A New Tool For Fair Lending Examinations

For some period of time now (it is unclear just how long), the CFPB has been using a proxy method, which combines geography and surname-based information into a simple tool that is used to determine a borrower's or an applicant's race and ethnicity for loan transactions where that demographic information would not appear in a bank's loan files (e.g., automobile loans).

The Equal Credit Opportunity Act ("ECOA") and Regulation B prohibit, with few exceptions, inquiries about race, color, religion, national origin or sex of an applicant. That information is often needed, however, in the context of a Fair Lending analysis to identify potential discrimination. The CFPB has validated a proxy process that can approximate this data to a high degree of accuracy.