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Thursday, June 18, 2015

Regulators: Discretionary Pricing Flags Fair Lending Risk

Regulators see fair lending risk in small-dollar loan products that allow significant discretion in pricing and underwriting. “One of the things we’re seeing at smaller banks that’s worth talking about is small-dollar loan products that are unsecured,” said the Fed’s Belsky. “We’re seeing some situations where a considerable amount of discretion is left up to an underwriter.”

The OCC’s Gardineer agreed and said her agency is seeing “a lot of discretionary pricing issues that lead to some concerns in the fair lending area and the lack of a standardized process for underwriting.” Belsky recommended that banks offering these products would have policies and practices in place to document exceptions. “If you’re doing this, make sure you have a process in place for explaining that there are going to be these exercises in discretion,” he said. “You can manage the risk through clarity about why a decision was made.”

He added that the agencies did not want to discourage banks from offering small-dollar loans. “The products that especially our community banks offer in a lot of these different areas are really great products for their customers,” he said. “We just want to make sure that you’re not going to run afoul of something.”

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