitutionspecified loansto purchseda prohibitedfactorcausedprohibitedfactto influencetheoriginationprocess.pleteisionbe at onetheseveral underwritingloanprocessicenters,with indepenenthoritInsucha situation,it is bestto conductseparatearativeanaliseach underwritingnter.If coveringultipleentis not feasibleduringtheplannedation,minersshoureviewtheirprocessandintenalcontrolsto deteine whethernotexpandithescopeand/orlegththe exainatiis justified. Decisakiresponsbilityforsingletransaction involvemorethanunderwritingcener.For exaple,institutionhaveauthoritytodecline ortgapplcants,onlyhe ortgany idiaryayapprovethsucha situaton, inesholdlearnwhichstandardsarepliedin entityandthelocationrecordsededforthe plannedisoApplicansteeredthefinancialinstitutionto theidiaryotherlendingchannelandversa,and whatpoliciproceduresxisttonitorthispractice.Anythirdpartisuchbrocontractors,are involvedin thecreditdecisiandhowrespibilityis allocatedthemtheinstitution.Theinstitutions filiaritywiththirdpartyactionsortant,for aninstitutionmayin violatif it participatesin transactiwhichit knewreasonablyoughtto have knownotherrtieswerediscrating.partunderstandingthenancialinstion’sown lendingoperatons,it is alsoportto understandany dealinthefinancialinstitutiohaswithaffiliatedandnonaffiliatedortageloanbrokeandotherthirdpartylenders. Thesebrokersaygeneratemortgageapplicaionsand originationselyfora specificfinancialinstiutionor ay broadlygatheroanapplicatifora varietylocal, regional,nationallenders.a result,it is iportto recognizetheseortgagebrokersandotherthird partylenderactionsandapplicationprocessioperations havetheledingoperatiofinancialinstitution. Becusebroerslocatwherein orthe financialinstittion’saryendingCRAassessnt areas,it is rtantto evaluatebrokeractivityandfair lendingancerelatedtounderwriting,teconditioredlining,andsteerng,whichis coveredinoredepin sectionsthprocedures. nersshould consultwithirrespectiveenciforspecficguidance regardingbrokactivit If theinstitutionis largeandgeographicallydiverse,ines shouldselectlyanyketsunderwitingcenterss canreviewreadilyin deth,ratherthanselecting proportionallyo covereveryet.ded,iners shouldnarrowfocusto theMetropolitStatisticala (MSA)underwritingcenter(s)thataredeterto preset thehighestinatirisk.erslduseLoan Applicationgister(LAR)dataorganizedby underwriting center,if available.Aftercalculatingdenialbetthe controlandprohibitedbasgroupsfortheunderwriting centers,ersshouldselethecentersthehighest fairlendingrisk.Thisapproachwouldalsoreviewingpricotherterandconditiapproved applicantheprohibitedbasandcontgroups.If underwritingntershavefewthanfiveracialnational origindenials,inersshouforracial discrinatiin underwriting

7 .Instead,theyshouldshiftthe focusto othe
.Instead,theyshouldshiftthe focusto otherloanproductsor prohibitedbasinatitypes icinginat Howeer,if exerslearnotherindicatiorisksthat favoranalzinga prohibitedbasiswithfewerransactithn the inthepletables,theyshouldconsult withtheirsupevisoryofficepossibalterativeethoanalis. Forple,thereis strongreasonto inea patternin whiallborrowersreceivedw ratesallfourfemaleborrowersreceivedhighrates,eventhothebergroupis fewerthanthe statedinimumimarlerewouldreasonto exinea pattin whichlmostall100controlgroup applicanwereapprovedbutallfourprohibitedbasisgroup applicanwerenot,eventhoughtheumbprohibited basdeniafewerthanfive.Evaluating the Potential for Discriminatory ConductStep One: Develop an OverviewBasedhisherunderstandthecreditoperatioand productofferingsinstituion,anamishould deteinetheatureandinforiorequiredfor IV. Fair LendingFair Lending Laws and Regulations FDIC Consumer Compliance Examination Manual March2021IV thescopiprocessanduldobtainandorganizethat infoation.No singletionreasoablybe expectto evluatempliaperfoto every prohibitedbasin everyprodct,in everynderwriting centersubsiiaryinstitution.Inadditionto information gainedin theprocUndetadingCredit Operatioabove,theamishouldkeepinindthe followingfactwhenectiproductsforthescopireview:hichroductsandprohibitedbaswererevewed duringthe recentprioramination(s)d, converselproductsandprohibitedbashavenot recentlybeenreviewed?hichrohibitedbasgroupssignficant portionthenstitutionarketforthediffrentcredit productsofferhichroductsandprohibitedbasgroupsthe institution reviewedingeithera voluntrilydisclosedlftestselfevaluatiBasednsiderationtheforegoingfactotheiner shouldrequnfoatiforallresidentialotherloan productseredappropriaforscopingin thecurrent inaticle.Inaddition,whereverfeasble,aminers shouldductprelimaryinterviewswiththe institutionkeyunderwritingpersonnelandthoseinvolvedwith establishingtheinstitution’scingpoliciespractices. Usingtheatedinfoation,theaminershould evaluatethefolowing,applcable: Underwritinguidelinpolicies,andstanDescriptcreditscoringincluda listof factorsscorcutoffscores,xtentvalidation,andany guidanceforndlingoverridandexcptio(Referto PartA ofthe“Cosideringatederwritingand CreditScoring”sectiontheAppendixforguidance.)Applicabpricingpolicies,riskbasedpricingels,andguidanforexercisingdiscretionoverloantend conditioDescriptanysatincuding whetherompensationrelatto,loanproductionor pricing.Theinstitutionandinrelatiohipswith anyfinanceanisubprortgconser lendingentitiimilarinstiutions.LoanapplicatiMortDisclsureLoanApplication Regster(HMAR)loanregistersandstsof declinedapplications.Descripton(s)databasintainedforloanproduct(s)to bereviewed.Recordetailpolicyexceptionsoverrides, exceptionrepotingandnitringprocesses. Copianyomplaintsallegidiscriminatiandrelatedloanfiles.plianceprogramaterials(particularlylending policies),trainingorganizationarts,wellas recordkeeping,onitoringtocols,andintenal controls.Copianyvailablearkeingerialsor descripticurrentpreviousarketinglansor progrprescreenedsolictations.StepIdentifyComplianceProgramDiscrimiationRisk FactorsReviinfoationageinatiworkpapers, institutionalordsandanyavailablediscusswith nagemerepresentatin sufficientdetato understand theorganizatistaffing,training,recordkeeing,auditing, policiesproceduresthenstitutionfairlending cmpliantemReveseandnotethe followingriskfactors:C1.Overallinstitutmplianrecordis weak.C2.Prohibitedbasonitoringinatirequiredby applicablawsandregulatiois nonexstentincplete.C3.Dataand/orordkeepingomised reliabilityeviousinationreviews. C4.Fairlendingproblwereviouslyfoundin oneor orestitutionproductsin institutionsubsdiaries.C5.Thesize,scoandqualitythempliannage

8 meprogrincludinanagement’s involven
meprogrincludinanagement’s involvent,signatianceoffier,and staffingisateriallyinferitoprogracustarily foundin instituionsimilarsize,arketographcs,creditexitC6.Theinstitutionhasnotupdaanceiciesand procedurto reflectchangin lawin agency guidance.C7.Fairlendingtrainingis nonexentweak.idertheseriskfactorsandtheirimparticular lendingproducandpracticconducttheproduct specificriskiewduringthescopingthfollow. Where thisreviewidentifieslendingiancedeficiencigivethpproriateconsideratpartthe mplianagmentRevinPartthese IV. Fair LendingFair Lending Laws and Regulations IV FDIC Consumer Compliance Examination Manual March2021 procedures.Step Three: Review Residential Loan ProductsAlthoughortgagaytheultisubof everyfairlendingination,thisproductlineat least consieredin thecoursescopieverynstitutionthatis engagedin theesidentlendarket.Dividemortgageloaintothefollowinggroupings: purchimprovement,andrefinancinSubdividethreegroupsfurtherif aninstiutiondoessignificantmberanyfollowingof residentialleng,andconsidthparateGoverenturedloaMobileanufcturedhousingloholesale,indirectandbrokeredloansPortfoliolending(includingportfoliosFannieMae/FrddieMacections)Inaddition,detewhethertheinstitutionoffersany conventinalaffordable”housingloanprogracial purposecreditrogrotherprogrthatarespecifically desigto asscertainborrowers,suchnderservd populatioandwhethertheirteandcondiionsakethm incpatibwithregularconventionalloaforparatve purposIf so,consithseparatel If previousationsavetratedfollowing, then itthe focusthecurrent inatito alternativerwritingproessingcenteto otherresidentialproducthathavereceilessscrutiny in thepast:A strongfairlendingpliaceprogrrecorddiscriminatorytransactiat paticular decisicentein particularresidentialproucts.indicationa significantchangein personel, operatiounderwritingpricingpoliciesat those centersin thoseresientialproducts.unresolfairlendingmplaints,instrative proceedinlitigationimilfactors.discretionsetpricecredittenditionsin particulardeciscentersforparticularresidential products.StepFour:IdentifyResidentLendingDiscriminationRisk FactorsRevitheledingpoliciarketingplaunderwriting, appraisalpricingguidelinbroker/agentagreand loanapplicatiforforresidentialloproductthat represenpreciablevolof,displnoticeable growthin,thenstitutionresdentiallending. Revialsoavailabledataregardingthegeographic distributiontheinstitutionloanoriginatiowith respectto theandnationaloriginpercentgesthe censtracwithinitsassessmentareaor,if different,its residentialloproductlendingarea(s).Condinterviewsloanofficersandotherplos oragentsin theresidentialleprocessconerning adherentoandunderstandtheabovepoliciesand guidelinellanyrelevantoperatingpracticInthecourseconductingthe foregoinginquries,look forthefollowingriskfactors(factorsareered alphanmertocoincideththector,e.g., “O”for“overt”;“P”for“pricingetc.).NOTEForfactorsbelowthatarerkedwithastriskminersneednot attemptto calculatethe indicatedratiosforracialtionalorigin charristiwhenthestittionisnotHMDA repHowver,idshouldin such caswhetnotlculationsshoumade basedcialethicsurrogaes. Overtindcatof disriminaionsuchas:Includingexplcitprohibitedbasisidntifiersn theinstitutionwrittenoralciesandproceures (underwritingcriteria,pricingstandards,etc.).Collectiinforconducinginquiriesimsingtionscontraryto expressrequirentsRegulatIncludingvariblesin a creditscoringthat constitubasfactorprohibitedby RegultionB or,foridentialloancoringsystheFHAct.(Ifcreditscoringscoresrefertothe ingAutomatederwritianddit ScorisectitheAppendix. Statby theinstitution’sofficers,emploagentswhichconstituteanxpressimpliit indicationthatoneor orepersonsengagedor do eng

