Fair lending.

Fair lending is a banking issue that's been in the news quite a bit lately. Recent legal and regulatory pronouncements have spotlighted the role that marketing plays in a bank's successful efforts to comply with both the letter and the spirit of fair lending laws. Here is a brief update on fair lending and how it both affects and is affected by marketing. As with any legislative or compliance issue, you should always check with your bank's counsel and compliance department to be sure you have all the facts.

Background

Two laws principally govern a bank's fair lending activities: The Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA). Both specifically define several "prohibited bases" which creditors are forbidden to use as the criteria upon which to make or deny a loan. The FHA applies only to residential real estate transactions, while the ECOA applies to all types of loans. (Prohibited bases of both laws include: race, color, national origin, religion, sex, marital status, age, receipt of public assistance income, handicap, family status, and exercise of rights under the Consumer Credit Protection Act.)

Although the definition of discrimination in the acts has not changed, there is evidence to suggest that the regulators' interpretation of what constitutes discrimination has broadened dramatically. The settlements between the Department of Justice (DOJ) and various financial institutions have signaled that the DOJ is interpreting what constitutes unfair lending very broadly. In essence, the DOJ is enforcing more than the prohibition against discriminating; it is requiring financial institutions to analyze their overt actions as well as the impact of behavior and policies upon their customers, both current and future.

In March 1994, an interagency task force, which …