A lender can defend against a disparate impact claim by proving that the challenged practice:
Correct Answer
B) Has a manifest relationship to the creditworthiness of the applicant and serves a legitimate business need
Under disparate impact theory, a lender can defend a practice that has discriminatory effects by proving it serves a legitimate business need that cannot reasonably be achieved through less discriminatory means. The practice must have a manifest relationship to creditworthiness or other legitimate underwriting factors, as established in fair lending guidance and case law.
Why This Is the Correct Answer
Under disparate impact theory, a lender can defend a practice that has discriminatory effects by proving it serves a legitimate business need that cannot reasonably be achieved through less discriminatory means. The practice must have a manifest relationship to creditworthiness or other legitimate underwriting factors, as established in fair lending guidance and case law.
More Ethics & Fraud Questions
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A borrower admits to an MLO that they inflated their income on the initial application but wants to provide correct information now. What should the MLO do?
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During a fair lending examination, regulators discover that a bank's loan officers receive higher commissions for loans with interest rates above 6%, and statistical analysis shows borrowers in predominantly minority neighborhoods receive these higher-rate loans more frequently. This compensation structure would MOST likely be viewed as: