http://www.theiia.org/intAuditor/in-the-profession/2012/april/fair-lending-is-high-on-the-regulatory-radar/ Blogen-us Tue, 26 Jun 2012 08:07:54 AMTue, 26 Jun 2012 08:07:54 AM http://www.theiia.org/intAuditor/in-the-profession/2012/april/fair-lending-is-high-on-the-regulatory-radar/2012-06-24A pervasive problem with the enforcement of fair lending laws, and efforts not to run afoul of those laws, is a failure to recognize a pattern whereby the rarer an outcome, the greater tends to be the relative difference in experiencing it and the smaller tends to be the relative difference in avoiding it. For example, minimum loan amount is cited in this article as a practice that may have a disparate impact on minorities and is also cited in the 1994 Interagency Policy Statement that first formally introduced the disparate impact concept into fair lending law enforcement. Reducing a minimum loan amount typically would be regarded as reducing the discriminatory effect of the requirement because doing so would tend to reduce the relative difference in meeting the minimum loan requirement. But reducing the minimum loan amount would also increase the relative difference in failing to meet the requirement. And it is on the latter relative difference on which regulators focus in evaluating a lenders practices. Thus, the lenders that do the most to reduce the impact of their policies – which generally means generally reducing the frequency of adverse outcomes – become the most likely targets for litigation. For recent treatments of these issues see, my “’Disparate Impact’: Regulators Need a Lesson in Statistics” American Banker June 5, 2012 (http://www.americanbanker.com/bankthink/disparate-impact-regulators-need-a-lesson-in-statistics-1049886-1.html) and “The Lending Industry’s Conundrum,” National Law Journal, Apr. 2, 2012 (http://www.law.com/jsp/nlj/PubArticleNLJ.jsp?id=1202547386988&The_lending_industrys_conundrum&slreturn=1). For an extreme example, see my “When Statistics Lie,” Legal Times, Jan. 1, 1996 (http://jpscanlan.com/images/When_Statistics_Lie.pdf). For more detailed explanations, see the Lending Disparities page of jpscanlan.com (http://jpscanlan.com/lendingdisparities.html