ABA Banking Journal - November/December 2016 - 52
> ABA COMPLIANCE CENTER INBOX
Does This Educational
Level Question on a
Loan Application Leave
Me Open to Disparate
I wanted to gauge your opinion on using educational information
for underwriting. Currently, one of our platforms uses education
information such as degree level, area of study, school, graduation
year, GPA and standardized testing scores to underwrite loans.
The platform has a section on the application in which it asks the applicant,
"What is your highest level of education?" In the drop down options, "high
school diploma or higher" for degree choices is offered. However, I noticed that there is no option
for "no degree" or even for "GED." There could be several reasons as to why an applicant may not
have an educational degree, but still meets all the other requirements for a loan. Does this pose a
fair lending concern as applicants with no degrees are not allowed to apply for these loans?
A: Yes. Unless there is a legitimate business justification
that can be fully supported, what you describe may well
be viewed as having a disparate impact, or even disparate
treatment when using generally recognized creditworthiness
criteria, on a particular group of applicants and would create
a fair lending concern.
For example, if areas with low high school graduation
rates are located primarily in the same areas with large
minority populations, then there would likely be at least the
appearance of disparate impact. It would then fall to the
creditor to "prove" that education level has some significant
bearing on the borrower's ability to repay or otherwise justify
the requirement to ask for the amount of education received.
Notable celebrities without a high school diploma include
Robert De Niro, Billy Joel, Catherine Zeta-Jones, Jay-Z,
Simon Cowell, Richard Branson and others; would your
institution not accept a loan application from these people
simply because of their level of education? Similarly, I am
nearly certain there have been borrowers with multiple
ABA BANKING JOURNAL | NOVEMBER/DECEMBER 2016
degrees that have failed to repay loans. This is not to
say that there may not be a legitimate reason for asking
the question; however, the creditor will need to defend
its underwriting practices to "prove" that education
level provides some amount of repayment predictability.
(Response provided July 2016)
Our vendor provides the bank with a
tri-merged report that includes information
about all three credit bureaus (Equifax,
TransUnion, Experian). We list all three
bureaus on the adverse action notice, but our external
audit firm says the bank should only list the company
that provided the tri-merged report. Is this correct?
A: Yes, the audit firm is correct. Section 615(a)(1) of the Fair
Credit Reporting Act requires users of consumer reports to
provide an adverse action notice if they take any "adverse
action" based in whole or in part on any information
contained in a consumer report. Under Section 615(a)(3),
the notice must provide the name, address and telephone
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