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 I want to talk about the “Good Customer”.
If you’ve ever heard me speak on fair lending, you’ve probably heard me talk on this topic before and this is a sore spot with me. Whenever a lender uses “Good Customer” as a reason to make a loan decision, or as a reason to make an exception to underwriting policy, you might as well take a red flag and stick it right on that loan file and say, examiners, look at this one. Why? Because what the heck does good customer even mean? Seriously, I’m asking!
Ask a lender, what does Good Customer mean? Does it mean they’ve been a customer with you for 1 year, or 5 years or 10 years? Does it mean they have a deposit account with you and that balance has a thousand, or five or ten or twenty thousand dollars balance? Does it mean they haven’t had any late payments with you in the last 3 months, 6 months, 12 months or 24 months? No late payments with others? Does it mean they have no major derogatories or minor derogatories? What does Good Customer even mean, right?
Now what I always say, is putting “Good Customer” in a file, saying, hey they’ve been a good customer, we’re approving this, is one thing, but using it as a reason to make a loan decision or to override policy, that’s where the issue comes into play. Because it doesn’t mean anything and therefore it can mean everything, or nothing.
It’s the borderline credit-worthy individual, the borderline approvals, the borderline denials, that’s where the majority of our Fair Lending risk is. And if the reason why you’re making a decision is because they’re a “Good Customer” and you don’t define it at all, that’s pretty much the height of fair lending risk, because you’re basically throwing dice at that point.
So push back on your lenders. What I always ask is why? Why are they a Good Customer, why are you overriding that decision, and a lot of times they’ll say “Well they’ve been a customer of mine for ten years and never been late with a payment.”
Ok then, put that down. I would much rather you still follow policy and minimize deviations, but write that down. That’s a lot better than just saying they’re a Good Customer.
Thanks for reading!!