Increased Fair Lending Enforcement Activity

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Over the course of the past several years, fair lending enforcement has emerged beyond Department of Justice investigations concerning discriminatory treatment of minorities with respect to real estate secured loans. Today, this enforcement activity focuses on all aspects of loan transactions between lenders and consumers. These enforcement actions have involved real estate and personal loans, as well as credit card sales, credit insurance products and marketing practices. Current investigations suggest that there will be future enforcement actions involving auto and small business lending.

There are many reasons for this explosion in fair lending enforcement. These include the focus on a broader range of lending activities, the use of many additional statutes which are the responsibility of different enforcement authorities, the increased public focus on fair lending, especially predatory lending issues, and the exportation of fair lending enforcement expertise from agency to agency. We recommend consideration of proactive business and marketing strategies designed to diminish fair lending risk, including:

Clear and Conspicuous Disclosure;

"Know Thy Business Partner;"

Price Caps;

Reducing Negotiated Pricing Discretion in Favor of Risk-Based Pricing;

Limiting Refinance Fees;

Minimum Debt-to-Income Ratios;

Prepayment Penalty Limitations and Options; and

Advertising Accuracy and Clarity.

This article was co-authored with Andrew L. Sandler and Molly A. Meegan and appeared in the Review of Banking and Financial Services, Volume 18, No. 13, and is reprinted with permission.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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