Fair lending considerations when tightening credit requirements in response to the COVID-19 crisis

Fair lending considerations when tightening credit requirements in response to the COVID-19 crisis

During the COVID-19 crisis, many financial institutions have responded to anticipated higher delinquency rates by tightening their lending criteria to reduce credit risk in their portfolios. When making changes that decrease access to credit, financial institutions should consider the fair lending risks associated with their new policies, and in particular:

  1. Consider if the new policy may have unintended differential outcomes across protected classes,
  2. Consider whether alternative policies might achieve the same reduction in credit risk while having smaller differential impacts across protected classes,
  3. Document the business justification for the new policy and why that policy was chosen over alternatives that were considered, and
  4. Establish a timeline to reassess the policy and its justification.

In this Insights, the authors present the results of a Federal Reserve survey for credit card lending from January 2000 to April 2020 and discuss how financial institutions can mitigate fair lending risks.

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