Question: We recently denied an applicant for a mortgage loan based on our established underwriting criteria. The individual is claiming our decision to deny his loan was based on race and is threatening to report us to the Indiana Civil Rights Commission if we don’t re-underwrite the loan and approve his request. While I’m familiar with the federal fair lending laws, is there an Indiana law we should also be complying with in this area?

Answer: Yes, the Indiana Fair Housing Act provides protections against discrimination in any residential real estate-related transaction. While the IFHA mirrors federal laws against discrimination in lending, it does contain separate remedies and enforcement actions that allow for enforcement by the Indiana Civil Rights Commission.

The IFHA defines a “residential real estate-related transaction” to include making or purchasing loans or providing other financial assistance to purchase, construct, improve, repair or maintain a dwelling, or to secure real estate. Selling, brokering or appraising residential real property is also considered to be a residential real estate-related transaction.

The IFHA provides that a person whose business includes engaging in residential real estate-related transactions may not discriminate against a person in making a real estate-related transaction available or in the terms or conditions of a real estate-related transaction because of race, color, religion, sex, disability, familial status or national origin. Violators of the IFHA can face an administrative action by the Indiana Civil Rights Commission, or a civil action by any aggrieved person who may seek actual and punitive damages in addition to reasonable attorney’s fees and court costs.

For the case at hand, you should confirm you have followed your established fair lending policies and procedures, and that the loan application was considered in compliance with all applicable laws. If your review concludes you have followed your established underwriting guidelines and the denial was made in compliance with all applicable laws, you should not change your decision. Making an exception to your standard underwriting policies on an ad hoc basis can create its own fair lending problems.

To ensure you are fully protected from future fair lending claims, if your bank doesn’t have a standalone fair lending policy – it should. Further, you should be conducting periodic fair lending assessments by a third party to ensure your compliance with all applicable laws. This review should evaluate not only your compliance, loan and fair lending policies, but also include a statistical analysis of pricing and approval rates for your customers. Federal laws provide a safe harbor for self-testing and, if needed, self-correction when performed in compliance with applicable laws. Remember, fair lending compliance is broader than just the loan approval process – your bank’s fair lending program should include a review of all marketing materials and the markets they are targeted to, including the use of artificial intelligence in the development and distribution of those materials.

This information is provided for general education purposes and is not intended to be legal advice. Please consult legal counsel for specific guidance as to how this information applies to your institution’s circumstances or situation.