Disparate treatment may more likely occur in the treatment of applicants who are neither clearly well-qualified nor clearly unqualified. Discrimination may more readily affect applicants in this middle group for two reasons. First, because the applications are all "close cases," there is more room and need for lender discretion.
What is disparate treatment in lending?
Disparate treatment is a risk where there are inconsistencies in a lender’s lending practices. Disparate impact is application of an otherwise neutral policy that may be adverse to one group, although it is applied consistently. Although the most common is disparate treatment, the other two are also legitimate risks and should not be ignored.
When does a lender's policy or practice have a disparate impact?
When an Agency finds that a lender's policy or practice has a disparate impact, the next step is to seek to determine whether the policy or practice is justified by "business necessity." The justification must be manifest and may not be hypothetical or speculative.
What is a disparate impact of minimum loan amounts?
In addition to a minimum loan amount, disparate impact can occur from other policies. For example, I once encountered a financial institution that had a minimum income requirement of around $40,000 for an individual credit card applicant.
Can a lender's explanation for treating some applicants differently prove discrimination?
If an agency determines that a lender's explanation for treating some applicants differently is a pretext for discrimination, the agency may find that the lender discriminated, notwithstanding the lender's explanation.
What does disparate treatment mean in lending?
Disparate treatment occurs when a lender treats applicants differently. This may occur based on our unconscious biases about people or situations, or done as a pattern of practice. For instance, you may get two emails from two separate prospects and decide to contact one of them that night versus both of them.
What is an example of disparate treatment in lending?
Illegal disparate treatment occurs when a lender bases its lending decision on one or more of the prohibited discriminatory factors covered by the fair lending laws, for example, if a lender offers a credit card with a limit of $750 for applicants age 21 through 30 and $1,500 for applicants over age 30.
What does disparate treatment mean in real estate?
Disparate impact is usually unintentional in nature; disparate treatment is the term for outright and willful discrimination. Even though it might be accidental on the part of the offender, it's nonetheless considered a violation of the Civil Rights Act and is therefore subject to legal intervention.
What are the 3 types of lending discrimination?
Three lending discrimination types→ Overt.→ Disparate impact.→ Disparate treatment.
What is disparate impact or effect?
Disparate impact occurs when policies, practices, rules or other systems that appear to be neutral result in a disproportionate impact on a protected group.
What is disparate treatment quizlet?
Disparate Treatment. A form of intentional discrimination in which an employee is hired, fired, denied a promotion, or the like, based on membership in a protected class (as listed in the CRA (Civil Rights Act), such as race, color, religion, sex, or national origin). This is a form of intentional discrimination.
What is disparate impact treatment?
Class-Action Lawsuits For an applicant to say they were a victim of intentional discrimination – disparate treatment – he or she has to show they were treated unfairly based on race, color, religion, sex or national origin. If the applicant can't show there was intent, it would be disparate impact.
What is disparate property?
Disparate impact refers to a policy or practice which is neutral on its face, but which disproportionately affects a group of people defined by one of the fair housing laws' protected characteristics, without a legitimate business necessity for the practice, or where there is a less-discriminatory alternative.
What is comparative disparate treatment?
Comparative evidence of disparate treatment occurs when a protected class applicant is treated less favorably than other applicants and is typically discovered through a comparative analysis during a fair lending examination.
What is the difference between overt discrimination and disparate treatment?
Overt Discrimination, which occurs when a consumer is openly and/or actively discriminated against on a prohibited basis factor. Disparate Treatment, which occurs when members of a prohibited basis group are treated differently than others.
What are unfair lending practices?
The term "unfair lending practices" encompasses many different types of activities when it comes to loan origination. This term is frequently used to describe any fraudulent, abusive, discriminatory, or deceptive lending practice.
What is disparate treatment?
Disparate treatment is a claim of discrimination in which an individual complains to have been treated differently than other people in a similar situation, but who don’t share the individual’s protected class. Disparate treatment is a common element of proving employment discrimination, but it occurs in other areas of life as well, ...
What is disparate discrimination?
The EEO defines this type of discrimination as: “Inconsistent application of rules and policies to one group of people over another.” In 1977, the U.S. Supreme Court defined disparate treatment as discriminatory acts in which “ [t]he employer simply treats some people less favorably than others because of their race, color, religion, sex, or national origin.” Proving disparate treatment often involves proving that the employer’s decision was motivated by the employee’s protected trait.
