At CUNA’s Regulatory Compliance School, participants discussed the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act. One question raised involved the legality of credit unions adding a set amount to the debts of an applicant who doesn’t have a housing expense—as is often the case with college students or young adults who still live with their parents.
Age is a protected class under ECOA, so the practice of adding a housing expense to the debts of applicants who don’t report one could have a disparate impact on young borrowers.
The law states that a policy that is facially neutral as to age or another prohibited factor, such as race, color, religion, national origin, or sex, may constitute illegal discrimination if the policy results in a disproportionately adverse impact on a protected class of applicants, despite the absence of intent to discriminate.
An NCUA legal opinion letter explains it is permissible for a lender to consider all the facts and circumstances surrounding a particular borrower’s lack of a housing payment. However, a blanket policy of applying a certain amount of money to every applicant’s debts when a housing expense isn’t reported could result in illegal discrimination under the disparate impact theory.
The best practice for credit unions is to avoid any such policy all together.