9 age in discrimination on a prohibited ba
age in discrimination on a prohibited basis inany aspect of a credit transaction.ploinstitutionalstatementsthatevience attitudesprohibitedbasispreudicor stereotpes.Indicatorsof ptentialdisptreatmentin Underwritingsuch*Substantialdisparitiestheapproval/deialrates forapplicantsonitorprohibitedbascharacteristic(especallywithininccategoies). IV. Fair LendingFair Lending Laws and Regulations FDIC Consumer Compliance Examination Manual March2021IV U2.*Substntialdisparitiestheapplication processingimeforapplicantsby oredprohibited bascharacteristic(espciallywithindenialason groups).U3.*Substntiallyhigherproportionwithdrawn/ incpleteicationsprohibitedsisroup applicanthanotherappicants.U4.Vaguesubectiveunderwritingcriteria.U5.Lackclearguidanceingexceptiounderwritingcriteria,includingcreditscoringoverrides.U6.Lackclearloanfiletationregardingreasons foranyexceptionsto stanardunderwritingcriteria, includingcreditscoringoverrides.U7.Relatielyhighpercentaeitherexceptioto underwritingcriteriaoverricreditscocutoffs.U8.Loanofficerbrokersationbasloan vol(esallyloansapprovedperperiodime).U9.nsummplaintsallegdiscriminatiin loan processingin approving/deingresidentialloans.Indicatorsof ptentialdisptreatmentin Pricing(int rates,fees,oints)suchFinancialincivesforloanofficersbrokersto chargehigherrices(includinginterestrate,feesand points).Specialattentionshougivento situations wherefinancialincentivarempanbroad pricingdiscret(asin P2),suchthroughuseof overagspreadums P2.Presenbroaddiscretioninloanpricing(including interestrate,feesandpoints),suchthroughoveragunderageldspreadumsSuchdisretion presentevenwhentutionsproviderate sheeandscheif lofficersbrokersare itto deviatethratesandfeeswithout clearandectivecriteria.P3.Useriskpricingthatis notbasective criteriaappliedconstentlP4.*Substntialdisparitiespricesbeingotedor chargedto applcantsdifferto theirnitored prohibitedbascharacteristiP5.nsummplaintsallegdiscriminatiin residentiallopricing.*Inortgapricing,disparitiesin theinciderate spreadshigpricedlendiby prohibitedbascharacteristicsreportedin thedata.loanprogramthatconainsonlyborrowers Regulation C, Section 203.4(a)(12)prohibitedbasgroup,hassignificantdifferencin thepercentaprohibitedbasisgrouespciallyin theabsea SpecialPurposeCreditProgramunder ECOA.Indicatorsof ptentialdisptreatmentby Steeringsuch as:S1.Lackclear,ectiveandconsisentlyimemented tandardsfor(i)referringapplicantsto idiarieaffiliates,lendingchannewithintheinstiution(ii) classifingapplicantsimepriborrowers,ii)decidingatkindsalternative loanproductsshouldofferedrecommdedto applican(productplacement).S2.Financialincivesforloanofficersbrokersto place applicanin nntraditionalproducts(i.e.,negative ortization,interest“paentoptioustablerateortgighercostproucts.S3.Forinstitutithatoffersdifferentproductsbasedon creditrisklevelsanysignificantdifferencesin percentaprohibitedbasgroupsin eachthe alternativeloanproductcategoies.S4.*Significantdifferencesin the percentaprohibited basapplicntsin loanproductsproductsth specificfeaturrelativeto cotrolgroupapplicants. Specialattentishouldto productsnd featuresthatpotentiallynegativeencfor applican(i.e.,nontraditionalortgprepaent penaltilackescrowrequements,creditlife insurance). S5.*Forinstitutthathasor oresubimmortgbsidiariesaffiliates,anysignificant differences,loanproduct,in thepercentageof prohibitedbasapplicantsinstitutionompared to thepercentaprohibitedbasapplicntsthe idiary(ieaffiliate(S6.*Forinstitutthathasor orelending channethatoriginatetheloanproduct,any significantdiffrencesin thercentageprohibited basapplicntsin onethendingchanels cparedthe percentageprohibitedbas

10 s applicantheotherlendingchannel.S7.nsum
s applicantheotherlendingchannel.S7.nsummplaintsallegdiscriminatiin residentiallopricingproductplacement.*Forinstitutwithsubimmortgage subsidiaries, a concentrationthosesubsidaries’ branchorityareasrelativeto itsotherbranch IV. Fair LendingFair Lending Laws and Regulations IV FDIC Consumer Compliance Examination Manual March2021 Indicatorsof ptentialdisrimnatoryedlinsuchas:R1.*Significantdifferences,ealedin HMDAdata,in themberapplicatiorecived,withdran, approvedcepted,andforinctenessor loansoriginain thoseareasn theinstitutioet thathaverelatielyhighconcentrationsof minority group residenparedwithareaswithrelatvelylow concentratiof inorityresidents.*Significantdifferencesapproval/denrates forallapplicantsinorityandnonnoritn areas withrelativelyhighconcentraionsof inoritygroup residenaredwithareaswithrelativelylow concentratiof inorityresidents.*Significantdifferencesdenialratesasedon insufficientcolateralforapplicantswith relativelyhighconcentratiof inorityresidentsand thoseareaswithrelativelylowconcentratiof inorityresidnts.*Significantdifferencesin the nberoriginationsof higherpricedansloanspotentiallynegative consqueborrowers,.e.,nontraditinal ortgprepaentpenaltielackescrrequirin areaswithativelyhighconcentrationsof inorityresidentsomparedwithareaswithrelatvelylowconcentrationsof ority residen Otherpatternslendingidentifiedduringthest recentationthatffery theconcentration of inorityresidents.Explicitationcreditproductetsthat excludAs,politicalsubdvisiocenstracts,or othergeographareaswithininstitutionlending assessareandhavingatively highconcentraionsof inorityresidents.Differencein srvicesavaiablehoursoperationat branchofficesocatedin arewithconcentraionsof minorityresidntswhenaredtobranchoffices locatedin arewithconcentraionsnonminority residenPoliciesreciptandprocessapplicatins, pricing,conditions,appraislsandvaluation any otheraspeprovidingresidentcreditthatvary betweenwithrelativelyhighconcentraionsof inorityresidntsandthoseareaswithrelatielylow concentratiof inorityresidents.R9.Theinstitutionassssmentareaappeato have beendrawnto xcludearethrelativelyconcentratiof inorityresidents.R10.plostatementsthatreflaversiono doing businin areaswithrelativelyhighconcentraionsof inorityresidnts. R11.plainotherallegatioby consersunityrepresenativthattheinstitutionxcluds orrestrictsto creditforareaswithrelatielyhigh concentratiof inorityresidents.inshould reviewplantsagaitheinstitutionfiledeither with theiragencytheinstitution;theblic centfile;ommunitycontactandthe respoto questioaboutdlining,discrmination, anddiscuragemeapplictions,andabouteetitheneedsialnationalorigininoritiaskeds partobtaininglocalperspecivestheperformance of financialinsitutionsduringpriorations.R12.institutionhathasitsbranchesin predinantlynorityeighborhootheimthatthestitution’ssubrimortgsubsidiary hasbranchicharelocatedimarilyin predinantlyinorityneighorhoods.Indicatorsof ptentialdisptreatmentin Mrketingof sidentialucts,suchM1Advertisiternspracticthata reasoble personwoubelieveindicaprohibitedbascustarelessdesirab M2Advertisionlyin ediaservorityareasof the et.M3Marketithroughbrokersotheragentsththe institution(orhasreasonto know)wouldserve onlyracialethnicgroupin the arket.M4Useof arketiprogrproceduresforresidential loanproductsexcludeoneor oreregionsor geographihintheinstitutonsassentor etingareathathavesignifcantlyhigherpercentages of minority group residents than does theremainder of the assessment or marketing area.M5Usingailiotherdistributionlistsother etingtecniquesforprescreenedothofferings residentialproductsthaExplicitlyexcludegroupsprospectborrowers onprohibitedbasExcludegeogrphies(e.g.,censustracts,ZIPcodes, e

