A lender's policy automatically requires additional verification for any applicant whose primary income comes from sources common in certain ethnic communities (such as cash-based small businesses prevalent among recent immigrants). While the policy doesn't mention ethnicity, it results in 45% longer processing times for these applicants. This scenario represents:
Correct Answer
C) Disparate impact because it disproportionately affects applicants based on national origin
This represents disparate impact under the Fair Housing Act and ECOA. Even though the policy appears facially neutral and focuses on income verification rather than ethnicity, it has a disproportionate adverse effect on applicants from certain ethnic backgrounds. The lender would need to demonstrate that the additional verification requirements serve a legitimate business necessity and that no less discriminatory alternative exists.
Why This Is the Correct Answer
This represents disparate impact under the Fair Housing Act and ECOA. Even though the policy appears facially neutral and focuses on income verification rather than ethnicity, it has a disproportionate adverse effect on applicants from certain ethnic backgrounds. The lender would need to demonstrate that the additional verification requirements serve a legitimate business necessity and that no less discriminatory alternative exists.
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Previous Question
During a fair lending examination, regulators find that a bank's branch in a predominantly Asian neighborhood has different loan products available than branches in other areas, with generally less favorable terms. The bank claims this reflects local market conditions and customer preferences. This practice would MOST likely be:
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A borrower refinances from a 30-year loan with 22 years remaining to a new 30-year loan, extending their payment period and increasing total interest paid by $45,000, while receiving only $8,000 in cash and paying $5,500 in fees. The MLO emphasized 'lower monthly payments' without discussing the extended term impact. This scenario demonstrates: