The courts have recognized three methods of proof of lending discrimination under the ECOA and the FHAct: Overt evidence of disparate treatment; • Comparative evidence of disparate treatment; and • Evidence of disparate impact.
In Mortgage Lending:
It is illegal discrimination to take any of the following actions based on race, color, religion, sex (including gender identity and sexual orientation), disability, familial status, or national origin: Refuse to make a mortgage loan or provide other financial assistance for a dwelling.
Some examples of violations are the improper disclosure of the amount financed, finance charge, payment schedule, total of payments, annual percentage rate, and security interest disclosures.
The federal fair lending laws—the Equal Credit Opportunity Act and the Fair Housing Act—prohibit discrimination in credit transactions, including transactions related to residential real estate.
For example, if a lender refuses to make a mortgage loan because of your race or ethnicity, or if a lender charges excessive fees to refinance your current mortgage loan based on your race or ethnicity, the lender is in violation of the federal Fair Housing Act.
If discrimination is found, it may violate multiple regulations and require simultaneous examination by different enforcement agencies. This could result in a financial institution being fined for the same violation pursuant to different regulations.
The more significant TILA violation for borrowers, especially those facing foreclosure, is the right of rescission. "Rescinding" the loan means the borrower can void the loan as if it was never made. The right of rescission can be a powerful weapon against foreclosure.
Lenders have to provide borrowers a Truth in Lending disclosure statement. It has handy information like the loan amount, the annual percentage rate (APR), finance charges, late fees, prepayment penalties, payment schedule and the total amount you'll pay.
The Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB) enforce the Truth in Lending Act. To file a complaint against a lender for TILA violations, contact the CFPB. To submit a complaint, be clear about the issues and include any supporting documentation.
Overt discrimination: Refusing to lend or to apply normal guidelines to creditworthy borrowers, simply because they exhibit a protected characteristic. Disparate treatment: Refusing to offer the same options or treatment to borrowers because of a protected characteristic.
A fair lending risk assessment works by evaluating the different types of risks in your institution. In the most general sense, there are three important elements that a fair lending risk assessment will consider: inherent risk, controls, and residual risk.
Steering is simply a loan applicant being guided into a particular loan product that may have less favorable terms or conditions than an alternative product.
Examples of Lending Discrimination
Providing a different customer service experience to mortgage applicants depending on their race, color, religion, sex (including gender identity and sexual orientation), familial status, national origin or disability.
It could be a loan officer prioritizing a loan package for a borrower with a surname of Smith over a borrower with a surname of Gonzales. It could be a debt collector using predatory tactics against a female customer while following the rules on collection calls with men because women “are easier to scare into paying”.
Discouraged from applying for credit. Encouraged or told to apply for a type of loan that has less favorable terms (for example, a higher interest rate) Hearing the lender making negative comments about race, national origin, age, sex (including sexual orientation or gender identity), or other protected statuses.
Criminal penalties – Willful and knowing violations of TILA permit imposition of a fine of $5,000, imprisonment for up to one year, or both.
What Is Not Covered Under TILA? THE TILA DOES NOT COVER: Ì Student loans Ì Loans over $25,000 made for purposes other than housing Ì Business loans (The TILA only protects consumer loans and credit.) Purchasing a home, vehicle or other assets with credit and loans can greatly impact your financial security.
The following are some of the characteristics of predatory lending. High interest rate or rate is not disclosed at all. Credit insurance is required with the whole premium paid in advance. Credit insurance will repay the debt if you die or become disabled.
Timing Requirements – The “3/7/3 Rule”
The initial Truth in Lending Statement must be delivered to the consumer within 3 business days of the receipt of the loan application by the lender. The TILA statement is presumed to be delivered to the consumer 3 business days after it is mailed.
A common violation that's been plaguing lenders has to do with the issue date on the Loan Estimate and Closing Disclosure. Many lenders are producing Loan Estimates and Closing Disclosure forms with the same issue date, and this is a clear violation of TRID's new required timelines.
Imposing unfair terms or conditions on a loan (such as lower loan amount or higher interest rates) based on personal characteristics protected under the ECOA. Asking detailed personal information regarding marital status, such as whether you are widowed or divorced.
Filing a Complaint
HUD investigates your complaints at no cost to you. If you believe you have experienced lending discrimination, visit our housing discrimination complaint website to file a complaint.
The Equal Credit Opportunity Act (ECOA) prohibits discrimination based on nine prohibited basis factors: race, color, religion, national origin, sex, age, marital status, receipt of public assistance income, and exercise of consumer rights.
The agreement dictates new terms and actions to be met. If not navigated well, it can result in financial penalties, a recall of the loan, or even legal action.