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By John Zasada, JD, CAMS – Shareholder, Financial Institutions Group

On Aug. 1, 2023, the National Credit Union Administration (NCUA) emailed a reminder about fair lending concerns with automated underwriting systems. The reminder references a Letter to Credit Unions issued back in February 2022 addressing Equal Credit Opportunity Act (ECOA) Non-discrimination Requirements. The NCUA is concerned credit unions are including the prohibited basis variable age in their automated underwriting systems. They believe having a policy or practice of requiring manual underwriting as an exception to automated underwriting systems based on a minimum or maximum age violates the ECOA.

The NCUA provides an example of this discriminatory policy or practice, whereby system parameters require applicants or co-applicants to be at least 25 years of age and no older than 70 years of age at the time of application to receive automatic approval. Applications meeting the system criteria for automatic approval are offered credit pending verification of income and review of collateral, as applicable. Applications not meeting the system criteria for automatic approval are referred to an underwriter for a manual review.

Another example provided by the NCUA includes credit unions requiring manual underwriting as an exception to automated underwriting systems based on an applicant’s marital status. For instance, it would be an issue if a credit union included system parameters permitting automatic approval of married joint applicants, but requires a manual review of applications submitted by unmarried joint applicants.

How to Avoid Violations

The NCUA suggests credit unions using automated underwriting systems review their systems’ settings and related loan policies and practices to ensure they do not result in age, marital status or other prohibited-basis discrimination. Remember, your institution can be referred to the Department of Justice for fair lending violations.

For more information on how to avoid ECOA violations, contact Doeren Mayhew’s regulatory compliance specialists today.