FDIC Q&As – In the past, banks have allowed discretionary pricing on consumer loans based on relationship or to match a competitor’s rate or fees. Should this practice be discontinued?

Compliance > Lending > Fair Lending
Q:   In the past, banks have allowed discretionary pricing on consumer loans, including mortgages, based on relationship or to match a competitor’s rate or fees.  Should this practice be discontinued?  What advice can you give to help us stay in compliance from a fair lending perspective, but still be able to take care of customers who have been loyal to us?
 
A:  Allowing discretion in pricing is not a prohibited practice, but it does expose an institution to increased fair lending risk.  The general principle is that more discretion equals greater risk.  If an institution allows discretionary pricing, it raises a “red flag” for examiners, and it will always be closely reviewed during examinations.
 
 An institution that allows discretionary pricing should establish monitoring mechanisms to ensure that pricing is not unfairly impacting any particular prohibited basis group.  For example, this monitoring could occur by conducting comparative file reviews or by closely tracking pricing deviations through an exception report.  Furthermore, maintaining documentation of the reason for the pricing deviation is pertinent in the event that questions are raised.  Additionally, an institution should have regular training for its employees so everyone has a clear understanding of not only the institution’s policies and procedures, but also the fair lending laws and regulations.
 
 
ADDITIONAL INFORMATION:
This Q&A was obtained from FDIC’s website, in a document entitled “November 16, 2010 FDIC Teleconference on Fair Lending Issues,” which may be found here: 
 

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