DOJ Alleges Community Bank's Unsecured Loan Pricing Violated ECOA

FDIC Fair Lending ECOA Consumer Lending DOJ Enforcement

Last month, the DOJ announced a settlement with a three-branch, $78 million Texas bank to resolve allegations that the bank engaged in a pattern or practice of discrimination on the basis of national origin in the pricing of unsecured consumer loans. Based on its own investigation and an examination conducted by the FDIC, the DOJ alleged that the bank violated ECOA by allowing employees “broad subjective discretion” in setting interest rates for unsecured loans, which allegedly resulted in Hispanic borrowers being charged rates that, after accounting for relevant loan and borrower credit factors, were on average 100-228 basis points higher than rates charged to similarly situated non-Hispanic borrowers. The DOJ claimed that “[a]lthough information as to each applicant's national origin was not solicited or noted in loan applications, such information was known to the Bank's loan officers, who personally handled each loan transaction.”

The consent order requires the bank to establish a $159,000 fund to compensate borrowers who may have suffered harm as a result of the alleged ECOA violations. Prior to the settlement, the bank implemented uniform pricing policies that substantially reduced loan officer discretion to vary a loan’s interest rate. The agreement requires the bank to continue implementing the uniform pricing policy and to (i) create a compliance monitoring program, (ii) provide borrower notices of non-discrimination, (iii) conduct employee training, and (iv) establish a complaint resolution program to address consumer complaints alleging discrimination regarding loans originated by the bank. The requirements apply not only to unsecured consumer loans, but also to mortgage loans, automobile financing, and home improvement loans.

The action is similar to another fair lending matter referred by the FDIC and settled by the DOJ earlier in 2013, which also involved a Texas community bank that allegedly discriminated on the basis of national origin in its pricing of unsecured loans.