Fair Lending is fair, equitable and non-discriminatory access to credit by consumers. The Federal government, through the Fair Housing Act and the Equal Credit Opportunity Act, can investigate consumer claims of unfair and discriminatory lending practices. These laws ensure that people have equal access to credit and can only be turned down because of their creditworthiness (income, credit score and history, debt-to-income ratio), and not because of their race, color, religion, national origin, gender, familial status, disability, marital status, age, having income from a public assistance source, and/or having previously exercised a right under the Consumer Credit Protection Act.
What kinds of lending behaviors are prohibited?
When applying for a loan, refinancing a mortgage or seeking a home equity loan, as well as any other type of home loan, no lender can take the following actions based upon protected class membership:
- Refuse to make a mortgage loan;
- Refuse to provide information or services or provide different information or services regarding any aspect of the lending process, including credit availability, application procedures or lending standards;
- Impose different terms or conditions on a loan, such as points, interest of fee, duration or types of loans;
- Discriminate in appraising property or use different standards to appraise;
- Discourage or selectively encourage applicants with respect to inquiries about or applications for credit;
- Refuse to purchase or setting different terms or conditions in purchasing a loan;
- Treat a borrower differently in servicing a loan or in methods to deal with a borrower’s default.
A lender may not express, orally or in writing, a preference based on prohibited factors or indicate that it will treat applicants differently on a prohibited basis.
A lender may not discriminate on a prohibited basis because of the characteristics of:
- A person associated with a credit applicant (for example: a co-applicant, spouse, business partner, or live-in aide); or
- The present or prospective occupants of the area where property to be financed is located.
Finally, the Fair Housing Act requires lenders to make reasonable accommodation for a person with disabilities when such accommodations are necessary to afford such persons an equal opportunity to apply for credit.
Possible Signs of Lending Discrimination
Property Standards: Maximum age or minimum value of the home.
“We don’t lend for properties over 50 years old or under $80,000 in value.”
Minimum Loan Amounts: “We don’t make loans for less than $60,000.”
Subjective Lending Criteria: Does the lender ask vague questions about applicants’ character or insistence upon excellent credit?
Different Terms for Loans: Higher fees for smaller loans; different down payments or higher interest rates for homes in Hispanic or African-American neighborhoods.
Appraisal Practices: If the bank uses appraisers that make downward adjustments in value if the neighborhood or home is over a certain age.