11 tc.)withintheinstitutionrketingareathath
tc.)withintheinstitutionrketingareathathave significantlyhigherpercentagof inoritygroup residenthanoesthemaintheing area.M6*Proportionprohibitedbasapplicantssignificantlylowerthanthatgroup’srepresationin thetotalpopultionthe area.M7nsummplaintsallegdiscriminatiin advertisietingloa IV. Fair LendingFair Lending Laws and Regulations FDIC Consumer Compliance Examination Manual March2021IV Step Five: Organize and Focus Residential Risk AnalysisRevitheriskfactorsidentifiedin Step4 and,forloan productthatdisplariskfactors,articulatethepossible discriminatoryeffectsencoeredandorganthe inatithoseloanprouctsin accordncewiththe followingguidnce.Forissregaringthese factors,consultwithagencypervisorystaff.hereovertevidencediscrimation,scribedin factorsO5,hasfoundin connectionithproduct,mentthosefindiscribedin PartIII, besidmpletingtheaindertheplanned inatiis.hereanytheriskfactoarepresent,consider conductiunderwritingomparativefileanalisas decribedin Parthereanytheriskfactoarepresnt,consider conductipricingparatfileanaliscribedin Parthereanytheriskfactoarepresnt,consider conductieeringanalisscribedinPartIII, hereanytheriskfactoR12areent,consder conductianalisforredliningscribinPartIII, G.hereanytheriskfactoarepresent,consder conductiarketinganalysiscribedPartIII,hereinstitutionusesagen anycreditscoringsteconsicondctingationanalisthatcredit scoringem’pliaiththerequirentsof RegulatB asdescribedin PIII,I.StepSix:IdentifyConsumerLendingscrminationRiskFactorsForanyconsloanproductsselectedin StOneforrisk analis,aminersshoucoductriskfactreviewimar to thatconductforresidentiallendingprodutsin Steps Three throughFive,above.aminersshouldconsultwith agencysupervisorystaffregardingthepotentialuseof surrogattoidentifypossibleprohibitedbasgroupindividualsNOTEThetermsurrogain thiscontextrefto anyfactrelatedto a loapplicantthatpotentiallyidntifiesthat applicant’scolor,othprohibibasischaractristc ininstanceredirectidencethatharacsticis available.Thus,in consumnding,whereonitoringdataisgenrallyvailable,HisanicAsiansurnacould constitua surrogateapplicant’sracenational originausetheexaminassthattheinstitution (whchcanthepresumpion)rceithepersontobe Hispanan.Similarly,applicant’snamecourvesurrgateforhishergener. surrgatefora prohibiedgrouperistmaytoseta compativealyswithconrolgrocantsr borower ersldthenfollowtherulesin SteThreethrough Five,aboveandidentifythessibdiscrimatorypatterns encounterconsiderinithoseoductsdetermined to have sufficient risk of discriminatory conduct.StepSeven:IdentifyCommercialLendingDiscrimiationRisk Factorshereinstitutiondoesbstantialamolendingin themmerciallendingmarket,notablysmallsinlendingandthe producthasnot recentlybeeninedthe underwritingandardsangedthe last inatitheproduct,theaminershouconsider conductia riskfactorreviewimilarto thatperfofor residentialleproducts,as feasible,givenimitinfoationilable.Suchanalisouldgenerallybe imitto deteriniriskentialbasedriskfactorsU8;P3;R7;andIftheinstitutioncialloansby theall Bunesstration(SBA),deterinefromagency supervisorystaffwhetherSBAloandata(whicodesraceandotherfactors)areavailablefortheinstitutionandevaluate thosedatasuantto instructcompaningth ForlargeinstitutionsreportingallsinoansforCRA purposandheretheinstituionalsovoluntrilygeocods loandenialookforaterialdiscrepnciinratiosof approvaltoialratesforapplicationsin arewithhigh concentratiof inorityresidentsaredtoareaswith concentratiinorityresidents.Articulatetheossblediscriminatorypatternsidentifiedand consifurtheraminingthoseproductsdeteto have sufficientriskdiscrimatoryconductin ordancewiththe procedures for commerciallending described in Part III, F.Step Eight: Complete the

12 Scoping Processplethescopingpross,thesho
Scoping Processplethescopingpross,theshouldreview theresultsprecedingandosefocalpoins thatwarrantexaation,basedtherelativerisklevels identifiedaboInordertowithintheagenc’s resourceallnces,theaminerneedtochooseallerumbfocalpointsall thoseselectd onthebasrisk.Insuchinsancsettheby firt, prioritizingfocalpointsthebas(i)highberandrelativeerityriskfactors;(ii)highdataqualityandotherfactorsaffectithelikelihood IV. Fair LendingFair Lending Laws and Regulations IV FDIC Consumer Compliance Examination Manual March2021 obtainingreliable exinatiresults;(iii)highoanvolandthelikelihood ofwidespreadiskto applicanandborrowers;and(iv)low qualitycomanceproramand,secoselectingfor exinatireviewas anyfocalpointsresourcheretheudgprocesspetifocalpointsisa closecall,infoatilearnin thephaseconductingpliannagentreviusedo furtherrefine theiner’schoicPart II Compliance Management ReviewTheplianManentRevienablthe exainatiteamto deteine:Theintensitythecurrentexaationsedan evaluationpliananagemeures ploby aninstitution.Thereliabilitytheinstitution’spracticesandprocedures forensuringcontinuedfairlendingplianGenerallthereviewouldfocusDeteininghetherthepoliiesandproceresthe institutionenaleageto prevent,toidentify andselfcorrecillegaldisparatreatmentin the transactithrelatetotheproductsisses identifiedforrtheranalisunderPartI ofese procedur Obtaininga throughunderstndingthe nnerby whichemeaddressitsfairlending resposibilitieswithrespect(a)theinstitution’slending practicandandards,(b)trainingandotherapplicationprocessing(c)guidanceto ploagentsin dealingwithand(d)its arketingother productsserices.conductthisreview,aminersshouldderinstitutionalrecordsandintervewswithapprpriatenagemersonnelin thending,plince,audit,andlegalfunctioTheinershouldalsoreferto theComplincenagemnt AnalysisCheklistontainedin theAppendixto ealuatethestregththeomplianceprogrin tetheircapacityto prvent,to identifyandselfcorrect,fairledingviolatioin connectioniththeproductsissuselforanalis.Basedthisvaluation:Settheintensitythetransactionanalisinimizing plesizthintheguidelnestablishedinPartIII andtheFairndingSampleizeTablin theAppendixto theextentwarrntedby thestrengthand thoroughnof theanceprograpplcableto thosefocalpoitsselctedforexination. This reflects the interagency examination procedures in their entirety.Identifymplanceprogeficiencithateritcorrctionimprovementandpresenttheseto naginaccordaPartthese procedurhereinstitutionperfoa selfevaluatihas voluntarilydisclosedthereportresultsa selftestany productissuethatis withinthescotheinatin andhaslectedforanalispursuantto PartI ofthese procedurexamiersmaystretheation,consistentwithagencyguidanprovidedtheselftestselfevaluationtherequirementssetforthin UsingSelfests andSelfEvalutionsto StreinetheExamiationlocatedin theAppendixPart III Examination ProceduresOncethescopeandintensitytheaminatihavebeen deteined,assesstheinstituton’sfairlendingperfoance by applingtheappropriateproceduresthatfolto eachof theinatifocalpointsalreadyselected.A. Verify Accuracy of DataPriorto anyanalisandpreferablybeforethescopiprocess,ersshouldsesstheaccuracythedata beingreviewDataverificationsuldfollowspecific protocolsampling,size,etc.)ntendedto ethevaliditythereview. Forwhereinstitutin’sLARdatais reliedupon,ersuldenerallyvalidatetheaccuracy oftheinstitutin’sitteddataby selectinga sapleof LAR entriesverifingthattheinfoationnotedthe LARreporaccordingtoinstructiomparing informationtainedin thelofileformpledloan.If theLARdatainconsistentiththeinfoioncontainedin theloanfiles,dependingnaturetheerrors, exinemayableto proceedwitha fairlending analisuntilLARdatabeencorr

13 ectby the institution.Inwhereinacuraciim
ectby the institution.Inwhereinacuraciimpthe exinatiaminersshoulddirecttheinstiutionto take actionto ensuredataintegrity(datascrubbng,oring, training,etc.). NOTWhiletheproeduresreferto theuseof HMDAdata, otherdatasourcesshouldonsided,espciallyin thecase of nonHMDAreportinsttionsthatoriinateloansbut arequirto reporta LAR.B. Documenting Overt Evidence of Disparate reatmentherethescoingprocessanyothersourceidentifiesovert evidendisparatetreat,theinershouldsessthe nature of the policy or statement and the extent of itsimpact on affected applicants by conducting the following analysis IV. Fair LendingFair Lending Laws and Regulations FDIC Consumer Compliance Examination Manual March2021IV Step 1.Where the indicator(s) of overt discrimination are found in or based on a written policy (for example, a credit scorecard) or communication, determine and document:Thepreciselaguagetheparentlydiscriatory policycommunicationandnaturethefairlending concerthatit raises.Theinstitutionstatedpurpin adoptingthepolicyor cationandtheidentitythepersonwhose authorityit wasissuedadoped.Howandthepolicynicationinto effect.Howwidelythepolicyommcationapplied.hetherandtowhatextentaplicantswereverselyaffected by the policy or communication.Step 2. Whereany indicator of overt discrimination was an oral statement or unwritten practice, determine and document:Thepreciseureboththestatemepracticeandof thefairlendingconcerthattheyraise.Theidentitythepersokingthestatmentor applingthepracticeandtheirdescriptithereasos forit andthersonsautorizidirectingtheuseof thestatemepractice.Howandthestatemepracticeinatputintoeffect.Howwidelythestatentpracticedissatedor applied. hetherandtowhatextentaplicantswereversely affectedby thestatemepractice.Assblefindngsandingationfor presentatto nagemein connectiwithPartIVof theseprocdurC. Transactional Underwriting Analysis Residential andConsumer Loans.Step 1. Set Sample SizeForfocalpointselecforthisanalis,twompls willutilized:(i)rohibitedbasisgroupalsand(ii) controlgroupapprovals,bothidentifiedeitherdirectlyonitoriinfoationn thecaseresidentialloan applicatiothroughtheuseapplicationataor surrogatin thecasensumapplcatioRefertoFairLendingSampSizeTablTableA in the Appendixanddeteinethetheinitialmplefor focalpoinbasedtheumbprohibitedbasgroupdenialsthebercontrolgroupapprovals by theinstitutionduringthetwelveonth(orcalendar ear)periodlendingactivityprecedingtheination.Intheeventthattheberdenialsd/orapprovals actedduringtheprecedingonthperiod tantiallyexceethemaxshoin Tablereducetheimperiodfromthpleis selecto a sorterperiod.(Indoingso, everyeffortto selecta periodin whichtheinstitutin’sunderwritingandardsare represenatithosein effectduringthefullmonthperiodprecedithe examinatin.) If theberprohibitedbasisgroupdeniacontrol groupapprovafora givenpointthatwereacted upon duringthe 12 onthperireferencedin 1.b.,above, donot theinimustaardssetforthin thempleSizeble,aminersneednotatttransactinalisforthatfocalpoint. hereotherrisk factorsfavoranalzingsucha focalpoint,consultwith agencysupervisorystaffpossiblealternatiethoof judgmental comparative analysis.If agencypolicallsfora differentapproachmpling (e.g.,a formstatistanalis,mathematical formula, autmatedtool)forliof institutioexaersuldfollowthatappoach.Step 2. Determine Sample Compositiontheextenttheinstitutionintainsrecorloan outcresulingexcepionsitscredit underwritingandardsothpolicies(e.g.,overridesto creditcorecutoffrequerecordsforboth approvaanddenials,sortedy loanproductandbranch ordecisioncener,if theinstitutionso.Includein theinitialforfocalpointallexceptor overridesapplicableto thatfocalpoint. UsingHMDdataor,consloas, mparableloregisterdatato theex

14 tentilable, chooseapprovanddeniedplicati
tentilable, chooseapprovanddeniedplicatiobasedon selectcriteriathatwillthelikeliof findingargiapprovedanddeniedapplits,as discsedbeltheextentthattheabovetorsareinappliableor otherselecticriteriaareunavailablefacilitate selecttheentiremplefiles,mpletethe initialpleselectioningrandfileselectons frtheapproriatempleegoriesinthempleSize Table. IV. Fair LendingFair Lending Laws and Regulations IV FDIC Consumer Compliance Examination Manual March2021 Step 3. Compare Approved and Denied ApplicationsOverviAlthougha creditor’swrittenpoliciand procedurappearto benondiscriminalending personnterpretapplypoliciesin a discriminatory nner.Inorderto detectanyisparatetreatmeg applicantstheinerfirstiminateallbut arginaltransactions”(seebelow)fromected focalpointmple.Then,a detailedprofilemarginalapplicantifications,thevelassstanreceived duringtheapplcationprocss,thereasofordenial,theloan teandothinforouldrecordan ApplicantProfleSpreadseet.Onceprofiled,theexaminer can paretargetandtrolgroupsforevidenthat smilarlyqualifiedapplicanbeentreateddifferentlyas to eithertheinstitution’screditdecisithequalityof assistnceprovded. Create Applicant Profile Spreadsheet Baseduponthe institutionwrittenand/orarticulated creditstandarandloanpolicies,identifycategoriesof datathatshourecordedforapplicantandprovidea fieldforthesecategoriesworksheeterizspreasheet. Certaindataloan ount,debt,etc.)shouldalwincludedin the spreasheet,whiletheotherdataselecwilltailored foreachloanproductandinstiutionbasapplicabe underwritingcriteriaandsuchbranchlocation andunderwriteherecreditureauscord/or applicationscoareemetheinstitution’s underwritingcriteria(orwheresuchinfoatiis regularlyrecorin loanfiles,whetherexprslyusedor not),includedatafieldforisinfoin thespread sheet.Inorderto faciitateparisthequalityof assistnceprovdedto targetandcontrolgroupapplicantsrespectieryworksheetshouldprovideommockappropriatlylabeledthesitefor recordingobsevationsfileinterviws regardingapplicantnot,assistin overcingditdeficienciotherwisealifingfor approval. Complete Applicant Profiles theapplicationfilesleforfocalpoint, mpleteapplicantprofilesforselecdeniedand approvedapplicationsfolloA principalgoalis to identifyaseswhereimilarly qualifiedprohiitedbasandontrolgroupapplicants haddifferentcreditoutcbecathencies havefoundthatdiscrimination,includingdifferences in grantingassstanduringtheapprovalproess,is orelikelyto occurwithrespectto applicantswhoareeitherclearlyqualifiedunqualifiedi.e., arginal”appicantsTheincharge should,duringthefollowingps,entaly selectinitialplenlythosedeniand approvedapplicationsnstituteargial transactins.(SeeAppendixIdentifyingMarginal Trasactioforguidance)If fewargicontrolgroupapplicanareidentified theinitialple,reviewadditionalfilesof approvedcontgroupappliants.Thiswilleither increasetheof argiapprovalsconfithatargipprovalsareso infrequentthatthe argideniaareunlikelyto involvedisparte treament. Theentalselectionarginaland argiapprvedapplicantfilesshoulddone together,in a andforth”nner,to facilitate closeandorensistentdefinitionof arginal”thtwopesloanes.Oncethe margnalfileshaveidentified,thedata calledfortheprofilespreasheetextractednotedandentered.hileconducttheprecedistep,theer shouldimultaeouslylookforanddocumethe spreaanyevidencefoundin arginalfilregardingthefollowing:theextentanyassistaincludingboth affiativeaid andwaivepartialwaiversof creditpolicyprovisiorequirements,that appearsto habeenprovidedarginalapprovedcontgroupappliantswhienaled thto overcomor orecreditdeficienies, suchexcdebttoincmeratiandtheextentto wicharginiedtargetgroup applicanwithmilardeficiecieswere,were not,providedilaraffiatiaid,waiver

15 sothersta Review and Compare Profiles Fo
sothersta Review and Compare Profiles Forfocalpoint,reviewall arginalproflesto deteif theunderwriterfollowedinstiion lendingpoliciin deningapplicationshether thereasonfordenialwerepportedby facts docin theloanfileandproperlydisclosedto theapplicantpursuantto ReulationB. If any (a) unexplaineddeviationscreditandads, (b)inaccuratereasofordenial(c)incorrct disclsurarenoted,(whetherin aentl underwritinga scoredtheshouldbtainexplaationtheundewriteranddocumetherespoan appropriatekpaper.NOTE:constructingtheappicantprofilbe comped,minersustthefactsmpared sothat IV. Fair LendingFair Lending Laws and Regulations FDIC Consumer Compliance Examination Manual March2021IV assistwaivor actsdisretiare treatedisntlybetwplicants.Forample, ifcontrolapplicant’sDTIratiolowred to 4becusetheinstitutiondecidedto incltermvertimeincomeprohibitedasis groupapplcantwhowasto “insuficient income”wouldhavehistiodropfrtoifhistermtimencomehadn consiered,thentheexaminshouldidnotin determinthenchmForreasonfordenialidentifiedwithinthetarget group,rankthedeniedprohibiedbasapplicnts, beginningwiththeapplicanthosequalifion(s)relatedto thatreasonfordenialwereleastdefcient. (Thetoprankeddeniedappliantin eachranking willreferredto belowthe “bencark” applicant.)pareargicontrgroupapprovalto the bencarkicantin eachreasonfordenial ranking develpedin step(b),above.If thereareapprovawhoareequallyessqualified,thenthere areinstancdisparatetreamentforthe institutionto countfor.Forllsuchapprovathat appearbetterqualifiedthanthedeniedbenchmark applicant identifytheapprovedloantheworkshor spreaoverlapapprovalandparethaterlapapprovalwithotherargiprohiitedbasdeniaintherankingto deteinewheheradditionalverlapsist. Ifso, identifyalloverlappingapproalsanddenalsas above.herethefocalpointinvolvesusea creditscoring thelysisfordisparatetreamentismilar to theproceduressetforthin (c)above,andshould focusimarilyoverridesthescoringtem itself.Forguidancethisanalis,referto ingAutomatederwritianddit ScoriPartin theAppendStep 4. If there is some evidence of violations in the underwriting process but not enough to clearly establish the existence of a pattern or practice, the examiner should expand the sample as necessary to determine whether a pattern or practice does or does not exist.Step 5. Discuss all findings resulting from the above comparisons with management and document both the findings and all conversations on an appropriate worksheet.D. Analyzing Potential Disparities in Pricing and OtherTerms and Conditions.Dependtheintensityinatiandthesizeof theborrowerpopulationto bereviewed,theisof decisicingandotherandcondiionsay involveomparativefilereview,statistinalis,binationof thetwo,otherspecializtehniqueusedby agencEachinationrocessassssesinstitutioncreditdecisstandarandhetherdecispricingand otherteandconditionsare appliedto borrowerswithout regardto a prohibitedbas Theproceduresbelowencthexaminatsteforparativereview.inersshounsulttheirown agencprocduresfordetailedguidanceereappropriate. Forple,whenfilereviewsareundertakenin conunctionwithstatisticalanalis,theidanceficmplees referencedbelappStep 1. Determine Sample Selectionersmayreviewdatain itsentiretystricttheir analisto a sdependtheamitionapproach usedandthealitytheinstitution’sance nagemeTheFairLendingSizeTablesin theAppendprovidegeneralguidanceappropriate splesizGenerallthesizeshoubasedon theberprohibitedbasgroupandcontrolgrouporiginationsforeachfocalpointselectedduringthe12 s precedingtheinationandtheoutcthempliannagemeanalysionductedin PaII.hen possible,aminersshourequestecificlofilesin advanandrequestthatthestitutionthailablefor review at the start of the examination.

