Question

An institution's loan policy states that home improvement loans under $20,000 will be charged a higher loan fee than loans over $20,000. A review of the institution's HMDA-LAR reveals that 95% of the home improvement loans under $20,000 are made to Hispanic borrowers. The credit officer explains that the higher fee is justified because low-dollar loans have the same costs associated with them, but over the long term, generate less interest income for the institution. Which of the following is TRUE?

A. Providing a business justification for the difference mitigates a finding of disparate impact discrimination.
B. The loan policy requirement is overt disparate treatment.
C. Hispanic borrowers being treated differently is comparative disparate treatment.
D. None of the above.

Answer 1

The loan policy requirement is overt disparate treatment.

Step-by-step explanation:

The correct answer is B. The loan policy requirement is overt disparate treatment.

Disparate treatment refers to the intentional differential treatment of individuals based on a protected characteristic, such as race or ethnicity. In this case, the institution's loan policy charges a higher fee specifically for home improvement loans under $20,000, which disproportionately affects Hispanic borrowers. This is an example of overt disparate treatment because it involves intentional discrimination based on race or ethnicity.