A lender's automated underwriting system consistently approves fewer applications from a particular zip code that has a high concentration of Hispanic borrowers, even when controlling for credit scores and income. The lender claims the system is objective and race-neutral. Under fair lending law, this situation would MOST likely be considered:
Correct Answer
B) A potential disparate impact violation requiring further investigation
Under the Fair Housing Act and ECOA, disparate impact occurs when a facially neutral policy has a disproportionate adverse effect on a protected class. Even if the automated system doesn't explicitly consider race, if it produces discriminatory results, it may violate fair lending laws and requires investigation regardless of the lender's intent.
Why This Is the Correct Answer
Under the Fair Housing Act and ECOA, disparate impact occurs when a facially neutral policy has a disproportionate adverse effect on a protected class. Even if the automated system doesn't explicitly consider race, if it produces discriminatory results, it may violate fair lending laws and requires investigation regardless of the lender's intent.
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A borrower submits an application with income documentation that shows round numbers (exactly $5,000 per month) for 24 consecutive months with no variation. The borrower is self-employed and claims this represents consistent contract work. What should trigger SAR consideration?