16 Step2. DetermineSampleCompositionandCr
Step2. DetermineSampleCompositionandCreateApplicant Profilesersldtailortheirandbsequentanalis tothespecificfactorsthatthenstitutionnsiderswhen deteiningits pricing,teandconditioForexaple, whiledecsiopricing,andotherteandconditionsare partaninstitution’sunderwitingprocess,general underwritingcriteriashouldusedin theanalisif they arerelevantto thetermonditionto reviewed. Additionallconsideratouldimitto factorswhich exainedeteto belegitimhiletheperiodforreviewshouldmonths,prohibited basgroupandcontrolgroupborrowersshougrouped and revieweda rangedatesduringhichthe institutionpracticesfortheteconditionbeingreviewed weretheme.Generallexamiersuldtheloan originationdatetheloanapplicationdate.Identifydatatoanalforfocalpointto be reviewedandcordthisinfoationforborrowerspreatoensurevalidomparisonregadingteand conditioForexaple,in cetaincases,institutionay offerslightlyfferentiatedproductswithficantpricing imcatioto borrowers.Intheseitbe IV. Fair LendingFair Lending Laws and Regulations IV FDIC Consumer Compliance Examination Manual March2021 appropriateto grouptheseproedurestogeherforthe purposluation.Step3. ReviewTermsandnditions;CompareithBorrower OutcomesReviallloanteconitions(rates,ints,fees, aturityvariatcollateralrequirementetc.) withspecattentionto thosewhichareleft,n wholeor in part,to thescretionloanofficersunderwriters. Forsuchconditiidentify(a)ny prohibitedbasgroupborrowersin theplewho appearto havebeentreatedavorablywithresptothatteditionand(b)anycontrolgroborrowers whoappearto avebeentreatfavorablywithrespectto thattedition.Theexaer’sanalysishouldbe thoroughlyentedin theworkpapeIdentifythepleerseanycontrolgroup borrowerswhoappearto havebeentreatedre favorablythanor oretheaboveidentfiedprohibitedbasgroupborrowersandwhopricingor creditworthinfactors(undertheinstitutionstanards)thatareequalto orlessfavorabthantheprohibitedbass groupborrowers. Obtainexplionstheppropriateloanofficeror otherforanydifferethatisreanaltheforevidencediscrimition.If thereis sevidenviolationsin thempositionof teandcondtionsoughto clearlyestablistheexistea patternctice,theaminershould expandthemplenecssaryto deteinehetherpatternpracticedoesexist.Discdifferencesinarableloansthe institutionnageentdocentallversatioappropriteworkshet.Foradditionalidanceevaluatingmanentresonsreferto artEvaluatingResponsto Evidnceof DispTreatent in theAppendE. Steering Analysisinstitutionhatoffersa varietylendingproductsor productfeatureitherthroughchannelthrough ultipchanls,benefitconsersby offeringgreater choicandetingthediverseneedsapplcants.Greater productofferingsandultiplechannelsver,also createa fairlendingriskthatapplicanwillillegally steeredto certachoicesprohibitedcharacteristcs. Severalexaillustrateentialfairlendingrisk:institutionhatoffersifferentlendingductsbased creditrisklevelspreseopportunitiesforloan officersbrokersto illegallysteerapplicanto the higherriskproducts.institutionhatoffersnontraditionalloanroductsor loanproductsithpotentiallyonerouste(suchas prepaentalties)presentopportunitiforloan officersbrokersto illegallysteerapplicanto certain productsfeaures.institutionhatoffersimsubimroducts throughdifferentchannepresentopportunitiesfor applicanto beillegallysteeredto thesubpriannel.Thedistinctionbetweenconswardspecific productfeatureandillegaleeringcenterswhetherthe institutiondida prohibitedbasis,ratherthanbasedan applicantotherlegitimfactors.It is notnecessato demonstrafinancialo a groupthathasbeen teered.”It is enoughto demonstratethattakon a prohibitedbasisregardlesstheultimatefinancialoutce. If thescopinganalisreveathepreseor orerisk factorsthroughforanyselectedfocalint,consulth agencysupervisorys

17 taffaboutconductieeringanalisas describe
taffaboutconductieeringanalisas described below. Step 1. Clarify what options are available to applicantsThroughinterviewswithapprpriatepersonthe institutionandeviewpolicyals,procdureguidelins andotherdirectives,obtainandverifythefollwing infoationforproductternativeprodpairingor groupingidentfiedabove:Allunderwriticriteriaforproductfeatureand theiralternativthatareofferedby theinstitutiona suidiaryaffiliate.productsmayinclude statedincnegativeortzation,andoptiARMs. Exterandfeaturincludeprepayment penaltiandescrowrequirements.Thedistincion betweena prouct,andfeaturevaryinstitutionto institution. Forexastitutioconsder tatedincme”feature,whilesothersmayconsiderthat a distinctprodct.Pricingothercostsapplto theproductandthe alternativeprouct(s),includiinterestrates,points,and allfees.Step 2. Document the policies, conditions,or criteria that have been adopted by the institution for determining how referrals are to be made and choices presented to applicants.Obtainnotonlyinforationgardingtheproductfeatureofferedby theinstitutionandalternatioffered by subsidiariesaffiliates,alsoinfoationon alternativesofferedsolelyby institutionitself. Obtainanyinfoationregarda subsidarythe institutiondirectlyfromthattitseek IV. Fair LendingFair Lending Laws and Regulations FDIC Consumer Compliance Examination Manual March2021IV infoation regardingaffiliateholdingompanysubsdiaryy frtheinstituionitself.Obtainallappopriateumentationandvidewrittenalldiscusswithloanersonnel andanageObtaindocumentationand/orploimatesto the volreferralsadeto theinstitution,for each product,uringa relevantimperiod.Resolveto thextentpossiblediscrepancibetwen infoationin theinstittion’sumentsand infoationainedin discssionswithloanersonnel andanagey conductingappropriatefollowup intervieIdentifyiciesandprocduresablishby the institutionandthesubsidiaaffiliatefor(i)referring a personwhoppliesto theinstitution,doesnot meet its criteria,to anotherinterlendingchanel,subsidary oraffiliate;(ii)offeringoneorealteratito a person wholiesto theinstiutionfora specificproduct orfeature,oesnot itscriteria;(iireferringa personwholiesto a suidaryaffiliateforits product,butwhoappearsqualiiedfora loanthe institution,to theinstitution;referringa personwho appliesthrouoneinternalledingchannela product, butwhoappeato bequalifiedfora loanthroanother lendingchanelto thatparticularlendingchanel. Deteineherloanpersonelareencourged, throughfinancincentivotherwise,toakereferraleitherfromtheintitutionto a idiary/affiliate orviceversa. ilarldetermiwhetherthenstitution providesfinanialincentivrelatedto producand features.Step 3. Determine how referral decisions are made and documented within the institution.Deteinea referralis to anotherinternallending channel,affiliate.Detethereasonfor referralandit is docted.Step 4. Determine to what extent individual loan personnel are able to exercise personal discretion in deciding what loan products or other credit alternatives will be made available to a given applicant.Step 5. Determine whether the institution’s stated policies, conditionsor criteria in fact are adhered to by individual decision makers. If not, does it appear that different policies or practices are actually in effect?Enterdatafromtheprohibitedbasgroupmplethe spreadsheedetermihethertheinstiutionis,fact, applingitscriteriastatForif announed criterionforeivingorefavorable”mortgage loan enddebtrationo orethan38%,review thespreadsheeto determiwhetherthatcriteriawas adheredto.If tinstitution’sctualtreatmentprohibitedbasgroupaplicantsearso differitsstatedcriteria, docentsuchdifferencesforequdisusswith nagement. Step 6. To the extent that

18 individual loan personnel have any discr
individual loan personnel have any discretion in deciding what products and features to offer applicants, conduct a comparative analysis to determine whether that discretion has been exercised in a nondiscriminatory manner.parethestitution’sbsidiar/affiliate’streatmentof controlgroupandprohibitedbasisgroupcantsdapting the “benchmark” and “overlap” technique discussed in Part III, Section of these procedures. Forpurposthis SteeringAnalis,thattechniqshouldductedas follows:Forfocalpointto beanalzed,selectof prohibitedbasgroupapplicawhoreceivless favorable”trea(e.g.,referralto a financempanya subprimortgbsidiarycounteroffersless favorableprodalternativNOTEselectingthesample,followtheguianceof FairLendingampleSizeTabes,TableB in the Appendandselectginalapplicants”instructed in PartSectionabove.Preparea spresheetforthemplewhichntainsdata entrycategoriesforthoseunderwritingand/orreferral criteriathattheinstitutionidenifiedin Step1.busedin reachingundewritingandreferraldecisiobetweenthe pairsproducts.Revithelessfavorabltreatedprohibitedbasgroup splerankthislequalifedtost qualified.theidentifythebestqualifiedohibited basgroupaplicant,basedon thecriteriaidentifiedfor thecontrolgroup,above.Thisapplicantwillbe the bencark”pplicant. Rankorderthening applicanbestleastalified. SelectcontrolgroapplicanIdentifythose whoweretreatorefavorwithrespectto the sprodternativeprodpairtheprohibited basgroup.(Againreferto thepleTableB and argiappliantprocessnotedabovein selectingthe smplemparethealificationsthebencarkpplicant withthosethecontrolgroupapplicantsbegnningwith theleastqualifedmberthatmple. IV. Fair LendingFair Lending Laws and Regulations IV FDIC Consumer Compliance Examination Manual March2021 control groupapplicantwhoappearsqualifithe bencarkicantshouidentifiedthe spreacontrolgroupoverlappareallntrolgroupoverlapswithotheless qualifiedprohiitedbasgroupapplicantsto etermine whetheradditinaloverlapsisDocumealloverlapspossbledisparitiin treatment.Discalloverlapsandrelatedfindings(e.g.,any differencesatedandactualunderwitingand/or referralcriteria)withagement,docentiallsuch conversatioStep 7. Examiners should consult with their agency’s supervisory staff if they see a need to contact control group or prohibited basis group applicants to substantiate the steering analysis.F. Transactional Underwriting Analysis CommercialLoans. OverviUnlikeconscredit,whereloanproductsand pricesaregeneallyogenandunderwrtinginvolves theevaluationa limbercreditvariables, ercialloaregenerallyuniqueanderwriting andloanpricingvarydependinga large mbercreditvariables.Theadditionalcredanalisthat is involvedin nderwritingcialcreditproductswill entailadditionalexityintheplidiscriminatianalisprocAlthoughECOAprohibits discriminatiin allommcialcreditactivitiesa covered institution,theagenciesrecogizethatallusinesses(soproprietorshipartnershipall,closeheld corporations)mayhavelessperiencein borrowing.all businseshavefewerborrowingoptiowhichay thvulnerableto discriminatiTherefore,inimlementingheseproedures,inatshoulderalfocusedallsincreditommapplicans thathadgrossevenu$1,000,000lessthepreceding fiscalear),absent evincethata focusother cercialductswouoreapprpria Step 1. Understand Commercial Loan PoliciesFortheommcialproductlineselecforanalis,the inerfirstreviewcreditpolicyguidelinesand interviewapprpriatemmerialloannagandofficers to obtainwrittenandarticulatedstandarusedby the institutionin ealuatingrcialloanapplications.NOTEExamiersshouldnsulttheirownencifor guidancea comparatveanalysor statistical analysisropriate,folowtheireniesureforcondctingsuchnalysisStep 2. Conduct Comparative File Revi

