Fair Lending Overview
Our Commitment to Fair Lending
Chase's commitment to the fair treatment of all our customers and potential customers is an integral part of our overall commitment to maintaining the highest standards of corporate responsibility in all activities we undertake. This commitment extends to every aspect of a credit transaction, from advertising and pre-application inquiries to loan disbursement and ongoing servicing. But our focus on fairness reaches beyond our credit products to the equal treatment of all who come to Chase for financial services.
This article contains information concerning fair lending, diversity and the importance of equal treatment to Chase's success in the marketplace.
Employees are expected to adhere to these principles and honor our corporate commitment, not simply because in many cases the law requires such behavior, but because it reflects our corporate values and makes good business sense. Please take the time to familiarize yourself with the information contained in the sections below.
What Is Fair Lending?
Fair lending is the consistent, objective, unbiased treatment of all customers. JPMorgan Chase's focus on fair lending practices reflects its ongoing commitment to provide all customers and potential customers with equal access to credit. It is a focus that requires all of us to be aware that fair lending is not just the law—fair and consistent treatment of all our customers is the right thing to do and makes good business sense.
What Is Discrimination on a Prohibited Basis?
If we make a credit, pricing, or other decision on a prohibited basis, it is a violation of the fair lending laws and regulations. It is discrimination, it is illegal, and it prevents JPMorgan Chase from meeting its marketplace goals. Three types of illegal discrimination recognized by the fair lending enforcement and regulatory agencies are described below:
Overt discrimination is blatant discrimination on a prohibited basis. Not making loans to women is an example of overt discrimination. The Fair Housing Act and Equal Credit Opportunity Act (ECOA) prohibit discrimination in lending on many bases. In addition, state laws or local ordinances may prohibit discrimination on additional bases. For example, a New York City law prohibits discrimination in lending on the basis of sexual orientation.
Disparate treatment means treating an applicant differently based on any of the prohibited bases. If it appears that a lender has treated similar applicants differently on the basis of a prohibited factor, the lender must be able to provide a credible and legitimate non-discriminatory explanation. If an agency determines that an institution's explanation for treating some applicants differently is a pretext for discrimination, then the regulatory or investigating agency may infer that the lender has discriminated.
When a lender applies the same policy to all applicants but that policy adversely affects a protected class, disparate impact exists. Evidence of discriminatory intent is not necessary to establish that disparate impact has occurred. Where the policy or practice is justified by business necessity and there is no less discriminatory alternative, a fair lending violation will not exist. When an agency finds that a lender's policy or practice has a disparate impact, as a practical matter, the lender bears the burden of showing that the policy or practice is justified by business necessity.
What Are the Fair Lending Regulations?Equal Credit Opportunity Act - Reg. B (ECOA)
ECOA covers all personal and business loans. It affects every phase of the lending process and prohibits discrimination, on the basis of:
- Marital status
- National origin
- Receipt of public assistance
- Exercising rights under consumer protection laws
It is illegal to discourage, decline a request for or terminate a loan based on any of the above factors. Note: JPMorgan Chase's corporate policy also includes sexual orientation as a prohibited basis.
Fair Housing Act (FHA)
The Fair Housing Act was passed to protect consumers from unfair practices relating to home sales, rentals or home financing. Specifically, the Fair Housing Act prohibits discrimination on the basis of:
- National origin
- Familial status (e.g. presence of children in household)
Americans With Disabilities Act (ADA)
The ADA prohibits discrimination against individuals with disabilities. It assures that these individuals have equal access to goods and services offered by private businesses, including financial institutions.
Civil Rights Act of 1866
The Civil Rights Act of 1866 provides that all persons "shall have the same right...to make and enforce contracts...and to the full and equal benefit of all laws and proceedings for the security of persons and property." As equal rights to purchase real and personal property is guaranteed by the Civil Rights Act, our policies and procedures must safeguard against racial discrimination in every step of the lending process.
Home Mortgage Disclosure Act (HMDA)
HMDA is a "disclosure" law that requires mortgage lenders to report information annually about applications for home purchase, refinancing and home improvement loans. This reporting allows both the public and the regulators to determine responsiveness to the home financing needs of communities in which business is conducted. It requires that information about income, race, sex, geographic area, pricing and other factors be reported.
Community Reinvestment Act (CRA)
The CRA requires banks to help meet the credit and banking needs of the communities in which they do business, with a particular focus on low and moderate-income communities. CRA performance is measured and rated against the amount of mortgage and small business loans, community development investments and the extent of banking and community development services provided in low- and moderate-income markets, relative to what the bank is doing in non low- and moderate-income markets and to the opportunities that exist in such markets.
There are four possible CRA ratings: Outstanding, Satisfactory, Needs to Improve and Substantial Non-Compliance. The goal at JPMorgan Chase is for all its subsidiary banks to be rated Outstanding. JPMorgan Chase Board of Directors' Public Responsibility Committee have set this goal.
Federal Trade Commission Act Section 5 - Unfair Deceptive Acts or Practices
This Act prohibits unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce. It has recently been used to address abusive or predatory lending practices, such as loan flipping (repeated refinancing with no net benefit to the customer) and loan packing (adding on costly features such as single premium life insurance without the customer's full understanding).
Other State and Local Laws
In addition to federal laws, many state and local laws also prohibit discrimination in the granting of credit. For example, both New York State and New York City prohibit discrimination in lending.
Who Is the Primary Fair Lending Regulation Agency?
- Office of the Comptroller of Currency (OCC)
Regulatory agencies have a broad range of powers in evaluating the compliance performance of the lenders they regulate. The OCC examines both JPMorgan Chase Bank, N.A. and Chase Bank USA N.A. for fair lending compliance. A bank's charter determines which agency or agencies regulate that bank. If the OCC has reason to believe that there is a "pattern or practice" of discrimination at a bank being examined, under ECOA, a federal bank regulatory agency must refer the bank to the Department of Justice, and one of the fair lending enforcement agencies (see below).
Who Are the Fair Lending Enforcement Agencies?
- The Department of Justice (DOJ)
- Department of Housing and Urban Development (HUD)
- Federal Trade Commission (FTC)
Enforcement agencies investigate alleged fair lending violations. The Department of Justice becomes involved if a federal regulatory agency refers a supervised financial institution because of a possible "pattern or practice," but each agency may investigate or commence legal action on its own, often on the basis of customer complaints.
What Are the Penalties for Non-Compliance With Fair Lending Laws and Regulations?
Possible consequences of non-compliance with fair lending laws and regulations can be extremely severe and include:
- Civil money penalties
- CRA rating downgrades
- Department of Justice investigations
- Adverse Publicity
- Rejection of a bank's application for merger or acquisitions
- Cease and desist orders
Fair Lending and Diversity
Building a workplace where differences are respected and valued is critical to our future and has been an important part of the traditions of JPMorgan Chase. We've taken pride in our diversity efforts and the recognition we've garnered both inside and outside our companies for steps taken to ensure an inclusive culture. For us, the business case is simple: JPMorgan Chase will be a place for talented people from all backgrounds and nationalities. Gender, race, sexual orientation, age and physical ability are just some of the kinds of differences that make people unique as individuals and give us the diversity of perspective that will set us apart. Whether competing locally or globally, JPMorgan Chase needs every employee to contribute his or her best to serve clients well and to engender a working environment of respect, fair treatment and teamwork.