What is after acquired evidence?
After-acquired evidence is evidence of an employee’s wrongdoing or misconduct, gathered by the employer only after the employee’s discharge and claim of discrimination. Over the years, there has been some debate as to whether after-acquired evidence could prevent a plaintiff from winning his discrimination, or disparate treatment, lawsuit. In general, the courts have held that after-acquired evidence of misconduct unrelated to the grounds for termination can only prevent a plaintiff from being awarded reinstatement, injunctive relief, and front pay, if accepted at all.
How can a person be treated differently?
There are two ways in which a person may be treated differently, or “disparately,” for purposes of discrimination actions: (1) disparate treatment, and (2) disparate impact. The difference between the two has to do with intent and effect.
What does "discriminatory treatment" mean?
Noun. Treatment of an individual that is less favorable than treatment of others, for a discriminatory purpose. Discriminatory treatment of an employee for reasons of his inclusion in a protected class.
Why are anti-discrimination laws unlawful?
Federal anti-discrimination laws make it unlawful to discriminate against anyone on the basis of certain characteristics. Because these characteristics are protected by law, people having these traits or qualities are considered to be in a protected class.
Did Marge Falsify her resume?
In this example of disparate treatment, Marge did not falsify her resume, but misstated some of the dates. It is unlikely that the school district’s introduction of evidence acquired after Marge’s termination on discriminatory grounds would be beneficial in its defense.
What is a disparate impact?
Disparate impact is when a lender applies a racially or otherwise neutral policy or practice equally to all credit applicants, but the policy or practice disproportionately excludes or burdens certain persons on a prohibited basis. In other words, a specific policy of your financial institution can not inadvertently discriminate.
Can a specific policy of your financial institution inadvertently discriminate?
In other words, a specific policy of your financial institution can not inadvertently discriminate. The interagency examination procedures on fair lending explain disparate impact this way: “When a lender applies a racially or otherwise neutral policy or practice equally to all credit applicants, but the policy or practice disproportionately ...
When the scoping process or any other source identifies overt evidence of disparate treatment, should the examiner
Where the scoping process or any other source identifies overt evidence of disparate treatment, the examiner should assess the nature of the policy or statement and the extent of its impact on affected applicants by conducting the following analysis.
When a lender applies a racially or otherwise neutral policy or practice equally to all credit applicants, but
When a lender applies a racially or otherwise neutral policy or practice equally to all credit applicants, but the policy or practice disproportionately excludes or burdens certain persons on a prohibited basis, the policy or practice is described as having a “disparate impact.”
What is disparate impact?
Disparate impact has been described briefly in the Introduction. Whenever an examiner believes that a particular policy or practice of an institution appears to have a disparate impact on a prohibited basis, the examiner should refer to Part A of the Special Analyses section of the Appendix or consult with agency supervisory staff for further guidance.
What is redlining in mortgage?
Overview: For purposes of this analysis, traditional “redlining” is a form of illegal disparate treatment in which an institution provides unequal access to credit, or unequal terms of credit, because of the race, color, national origin, or other prohibited characteristic(s) of the residents of the area in which the credit seeker resides or will reside or in which the residential property to be mortgaged is located. Redlining may also include “reverse redlining,” the practice of targeting certain borrowers or areas with less advantageous products or services based on prohibited characteristics.
What is the task of selecting an appropriate expanded sample of prohibited basis and control group applications for commercial loans?
Generally, the task of selecting an appropriate expanded sample of prohibited basis and control group applications for commercial loans will require examiner judgment. The examiner should select a sample that is large enough to be able to draw a reasonable conclusion.
What is the analysis of pricing and other terms and conditions?
Depending on the intensity of the examination and the size of the borrower population to be reviewed , the analysis of decisions on pricing and other terms and conditions may involve a comparative file review, statistical analysis, a combination of the two, or other special ized technique used by an agency. Each examination process assesses an institution’s credit-decision standards and whether decisions on pricing and other terms and conditions are applied to borrowers without regard to a prohibited basis.
What is risk factor review?
