MADISON, Wis. (12/5/11)--Regulatory compliance requires constant vigilance, and Equal Credit Opportunity Act (ECOA) laws provide a perfect example, Bill Klewin, CUNA Mutual Group's director of regulatory compliance, advises in an online Credit Union Magazine article .
ECOA prohibits financial institutions from discriminating against loan applicants based on race, color, religion, national origin, gender, marital status, age, income derived from any public assistance program, or their exercise of any right under the Consumer Credit Protection Act.
Klewin provides the example of a lawsuit filed by the U. S. Justice Department against Nixon (Texas) State Bank, which gave its loan officers broad discretion in making loan decisions.
"The bank did not require a written application or credit report, use a uniform pricing system such as a matrix or rate sheet, or document the reasons for loan denials," Klewin wrote.
The Justice Department civil suit alleged a pattern of discrimination against Hispanic loan applicants that required them to pay consistently higher rates than other borrowers.
Nixon State Bank eventually settled the suit with the Justice Department. Although the bank doesn't acknowledge any wrongdoing, it agreed to train its loan officers on fair lending practices, revise its loan-pricing policies, create a fund to compensate victims of discrimination and submit regular compliance reports to the department for the next four years.
"Credit unions aren't immune to these kinds of action," Klewin wrote. "It's imperative that credit union executives review their processes, compensation plans, pricing matrices, loan officer pricing-discretion guidelines, and any other process that may result in a review and a referral to the Department of Justice."