A compliance exception review raises an ECOA Disparate Impact question for an operations lead. What answer should guide the file?
Correct Answer
A) Review any neutral policy with discriminatory effect
Why this is correct: The Equal Credit Opportunity Act (ECOA) prohibits discrimination based on a protected class (e.g., race, national origin). Disparate impact occurs when a neutral policy or practice (like a minimum loan amount) has a disproportionately negative effect on a protected group, even if unintentional. Fair lending requires lenders to review such policies for discriminatory effects and justify them by a legitimate business necessity if challenged. Why the other choices are wrong: The choice "Continue the activity because the borrower appears willing to proceed" is wrong because a borrower's willingness does not override fair lending laws. The choice "Ignore the consumer-protection issue unless the borrower complains" is wrong because ECOA compliance is mandatory, not complaint-driven. The choice "Document the issue later instead of correcting the compliance problem first" is wrong because identifying a potential disparate impact requires immediate review and possible policy adjustment, not just documentation. Exam tip: Disparate impact focuses on the *effect* of a policy, not the *intent*. Any neutral rule that disproportionately harms a protected group must be scrutinized.
Why This Is the Correct Answer
The correct response is "Review any neutral policy with discriminatory effect" because Fair lending requires equal treatment and credit-related standards without prohibited-basis discrimination.
Why the Other Options Are Wrong
Option B: Continue the activity because the borrower appears willing to proceed.
Continue the activity because the borrower appears willing to proceed. is not correct because it does not apply the rule tested by this file scenario.
Option C: Ignore the consumer-protection issue unless the borrower complains.
Ignore the consumer-protection issue unless the borrower complains. is not correct because it does not apply the rule tested by this file scenario.
Option D: Document the issue later instead of correcting the compliance problem first.
Document the issue later instead of correcting the compliance problem first. is not correct because it does not apply the rule tested by this file scenario.
Memory Technique
fair-lending controls: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
Match the file facts to fair-lending controls; do not choose an exception or shortcut that skips the required rule.
Common Mistakes to Avoid
- -Choosing an internal exception instead of the governing rule
- -Treating preliminary or informal facts as a substitute for required documentation
- -Answering from a familiar but unrelated mortgage topic
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