Where an institution does a substantial amount of lending in the commercial lending market, most notably small business lending and the product has not recently been examined or the underwriting standards have changed since the last examination of the product, the examiner should consider conducting a risk factor review similar to that performed for residential lending products, as feasible, given the limited information available. Such an analysis should generally be limited to determining risk potential based on risk factors
How does disparate treatment affect a business?
Employers who enable or allow disparate treatment and other discriminatory practices at their company can face legal, financial and cultural consequences. Employees can take action when a company violates their rights, resulting in possible fines and legal repercussions.
Why is it important to recognize disparate treatment?
Disparate treatment has a direct impact on your employees and the work environment as a whole, so it’s important to know how to recognize it and prevent issues within your organization.
What is the term for an employer who treats an employee unfairly compared to other employees based on their personal characteristics
Disparate treatment , also known as adverse treatment , occurs when an employer treats an employee unfairly compared to other employees based on their personal characteristics, especially in regard to protected classes.
Why are employees treated differently than others?
Employees being treated differently than others in the workplace because of their differences are victims of disparate treatment in their employment conditions. For example, a female employee being passed over for a promotion several times in favor of male employees with less experience is disparate treatment.
What is wrongful termination?
When a business fires an employee based on discriminatory reasons, this is disparate treatment. Employees who make a wrongful termination claim often have to prove that they were meeting workplace expectations when they were fired or that their employer had unfair standards for them compared to others.
What is disparate impact?
Disparate impact is similar to disparate treatment but specifically addresses situations where someone feels that they have been unintentionally discriminated against. If a company has a policy that makes it harder for certain groups to succeed, this can cause disparate impact.
What is the purpose of clear policies in the employee handbook?
Having clear policies in place allows you to have a benchmark that you can use for comparing staff behaviors.
Who must continue to ensure that their lending practices are consistent with safe and sound operating policies?
Lenders must continue to ensure that their lending practices are consistent with safe and sound operating policies. This policy statement applies to all lenders , including mortgage brokers, issuers of credit cards, and any other person who extends credit of any type.
Which statutes prohibit discrimination in lending?
This policy statement, however, is based upon and addresses only the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. 1691 et seq., and the Fair Housing Act ("FH Act"), 42 U.S.C. 3601 et seq., the two statutes that specifically prohibit discrimination in lending. This policy statement has been approved and adopted by the signatory Agencies listed ...
Why use HMDA data?
Therefore, regulatory and enforcement agencies may use HMDA data, along with other factors, to identify institutions whose lending practices warrant more scrutiny. Furthermore, HMDA data can be relevant, in conjunction with other data and information, to the determination whether a lender has discriminated.
Why is HMDA important?
HMDA data are useful, though, for identifying lenders whose practices may warrant investigation for compliance with fair lending laws. HMDA data may also be relevant, in conjunction with other evidence, to the determination whether a lender has discriminated. Evidence of Disparate Impact.
Why is the lending policy statement issued?
The policy statement is being issued for several reasons, including: • To provide guidance about what the agencies consider in determining if lending discrimination exists; and. • To provide a foundation for future intepretations and rulemakings by the Agencies. A number of federal statutes seek to promote fair lending.
What is overt evidence of discrimination?
Overt Evidence of Discrimination. There is overt evidence of discrimination when a lender openly discriminates on a prohibited basis. Example: A lender offered a credit card with a limit of up to $750 for applicants aged 21--30 and $1500 for applicants over 30.
What is the Federal Reserve Board's regulation B?
Regulation B describes lending acts and practices that are specifically prohibited, permitted, or required. Official interpretations of the regulation are found in Supplement I to 12 CFR Part 202.
What is disparate treatment?
Disparate treatment is differences or inconsistencies in treatment based on prohibited factors that are not fully explained by relevant, non-discriminatory factors. Disparate treatment applies ...
What is overt discrimination?
Overt Discrimination. Overt discrimination is the easiest to understand and is what most people think about when they hear the word “discrimination. ”. Simply, it is obviously or blatantly providing or offering more favorable terms to one group versus another based solely on a prohibited factor, such as gender.
What is fair lending?
Fair lending laws and regulations are broad and cover every phase of the lending transaction. This includes the initial inquiry and loan application process through the servicing and ultimate settlement of the debt. Accordingly, there are nearly an infinite range of possible pressure points that a lender may need to evaluate in order to assess fair lending risk.
Is overt discrimination intentional?
