Comparative Disparate Treatment is a critical concept in fair lending, highlighting a subtle yet significant form of discrimination. It arises when applicants from a protected class are treated less favorably than similarly situated applicants outside of that protected class. This often comes to light through comparative analysis, a key tool in fair lending examinations.
Delving into Comparative Analysis
Comparative analysis is the method examiners employ to scrutinize lending practices. It involves a direct comparison between protected class applicants and a control group of applicants. Imagine a lender’s decisions on loan applications that sit on the borderline – some just barely denied, others just barely approved. A comparative analysis in this scenario would meticulously compare these “marginal” denials against “marginal” approvals. The aim is to uncover any inconsistencies or overlaps that suggest a pattern of disparate treatment. This analysis isn’t limited to just approvals versus denials; it extends to other crucial underwriting terms such as loan pricing, associated fees, and overall credit terms offered.
Discretion and its Role in Unintentional Disparate Treatment
Often, comparative disparate treatment isn’t rooted in overt, intentional bias. Instead, it frequently stems from the discretion afforded to lenders in the underwriting process. While some level of discretion might seem necessary, it can inadvertently introduce inconsistencies. These inconsistencies become the breeding ground for disparate treatment. When underwriting decisions are left to individual judgment, even without conscious bias, variations in interpretation and application of criteria can lead to different outcomes for observably similar applicants, simply based on their protected class status. Conversely, when underwriting processes are fully automated, removing human discretion altogether, the risk of comparative disparate treatment significantly diminishes. Automated systems, ideally, apply uniform criteria consistently, reducing the potential for subjective biases to creep into the decision-making.
Comparative vs. Overt Disparate Treatment: Key Differences
It’s important to distinguish comparative disparate treatment from overt disparate treatment. Overt disparate treatment is characterized by blatant and explicit discriminatory statements or policies. For instance, a lender stating they will not lend to individuals of a certain ethnicity due to prejudiced beliefs constitutes overt disparate treatment. The critical difference lies in the evidence: overt disparate treatment is evident in explicit statements or policies, while comparative disparate treatment is inferred from patterns of unequal treatment in comparable situations. Overt evidence doesn’t even require an applicant to experience less favorable terms; the mere expression of discriminatory intent is sufficient. Overt discrimination can manifest in verbal statements, discriminatory advertising, or any published material that discourages applications from protected classes.
In essence, comparative disparate treatment is identified when a protected class applicant, who was denied credit, presents underwriting characteristics that are substantially similar, or even superior, to a control group applicant who received approval from the same lender. This subtle form of discrimination underscores the importance of rigorous fair lending practices and consistent, objective underwriting standards.
