Cautionary Tale: Community Bank Fined $700,000 for ECOA Violations
Last month, the Department of Justice entered into a consent order with a $338 million community bank in Texas for alleged violations of the Equal Credit Opportunity Act, highlighting the continued regulatory focus on fair lending and the importance of uniform policies and training in this area.
The DOJ’s complaint alleged that the bank had charged higher rates on unsecured consumer loans to Hispanic borrowers than similarly situated non-Hispanic borrowers. The complaint stated that the bank provided only general guidance to its loan officers regarding the pricing of unsecured consumer loans and stated that the Bank’s Credit Policy and Procedures Guide provided only a general, non-exclusive list of factors for loan officers to consider when setting interest rates, such as money market conditions, local economic conditions, competitive lending practices, total customer relationship and the loan terms. The complaint went on to note that “The Credit Policy and Procedures Guide … was a ‘broad guide’ for loan officers, and that ‘ultimate responsibility’ for credit decisions rested with individual officers.”
The consent order requires the bank to establish a $700,000 fund to compensate borrowers who may have been harmed by the alleged ECOA violations. It also requires that the bank establish uniform policies that include standards for collecting applications, financial documents, and credit reports for all borrowers, to create uniform pricing matrices for loans covered by the order, to institute compliance monitoring programs and to conduct employee training. Although the violations stemmed from practices involving only unsecured loans, the order also applies to all residential single-family real estate construction loans, automobile loans, home improvement loans and mortgage loans.