19 ewSelectall(orimuten)deniedappliationsth
ewSelectall(orimuten)deniedappliationsthat wereacteduringthethreeperiodpriorto the inatitheextentfeasible,includeenied applicatiofromsinssesare(i)locatedin minority and/orintegratedgeoraphies(ii)appearto be ownedby wor inoritygroupmembers,basedtheprincipalsapplicatonsor relatedents.(Inthecaseinstitutionsthatsignificantvoliallending,consider reviewingorethantenappliations.) Forthedeniedcialapplicatiselcted, recordspecificnfoatifromloanfilesthrough interviewiththeappropriateloanofficer(s),aboutthe principalownethepurposetheloan,andthespecific, pertinentfinanialinfoationaboutthemmercial enterprise(incudingusinretainufacturing,service,etc.),thatusedby the institutionto ealuatethecreditrequest.Mainenanceor usedatathatidentifiesprohbitedbaschaacteristithoseinvolvwiththebusiess(eitherin approvedor deniedloanlications)shouevaluatedpotentialviolatRegulatiSelecttenapprvedloansthatppearto belarwith regardto businpe,purposeloan,loannt, loanteandcollateral,thedeniedloans mplForple,ifthedeniedloanincludes applicatioforlinescreditto coverinventpurchases for retail businesses, the examiner should selectapproved applications for lines of credit from retail businesses.Forapprvedmmercialloanapplicatiselectd, obtainandrecinforationparallelto thatobtainedfor deniedapplions. Theinershouldfirstparethecreditcriteria consieredin thecreditprocessfortheapproved anddeniedappicationsto talishederwriting standarraththanomparingfilesdirectlTheinershouldidentifyanydeviationscredit standarforbothapprovedanddeniedcreditrequess, anddifferencesin loantegrantedforapprovedcredit requesTheinershoulddiscachinstaere deviatiocreditstandarandtenoted,but wereexplanedin thefile,withthercialcredit underwriter.Eachdiscshouldmented.Step 3. Conduct Targeted SamplingIf deviationsfromcreditandapricingarenot sufficientlyexplainedby otherfactorseitherentd in thecreditfiletheommcial IV. Fair LendingFair Lending Laws and Regulations FDIC Consumer Compliance Examination Manual March2021IV underwriternot ableto providea reasonbleplanation,theiner shouldrmiif deviationsweredetrimto any protectedapplicantsTheinershouldconsderemploingthetechniqufordeterminingraceandgenderracteristis ofmmercapplicanoseoutlinintheconsumer loan sampling procedures.If it is deterthatthereare ersmore prohibitedbasgroupsercialditrequess thatwereunderwrittenordingto estabished standarreceivedlessfavoabletetheiner shouldselectditionalrcialloans,where applicantsaremembersthe sprohibitbasisgroupandselimarlysituatedcontrolgroupcreditrequestsinorderto determiwhetherhereis a patternpracticediscriminatiTheseadditinalfilesshouldseleced basedthe secificapplicantcircnce(s)that appearedto habeenviewdifferentlynding persona prohibitedbasIf thereareenoughimarlysituatedapplicantsfor parisonin theoriginalsampleperiodto drawreasonbleconlusion,theshouldpandthe pleperiTheexpandedpleperiodould generallythedatethepriorination. Sampling GuidelinesGeneralltheaskselctingappropriateexpandpleprohbitedbasandcontrolgroupapplicatioforommercialloanswillrequexanerdgment.The exinerselectamthatis largeenoughto be ableto drawa reasoableusion.Theinershouldfirstselefromtheplicationsthat wereacteduringtheinitialpleperiwere not includedin theinitialandselectplicatiopriorimperiodsnecssarTheexpandedpleuldincludebothappovedand denied,prohibibasandntrolgroupapplications, wheremilarreditrequstedby simenterprisforsimilarpurposesG. Analysis of Potential Discriminatory “Redlining”OverviForpurposthisanalis,traditionalredlining” is a foillegaldisparatetreatmentin whichinstitution providesto crdit,unequaltecredit, becatherace,color,nationalorigin,otherprohibited characteristic(s)theresidentstheareainwhichth

20 ecredit seeresideswillresiden whichthere
ecredit seeresideswillresiden whichtheresdentialpropertyto beortggedis lcated. Redlinialso include “reverseredlining,”thepracticetargetingcertain borrowersareaswithvantageductsservibasedprohiitedcharacteristics. Theredlininganalisayappliedto detewhether, prohibitedbasinstitutionfailsrefusesto extendcreditincertain areas;institutiontargetscertainrrowerscertainareas withlessadvanageoproductsinstitutionmakesloainareaa restrictedlevellessorableteconditiomparto contrastiareinstitutionexcludessuchareaefforts toarketresidentialloanslicitcustfor residentialcredt.Thisguidanfocusblediscriminatbasedracenationalorigin. Thesameisldadaptedto evaluaterelatito creitforareaseographical concentratiotherprohibitedbasforple,age.NOTIt is trthatneitherEqualCreditOpporunity(ECOthe FairHousingAct(FHAct)ecificallyuses the term“redlning.” However,federalcourwellagencithataveenforcerespnsibilitiefortheFHAct, haveinterpretedit asprohibitinstitutiofromhavidifferentarkeinglendingacticesaingeographicas,comptoothers,erepurpeffectof suchfferewouldto discrimiateprohibiSimilarly,the ECOAwouldprohibittreating applicanforcreditdifferentlythebasisof differein theracialethniccompititheirctive neighbrhoo Likeotherfordisparatetreatment,redlinprovenby overtparativeevidence. If anywrittenl policystatenttheinstitution(seeriskfactorsin PartI, above)uggesthatthe institutionlintheracialor nationalorigincharacteranareawithanyaspectto ortercredit,theaminersshouldreferto the guidancein SetionB ofthisPartIII,docuntingand evaluatingertevidencediscrimination.Overtevidenincludonlyexplicitstatemnts,also anygeographiteusedy theinstitutionthatwould,a reasonblepersoniliarwiththeommunityin question, connoteficracialnationalorigincharacter.For exple,if theprincipalinforconveby thephrase north110thStreet”is thattheindicatedis principally occupiedby Hispanithenpolicyakingcredit availablenorth110thStreet”is overtevidncepotential redliningthe basisnatioorigin.Overtevidenceis relativelyommon. equentlthe redlininganalisusuallywillfocusarativeevidece (simto analpossibdisparatetrea IV. Fair LendingFair Lending Laws and Regulations IV FDIC Consumer Compliance Examination Manual March2021 of individualin whichtheinstitutiontreatmentof areaswithcontastingracialnationalorigincharacteis cmpared.henthescopingprocess(includingconsultatwithinan agencycallfory agencyprocedures)dicatthata redlininganalisshouldiniiated,ineshould cmpletethellowingsteof comparativeis:Identifyanddelineateanyareaswithintheinsttution’s assareaandeasonablyexpectarket areaforresidetialproductshavea racialnational origincharacteDeteineheranyinoriareaidentifiin Stepappearsto bexcluded,underserved,ectielyexcludedfrom marketing efforts, or otherwise lessfavorably treated in any way by the institution;Identifyanddelineateanyareaswithintheinsttution’s assareaandeasonablyexpectarket areaforresidetialproductsareinoityin characterandtheinstitutiappearsto trore favorablIdentifytheloationanynorityareaslocatedust outsidethetution’sassareaarket areaforresidetialproducts,thattheinstiutionay purposelyavoidingsuchas; Obtaintheinstiution’sexplaionfortheapparent differenceintreamentbetwtheareasandvaluate whetherit is crdibleandreasnable;andObtainandevauateotherinforthatsupportor contradictintepretingidentifieddisparitiesto betheresult intentionalillegaldiscrimion.Theseare discsedin deailbelow.Using Information Obtained During ScopingAlthoughthetasksstedpresentedelowas inatiin theordergivenabove,xaminersshould recognizethatdifferentorderpreferablein anygiven exainatiForexatheinstitutionplanation(Stepforpoliciesternsin questialready in theerialsreview(Stepand theamin

21 ersmayalreadyhaveverifiedit,whichay suff
ersmayalreadyhaveverifiedit,whichay sufficientforpurposesthe redlininganalis.anotpartthescopingcess,the inemayhavereviewanalisthegeographic distributiontheinstitutionloanoriginatiowithrespect totheracialandnationaloriginitioncenstracwithinitsCRAassessmresidentmararea.Such analisighthaveumetheexistesignificant discrepncietweenareby degreeority concentratiin loansorigina(riskfactorR1), approval/dnialrates(riskfactorR2),and/orratesdenials becainsfficientcollateral(riskfactorR3). Insuchsituationin whchthescopiprocesshasduceda reliable factualrecord,theinecouldbeginwithStep(obtainingxplanation)theredliningisbelow. Incontrast,thescopingocessonlyielpartialor questinableinatiwhentheriskfactwhich theredliningisis basedplainallegations againstthetution,Stepsaddrsed.Comparative analysis for redliningStep 1. Identify and delineate any areas within the institution’s CRA assessment area and reasonablyexpected market area for residential products that are of a racial or national origin minority character.NOTTheassssmentareacana covenientunitfor redlinianaliscauseinfrmationit typically alreainhand.HowevtheCRAassentareabe toolimited. Theredlininganalisfoctheinstitutions decisiabouthowmuchtocredittoprovideto differentographicalareas.Theareforwhichthose decisicanestcomaretheinstitution actuallyrkeprovicreditandereitcould reonabexpectedto hamarkeandproviedcredit. Somethosemighteyonderwisedifferent fromtheCRAassessmarea.If therearereasidentifiablefortheirracialnational origininoritycharacterwiththeinstitutioCRA assessmareareasonablyexpectedmarketareafor identialproducta redlininganalyisisappropriate.(If thereis a suntialdispersedinoritypopulation, potentialdisparatetreamentevaluatedby aroutine mparativereviewapplicants.) Thisstephavebeensubstantiallypleduring scopiunresolvedersain. (Forple, severalnityspokespesonsallegethatthe institutionis rdlining,disagreein definingthearea).The exineshold:Descriciselypossiwhyspecificareais recognizedin tunity(perceptioresidenetc.)and/oris obectivelyidentifiable(basedcensor otherdata)avinga particuracialnationalorigin minoritycharater.Theobviidentifieris thepredinantraceor nationalorigintheresidentsthearea.ers shouldcumethepercentaracialnational origininoritiesresidingwiththecenstractsthat theAnalzingracialandnationorigin concentratin quartiles(su0 to to = 50%,&#x -12;&#x.2 0;50%to IV. Fair LendingFair Lending Laws and Regulations FDIC Consumer Compliance Examination Manual March2021IV 75%,and�75%)or basedorityconcentrationto =50%,and.1;&#x 000;50%)helpful. Howeer,ineshould bearinindit is illegalfortheinstitutionto consiprohibitedfactorin anyway.Forexae, anareaneighborhoodonlyhaverity population20%,butif thearea’sconcntration appearsrelato lendingpracices,it wouldbe appropriateto usethatarea’svelconcentrtionin theanalis.ntactswithunitygroupsbe helpfulto learnwhethertheresuchsubtfeaturesracialethniccharacterhina particular neighborhood.GeographroupingsthatconvenientCRA mayureracialpatterns.an undersered,lowincpredomantlyinrity neighborhoodhatlieswithinlargerlowincoareathatimilyconsistednorityneighborhoouatelyservedhenthe entirelowincis anaa unit.Howeer,a racialpatternunderservicetonority areasmightevealedif thelowincminrity neighborhoodshareda borderwithundersrved, iddincinorityareaandthosetwonority areasweregropedtogetherforpurposesis. Descritheracialnationalorigincharacter changthesuspectredliningarea’sarious boundariDocestimtheforcredit,withinthe minorityarea. Thisayincltheapplicabographthearea,includingthepercenageof eowers,the value,ediily incme,thembersmabusinReview theinstitutionnonoriginatedloanapplicatithe suspectredlinedareas. If availa

