CRA Insights

Fair lending considerations in bank or finance company mergers and acquisitions

February 7, 2023
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Regulatory agencies review many aspects of bank and finance merger and acquisition applications, among these are fair lending considerations. While it may seem tangential, fair lending considerations have the ability to put at risk the success of the merger application and the success of the merged entity.

The FDIC requires that fair lending due diligence should include:

“… a comprehensive Fair Lending review to ensure the acquired loans reflect: consistency in pricing and underwriting; no impermissible redlining or steering practices; fair marketing practices; and a strong CMS (Compliance Management System) as it relates to Fair Lending.”

In addition, they counsel that one should:

“Analyze the assessment area and determine if any newly acquired loan(s) could adversely affect the Fair Lending posture of the surviving institution. Any material inconsistency(ies) between the provisions of an acquired loan and the surviving institution’s policies should be identified and monitored to ensure the loan is administered in a manner that is consistent with all applicable Fair Lending laws and regulations.”[1]

What does that look like in practice? In this Insights, we highlight two areas – redlining and discretion – that can either impact the merger itself or cause substantial post-merger fair lending challenges. For both, special consideration should be provided during the due diligence process.

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