However, overt does not necessarily mean deliberate as overt discrimination can be unintentional. For example, an institution may offer some type of loan product that has an age requirement that is inconsistent with the actual legal requirements resulting in discrimination based on age.
How long does it take to get a copy of a home improvement loan?
Within 30 days of an applicants request for a copy. A. Promptly upon completion or at least 3 days before closing, whichever is earlier. An institution's loan policy states that home improvement loans under $20,000 will be charged a higher loan fee than loans over $20,000.
How long does it take for a married couple to get a credit decision?
Married joint applicants receive a credit decision within 24 hours after submitting a completed application. This is an example of what type of discrimination?
Do you have to cosign a loan at 25?
An institution's loan policy requires cosigners for all borrowers under age 25, regardless of credit history or experience. Borrowers over age 25 only have to provide a cosigner if their credit request needs additional support.
Definition of Disparate Treatment
What Is Disparate Treatment
- Disparate treatment is a claim of discrimination in which an individual complains to have been treated differently than other people in a similar situation, but who don’t share the individual’s protected class. Disparate treatment is a common element of proving employment discrimination, but it occurs in other areas of life as well, such as loan ap...
Disparate Treatment vs. Disparate Impact
- There are two ways in which a person may be treated differently, or “disparately,” for purposes of discrimination actions: (1) disparate treatment, and (2) disparate impact. The difference between the two has to do with intent and effect.
Proving A Disparate Treatment Complaint
- Proving a claim of disparate treatment does not require proof beyond doubt. Rather, it requires the individual complaining of discrimination (the “plaintiff”) to make a prima facie case, which means he has to provide sufficient evidence to the court that there is at least the appearanceof discrimination. The employer must then defend its actions, providing evidence of a reasonable, …
Disparate Treatment Example in Firefighter Promotions
- In 2003, the New Haven Connecticut Fire Department needed to fill 15 management positions, having 7 openings for Captain, and 8 openings for Lieutenant. Like most civil service organizations, hiring is done by a “Rule of Three,” in which a civil service examination is given, after which the department chooses from the three highest-scoring applicants on the list. The Ci…
Related Legal Terms and Issues
- Civil Lawsuit– A lawsuit brought about in court when one person claims to have suffered a loss due to the actions of another person.
- Defendant– A party against whom a lawsuit has been filed in civil court, or who has been accused of, or charged with, a crime or offense.
- Discrimination– The practice of unfairly treating different categories of people, especially on …
- Civil Lawsuit– A lawsuit brought about in court when one person claims to have suffered a loss due to the actions of another person.
- Defendant– A party against whom a lawsuit has been filed in civil court, or who has been accused of, or charged with, a crime or offense.
- Discrimination– The practice of unfairly treating different categories of people, especially on the grounds of ethnicity, national origin, gender, race, religion, and sexual orientation.
- Front Pay– Employment compensation for the period between judgement ordering reinstatement, and actual reinstatement. Front pay is, like back pay, an award of lost earnings.
Understanding Comparative Evidence of Disparate Treatment
- Comparative evidence of disparate treatment occurs through an analysis of loan files where the result is that a protected class received less favorable terms than a control group. When an auditor or examiner is looking for this type of discrimination, they will will conduct a test called a “comparative analysis.” In simple terms, a comparative analysis is when you compare the “best” …
The Problem with Lender Discretion
- Most often, comparative evidence of disparate treatment is not intentional discrimination, but is the unintentional result of lender discretion. Discretion occurs when a bank allows a lender to use their own personal judgement during the underwriting process to determine whether or not to make a loan to an applicant. In my opinion, discretion in un...
Discretion in Large and Small Institutions
- Large banks have mitigated their risk of comparative evidence of disparate treatment by eliminating lender discretion. As large institutions have hundreds or thousands of lenders making credit decisions, the only way to manage potential discrimination as a result of comparative evidence of disparate treatment is to prohibit lender discretion. Therefore, most large banks hav…
Assessing Risk of Comparative Evidence of Disparate Treatment
- The best way to assess fair lending risk by comparative analysis is to identify how much discretion a lender has in the underwriting process. If a lender doesn’t have any discretion - meaning that all applications from the financial institution are evaluated the exact same way every time, such as is the case with some automated underwriting solutions, the result is that th…