FDIC Removes Disparate Impact from Fair Lending Reviews
In an updated version of its Consumer Compliance Examination Manual, the FDIC removed the evaluation of disparate impact from its fair lending reviews.
The manual previously instructed examiners to assess fair lending violations using three methods: overt evidence of disparate treatment, comparative evidence of disparate treatment and disparate impact. In the revised manual, the FDIC stated that it would now evaluate fair lending for disparate treatment only, in alignment with Executive Order 14281, Restoring Equality of Opportunity and Meritocracy, and not for disparate impact.
The FDIC expanded its guidance on identifying redlining, steering and marketing discrimination. The manual added new risk indicators for each category and provided procedures for examiners to follow. For example, examiners were instructed to look for significant differences in loan originations, pricing and branch services between minority and non-minority areas.
The update also clarified the use of surrogates, such as surnames or given names, to identify potential discrimination in consumer lending, especially when direct demographic data was unavailable. This guidance aimed to help examiners detect disparate treatment in cases where institutions did not collect race or gender data.
The FDIC revised its sample size tables to allow examiners to include withdrawn or incomplete applications in comparative analyses. This change addressed situations where applicants from prohibited basis groups may have been discouraged from completing their applications.
The FDIC emphasized the importance of self-tests and self-evaluations. Institutions were reminded that voluntarily disclosing the results of self-tests would waive their legal privilege under Equal Credit Opportunity Act and the Fair Housing Act. Further, the FDIC provided a checklist for evaluating the reliability of self-evaluations and outlined how examiners could streamline their reviews based on verified internal findings.