22 ble,reviewaggregate institutiondataforlo
ble,reviewaggregate institutiondataforloansoriginatedandapplications receivedsuspectredlinedareas.nity contacayalsohelpfulin deteiningthe demand forsuchcredit. If theorityareadoesavea significantamoemforsuchcredit,theareais notappropriatefora redlininganalis.Step 2.Determine whether any minority area identified in Step 1 is excluded, underserved, selectively excluded from marketing efforts, or otherwise lessfavorably treated in any way by the institution.Theinersshouldbegtheriskfactorsidentifiedduringthescopprocess. Theunfavorabletreatmentay havebeensubsantiallyumentedduringpingandneeonlyto befinihedin thisstep.If not,thisstepwillverifyand asuretheentto whichthe inority areasidentifiedin Step1 to beunderserd/orhowthe institutionplicitpoliciesthemessfavorabl Revipriorlendinganalto leawhether theyhaveidentifiedanyexcludedotherwiseunderservedareothersignificageographicalisparitiin theinstitutionlending.Deterwhetheranythose arethe inorityareasidentifiedin StepLearnfromthe institutionitselfwhether,of policit treatsanyseparatedistinctgrahicalareas withinitsarketingerviceareadifferentlyfromother areas.Thismayhavebeenmpletelypartially duringscopinganalisrelatedto riskfactorsR9.The differencesin treatmentbe inarketiproductsoffered,branchoperatio(includingtheservices provided andhoursoperation),appraisalpractices, applicationcessing,approrequirents,pricing, loanconditioevaluationcollateral,anyother policypracticemateriallyrelatedto credit. Deteineheranythoselessfavoredarethe minorityareasdentifiedin StepObtainfromtheintitution:(i)tsreaforuch differencesin olic(ii)thedifferencesre imlementand(iii)anyspecificconditionsthatst existin anareaforit toreceivetheparticulartreament orefavorablelessfavorabthattheinstitutionhas indicated. Step 3.Identify and delineate any areas within the institution’s CRA assessment area and reasonably expected market area for residential products that arenonminority in character and that the institution appears to treat more favorably.theextentalreaompletedduringping:Documethepercentagcontrolgroupandracial ornationalorigininoritiresidingwithinthe censs tract(thatprithenoninorityDocumethenaturethehousingin therea.Descrito theextentknown,theinstituion’spractices, policies, or its rate of lending change from lesstoorefavorbleleathe norityreaat its variousbounries. (Exineshouldparicularly attentivetoinsancinwhichtheboundaribetween favoredanddisfavoredareaseviatendariesthe institutionwoureasonablyexpectedto follow,such aspoliticalndariestransportationbarriers.)ersldparticularlyonsiderwhewithinlargeareathatis cominantlyracialor nationalorigininorityholds,thereareenclavthatarepredinantlyoritywhether,alongthearea’sborders,thereareirregularitieswhere IV. Fair LendingFair Lending Laws and Regulations IV FDIC Consumer Compliance Examination Manual March2021 inoritygroupis predinant. parttheoverall cparison,aminersshoulddeteinewhehercredit accwiththosellinorityareasdiffersm creditinthelargerinoityarea.Step 4.Identify the location of any minority areas located just outside the institution’s CRA assessment area and market area for residential products, such that the institution may be purposely avoiding such areas.Revitheanalysispriorinatwhether theassessmareaappeato havebeeninflencedby prohibitedfactrs.If thereareminorityareashatthe institution excudedthesessmentareaimproerlconsiwhettheyoughttoincludedin theredlining analis.Analtheinstitutin’sreasoablyexpectmarkt areain thener.Step 5.Obtain the institution’s explanation for the apparent difference in treatment between the areas and evaluate whether it is credible and reasonable.Thisstepetesthearativeanalisy solic

23 iting theinstituionanyadditionalinfoatio
iting theinstituionanyadditionalinfoationnotet consieredby theinethatightshowhatthereis a nondiscrimioryexplanationfortheapparentdisparate treamentbasedraceethnicitFormatterthatrequiresplanation,provthe institution fullinfoatiwhatdifferencesto existin howit treatsinorityandnonorityareas,andhow theinereachedtheirimaryconclusiothis stagetheanis. Evaluatewhettheconditioidentifiedby the institution in S2 asustiforefavorabtreatment pursuantto insttutionalpolicyexistedininrity neighborhoothatdidreceivethefavoraletreatment calledforby istitutionalpolicIf thereareinorityareasforwhichthosecoditioexistaske institutionto plainwhytheareasweretreated differentlydespitetheimilarconditions.Evaluatewhettheconditioidentifiedby the institution in S2 asustiflessfavorabtreatment pursuantto insttutionalpolicyexistedin noninority neighborhoothatreceivedvorabletreatment neverthelIfthereareinorityareasforwhich thoseditioexisted,askinstitutionto explainwhy thosearetreateddifferentldespitethe imar conditioObtainexplionsthestitutionforanyapparent differencesin treatmentserby theaminersnot calledforby tinstitution’solicies:Iftheinstitution’sexplanaticitesanyspecific conditioin thenonorityarea(s)to ustifyore favorabletreatment,detewhetherthe minority area(s)identifiin Step1 satisfiedthoseconditions. If thereareorityareasforwhichthosenditions existed,theinstitutionto eplainwhytheareas weretreateddifferentlydespitetheimilarconitions. If theinstitution’sexplanaticitesanyspecific conditioin the inorityarea(s)to ustifyless favorabletreatment,detewhethertheinorityarea(s)hadthoseconitions.If thereinorityareasforwhichthoseconditioexised,ask theinstitutiono explainwhythoseareasweretreated differentldespitetheilarconditio Evaluatetheinstitution’srespnsesby applying appropriate priciplesselectheAppedixEvaluatingsponsto EvidnceDisparaTreaent. Step 6.Obtain and evaluate specific types of other information that may support or contradict a finding of redlining.a legaler,discriminatointentinferredimply frthelackof a legitplanationforclearlylessfavorabletreatmeracialnationalorigininoritis. Neverthelif theinstitutionexplanatonsnot adequately accountfora docenteddifferenin treatment, theineshouldconsderadditionalinforthat ightsupportcontradicttheinterpretationthe differencein treatmenttituedredlining.a. Compativefilereview. Iftherearativefile reviewcondin conunctionwiththeredlining exinatireviewtheresulor,if it is necssaryand feasibleto doto clarifywhatappearsto be discriminatoryredlining,deniedappliations frwithinthe suspctedredlningareato aproved applicatiofromthecontrstiarea.Learnwhethertherewereanydenialsfullyqualifiedappliantsthe specedliniarea. If so,thatsupporttheviewthattheinstitutionavodingoingbusininthearea.Learnwhetherthefilereviewidentifiedinstaof illegaldisparatreatmentapplicanthe racetionaloriginthesuspectredlining area.If so,thatsupportthe viewthatthe institutionavoidingdoingbusineswithapplicanthatgroup,suchtheresidenthe suspectredliningarea. Learnwhetheranysuch identifiedvictimappliedfortransactiin he suspectredliningarea. IV. Fair LendingFair Lending Laws and Regulations FDIC Consumer Compliance Examination Manual March2021IV If thereareinstanceithertheabove,identify deniedorityresidents,if any,thespeced redliningareareviewtheirapplicationfilto learn whethertheyappearto havebeentreatin an irregularlessfavorableIf so,thatsupport theviewthatthecharacterthearearatherthanthe applicants themselves appears to have influenced the credit decisions.Reviwithdrandinceteapplicatiforthesuspectredliningarea,if thosereadilybe identifiedtheandlearnwhether therearereliableindicatiothattheinstitutidiscourgedthappliantsa

