Hi! It’s Tory Haggerty from Tuscan Club University’s Fair Lending School and welcome to another Fair Lending Short.
In this fair lending short, we are going to talk about one of my favorite topics when it comes to fair lending. The “Good Customer”.
Whenever a lender uses the reason good customer to make a loan decision or as a reason to make a policy exception, you might as well stick a red flag on that file for examiners to look at.
Why? Well, what the heck does good customer even mean?
Does it mean that the applicant doesn’t have any recent late payments? If so, how recent? The last 3 months, 6 months, 12 months, or 24 months?
Do I have to worry about recent late payments just with my bank or other banks?
Does it mean they don’t have any derogatories on their credit bureau report? If so, how recent? Do I have to care about just major derogatories or minor as well?
Does it mean they have been a customer with us for 1 year, 5 years, 10 years, or 20 years?
Does it mean they also have a deposit account with us? Does it need a specific balance like $1,000, $10,000, or $50,000 balance?
See good customer can mean anything, therefore it means nothing.
I push back on lenders and ask them – Why? Why are they a good customer?
They usually pause for a moment and say something like “Well, they have been a customer of mine for 10 years and never been late on a payment.”
That is better than just using good customer. It’s still always best to follow policy and minimize exceptions, but at least that is measurable. Good customer is not.
Look for this in your loan files, and start speaking up and challenging loan staff to stop using this term. Be specific on why you are making credit decisions. Nothing is more unclear than “good customer”.
Thanks for reading!!
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