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Home > Regulation & Examinations > Bank Examinations > Side by Side: A Guide to Fair Lending




Side by Side: A Guide to Fair Lending

FIL-36-96 Fair Lending Guide
Regional Field Offices

For ease of printing a PDF version of Side By Side: A Guide to Fair Lending is available (159 Kb PDF File - PDF Help).

FOREWORD

The Federal Deposit Insurance Corporation recognizes the efforts undertaken by many financial institutions to improve fair lending performance. Every day our examiners and community affairs staff work with compliance officers, loan officers and others who want to ensure equal opportunity in lending. Although few lenders believe that intentional discrimination is prevalent, we know that they all share a genuine concern about the other more subtle or inadvertent forms of discrimination. People treat other people differently and differences in treatment can lead to illegal discrimination. We are also aware of the questions asked by lenders when they begin to address this concern. Does it happen here? How do we know? What can we do?

In this guide, which we first distributed in August of 1994, we provide alternative means that an institution may use to discover uneven customer service or inconsistent lending practices that may be discriminatory. This guide is not about finding discrimination, that is, violations of the fair lending laws. It's about tools that a lender can use to compare the treatment of loan applicants, identify differences and correct potential problems. Financial institutions may decide to use other methods or take a different approach to those we outline here. The process is not mandatory nor are the tools that are discussed in this guide all inclusive. A self-analysis program of detecting and preventing potentially discriminatory practices should not be undertaken to placate regulators or others. Instead, it should be used to help assure equal access to loans. We encourage institutions to employ whatever methods may work best for them to detect and prevent lending discrimination.

The Federal Deposit Insurance Corporation wants to help financial institutions seek ways to know whether discrimination occurs. We have distributed over 35,000 copies of this guide to financial institutions -- compliance officers and senior executives --, to community organizations, and to others. The guide was originally developed to provide a place to begin, take some of the mystery out of the process, and help answer some of the more basic questions. Based on the demand for the guide, we believe the procedures and processes described herein continue to be appropriate tools for financial institutions.

Carmen Sullivan signature image

Carmen J. Sullivan
Director
Division of Compliance and Consumer Affairs

1 INTRODUCTION

3 PART ONE: PRE-APPLICATION TESTING

4 WHAT IS PRE-APPLICATION TESTING?

Paired Testing
Multi-layered Testing
Complaint Testing
Self-Testing or Contract Testing

7 PLANNING THE TEST

Selecting the Testers
Training the Testers
Providing Tester Identities

10 CONDUCTING THE TEST

Maintaining Confidentiality & Objectivity
Following Test Instructions
Interviewing Techniques
Scheduling the Test
Documenting the Test

13 EVALUATING THE TEST

Debriefing the Testers
Completing Report Forms
Analyzing the Results
Addressing Lender Concerns
Correcting Discriminatory Practices

17 PART TWO: A COMPARATIVE ANALYSIS OF LOAN FILES

18 PLANNING THE ANALYSIS

Selecting the Target Group
Selecting the Control Group
Creating the Sample
Determining the Sample Size

20 COMPARING THE FILES


Creating a Comparison Spreadsheet
Identifying Exceptions to Policy
or Standard Practice

Identifying Unequal Treatment

23 EVALUATING THE RESULTS

Identifying Technical and
Substantive Violations

Identifying Types of Discrimination
Identifying a Pattern or Practice
Correcting Discriminatory Practices

26 PART THREE: OTHER GUIDES TO FAIR LENDING

How to Evaluate and Improve
Fair Lending Performance

34 PART FOUR: ENFORCEMENT ACTIONS AND REMEDIAL MEASURES

Excerpts from the Interagency Policy
Statement on Discrimination in Lending

39 CONCLUSION

A Final Word

41 APPENDIX A: TESTER IDENTITY

45 APPENDIX B: LENDING GLOSSARY FOR TESTERS

49 APPENDIX C: TESTING REPORT FORM

51 APPENDIX D: MORTGAGE LENDING DECISION ANALYSIS WORKSHEET

55 ACKNOWLEDGEMENT AND SELECTED REFERENCES

 

Last Updated 01/25/2006 dcainternet@fdic.gov

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