24 ppling.Ifso,that supportthe viewthatthei
ppling.Ifso,that supportthe viewthattheinstitutionoiding conductibusnesstheareaandconstiute evidena violationSection1002.4(b)of RegulatConveif parisonsindividualtransctiow thattheinstituttreatedrityandnonnorityapplicanwithandoutsidesusectedrediningareamilarlthattendsto contradtheconclusthatthe institutionavodedtheareasbecauseit hadnorityresiden b. Interviewsof thirdpartes. Theperspectivof third partieswillbeentakeninaccountto sgree throughthereviewavailableerialsduriscoping. Laterin theexaation,in appropriatecircustances, infoationthirdpartieshelpdetermine whether theinsitution’sappardifferencesin treatment of inorityandinorityareastituteredlining.Identifypersons(suchhouscreditcounselos, improvemecontractorealestateand ortgbrokrs)whohaveextensexperience dealing with credit applicants from the suspected redlined area.Afterobtainingappropriatehorizationand guidanceagencterviewthosepersoto learntheirfirsthandexpeiencrelatedto:oralstatwrittenindicationsby an institutionrepresentatithatloanapplicatins specteredlinedareawerediscuraed;whethertheinsitutiontreatedpplicanhe suspectredliningarealedforin itsown procedur(astheineunderstathm) and/orwhetherit treatedimilarlyto applicannoninorityareas(asthe ineareilwiththosetransactio anyunusualirregulartiesin loan processingfortransactiin suspectredliningarea;anddifferencesin theinstitutionpricing,loan conditiopropertyvaluationpractices,etc.,thesuspectredliningareaaredto contrastiareAlso,learnfromthethirdpartiestheameany conserstheydescribedvingexperienthe questinablehaviorrecountby thethirdartand consicontatingthosensumers.If thirdpartieswitnessedspecficconductby he institutionthatndicatestheinsitutionwantedo avoid businareaprohibitedbasgroin questithiswouldtendto suportinterpretingthe differencein treatmentinteded.Converseif thrd partiesreportpropertreatmentpositiveactitoward suchareaprohibitedbasgroup,thiswouldtendto contradicttheiewthattheinsitutionintendedto discriminaMarketi. A clearexclusithesuspctedredlining areathestitution’setingresidetialloan productssuppotstheviewthattheinstitutionidwant tobusinn thearea.Marketingdecsioareativeto includeexcludeareDisparitiin maretingbettwoaremayrevealthatthe institution prefersto theother.If sufficientlystarkand supportedby otherevidence,a differenceinarketingtoracially different areas could itself be treated as a redlining violation of the Fair Housing Act. Even below that level of difference, marketing patterns can support or contradictthe view that disparities in lending practices were intentional. Reviaterilshatshowtheinstitutihas etedin the suspctedredlnedareaandin nonminorityareas.Beginwithlablematrials anddisctheisswithCRAinethen reviewotheraterialsappropriate.Theterials include,fortheinstitutionguidance forthegeographicaldistributipreapproved solicitatiforcreditcardsequitylinesof credit,advertisementsin localdiabusinor telephonedirecories,busindevelopmellsto realestatebroers,andcallsby telmarketers.Peerrforma. Marketareanalisandther mparisonstompetitorsare insufficientby ths to provethatinstitutionenggedin illegalredlining.By thetokinstitutionannotustifyitsownfailure toarketlein anareacitingotherinsitutions’ failuresto lendor arketthere.Howeer,institution’sinivityin anrservedarea whereitswledgedpetitorsareactivewouldtend to supporttheinterpretationit intendsto avoiddoing businin thearea.Converseif itis asactiveother institutiothatwouldgesthatit IV. Fair LendingFair Lending Laws and Regulations IV FDIC Consumer Compliance Examination Manual March2021 intendsto cpete for,ratherthanavoid,businin thearea.Developlisttheinstitution’spetitoLearnthelevellendingin thesusectedredining are

25 aby cpettors. Checkanypublicevaluatof sm
aby cpettors. Checkanypublicevaluatof smilarlysituatompetitorsbtainedby theCRA exineevaluatingtheperfoe contextobtasuchevalindeendetlInstitution’srecord. Requestthestituton infoationitsoverallrecordservingor atteptingto servetheracialnationalorigininority groupwiththesuspectredliningareais identified.Therecordayrevealintentto servethat groupthattendsto contradicttheviewthattheinstitution intendsto discriateagaithegroup.NOTE: For any information that supports interpreting the situation as illegal discrimination,obtain and evaluate an explanation from the institution as called for in Part IV. If the institution’s explanation is that the disparate results are the consequence of a specific, neutral policy or practice that the institution applies broadly, such as not making loans on homes below a certain value, review the guidance in the Special Analyses section of the Appendunder Disproportionate Adverse Impact Violations and consult agency managersH. Analysis of Potential Discriminatory Marketing Practices.henscopingidentifiesgnificantriskfactors(M1M7) relatedtoeting,ineshouldnsulttheiragenc’s supervisorystaffandexpertsa possibeting discrminatianalis.If thesupervisorystaffagreesto proceed,thexaminersshouldcollectinfoionfollows: Step 1. Identify the institution’s marketing initiatives.PreapprovedsolicitationsDeteinehertheinstitutsenpreapprovedsolations:ForpurcaseloaForimentloaForrefinanceloanDeteinetheinstitutionselectsrecipentsfor suchsolicitatiLearnfromthe institutionitsiteriaforsuch selectons.Revianyguidanceotherinfoatithe institutionprovdedcreditreportingpaniesor otherpanithatsupplylists.MediaUsaDeteineinhichpapeandbroadcdia theinstitutionadvertises.Identifyialnationaloriginidentity associatwiththosemedDeteineherthoseediafocuson geographinitiesa particularracialor nationalorigincharacter.Learntheinstitution’sstrategforgeographicand ographdistributionadvertisements.Obtainandrevcopitheinstitution’srinted advertisiandonalterials. Deteinecriteriatheinstitutionicates toaboutwhatis anattrctivecustan attractiveareao cultivateness.Deteineheradvertisingandarketingthe to racialnationaloriininorityareasas mparedto ninorityareas.SelfprodomotinaleriaLearntheinstitutionstributesitsonalterials,boththodsandgraphical distribution.Learnwhattheinstitutionregathetarget audience(forthoaterialRealtors,brokconractrs,otherintrmediriesDeteinehertheinstitutsolicibusness cificrealtors,brokers,improvement contractors,andotherconduits.Learntheinstitutionwhich inteediariesit willsolicit.Identifythepariescontacteddetethe distributioninorityandnoninorty areas.Obtainandrevthepesinfoationthe institutionstributesto inteediaries. Deteineoftentheinstittioncontacinteediaries.Deteinecriteriatheinstitutionicates to inteariaboutthecustersit sees orthenaturethegeographicareasin whicht wishtosinss. IV. Fair LendingFair Lending Laws and Regulations FDIC Consumer Compliance Examination Manual March2021IV TelemrkeersdictivealerprogramsLearntheinstitutionidentfieswhichnsumers to contact,andwhethertheinsitutionany paraetersthelistconsis cmpiled.Step 2. Determine whether the institution’s activities show a significantly lower level of marketing effort toward minority areas or toward media or intermediaries that tend to reach minority areas.Step 3. If there is any such disparity, document the institution’s explanation for it.Foradditionalguidance,referto PartC oftheSpecialAnalysesection in the AppendixI. Credit Scoring.If thescopingprocessresulin theselectionof a focalpoint thatincluda creditor ortgscoredloanproduct,refero theingAutomatedderwritiditScorng sectiontheAppendixIf theinstitutionutilizesa

26 creditscoringprogramwhiscors ageforanyl
creditscoringprogramwhiscors ageforanyloproductselecforreviewin thescoping stage,eithersoleunderwitingdetermionlya guidetoloandecisins,referto Partthe idingAutomatederwritiandditScoring sectiontheAppendixDisparate Impact IssuesTheseproceureshavethfarfocusedimilyiningmparativeevideforpossibleunlawful disparatetreament.Disparateimphasdescribbrieflyinthetroduction. heneverminerbelieves thata particularpolicypracticeinstitutionappearsto havea disarateimpactohibitedsis,theiner shouldreferto PartA oftheecialAnalyssectiontheAppendix or consult with agency supervisory staff for further guidance. Part IV Obtaining and Evaluating Responses From the Institution and Concluding the ExaminationStep 1. Present to the institution’s management for explanation:Anyovertevidencedisparatetreatmentprohibited basAllinstanof apparentdispaatetreatment.g., overlaps)in eihertheunderwritingloansin loan prices,teconditions.Allinstanof apparentdispaatetreamentintheformdiscriminatosteering,redlning,arketpolicies orpractices.Allinstanheredeniedprohibitedsispplicant affordthelevassistncetheme benefitdiscretionappovedcontrolgroup applicantbetterualifiedwithregardto the reasonfordenil.Allinstanhereprohibitedbasisplicareceived conspcuoslyessfavorabletreatmentby theinstitution thanarytheinstitutionrequired by theinstitution’spolicAnystatisticalsignificantaveragedifferenin either thefrequencypricingdisparitibetween controlgroupandprohibitedbasisgroupcants.Anyevidenceneutralpolicies,proceduresor practices thatappearto havea disparaimpeffectprohibitedbas Explainthatunlesstherearelegitimnondisiminatory explanatiin thecasedisparateimpt,pelling businustification)forthepreliminfindingsof discriminatiidentifiedin thisPart,theagencycould concludethatinstitutionis n violationtheapplicable fairlendinglaws.Step2. Document all responses that have been provided by the institution, not just its“best” or “final” response. Document each discussion with dates, names, titles,questions, responses, any information that supports or undercuts the institution’s credibility, and any other information that bears on the issues raised in the discussion(s)Step 3. Evaluate whether the responses are consistent with previous statements, information obtained from file review, documents, reasonable banking practices, andother sources, and satisfy commonsense standards of logic and credibility.speassththeinstitutiondecsionkerhadificintentionsconsideratioin nd whenshetooktheactiobeingevaluatnot, forple,ncludethatausehaveoticeda legitimate,discriminatoryreasonfora den(suchas anapplicantcreditweaknthatdiscrimiation occurredit is clearthat,at theimthedenial, the institutionctuallybaseddenialthatreason.Perfofollofilereviewsandmparatianales,necssartodetetheaccuracyandcredibilityof theinstitutionexplanatioRefertoEvaluatingResposesEvidenceDispate Treatentin theAppendixforguidanceto cpesrespons Referto theDisproportionatedverseImpact IV. Fair LendingFair Lending Laws and Regulations IV FDIC Consumer Compliance Examination Manual March2021 Violatios portiontheSpecialAnalysesectiontheAppendix forguidanceon evaluatingthenstitutionresonsto apparentdispaateimpact.Step 4. If, after completing Steps 13 above, you conclude that the institution has failed to adequately demonstrate that one or more apparent violations had a legitimate nondiscriminatory basis or were otherwise lawful, prepare a documented list or discussion of violations, or a draft examination report, as prescribed by agency directives.5. Consultagencysupervisorystaregarding hether(a)anyviolationsouldreferrthe DepartmentsJusticeHousingandan Development(b)enforcementactionshoul