In a recent case the FDIC claimed a bank violated ECOA and Regulation B by engaging in a pattern or practice of denying applications for a credit card based on an initial match of applicant names to the Office of Foreign Asset Control’s list of Specially Designated Nationals (“SDNs”) without further verification that the applicants were in fact SDNs, which resulted in a disparate impact upon Hispanic applicants. The bank agreed to pay a civil monetary penalty (CMP) of $190,000.
As is usually the case, regulators found no evidence of hate-based discrimination. The cause of the problem appears to be the old “lazy banker syndrome.” This syndrome appears often in connection with credit cards. A marketing program results in a big stack of applications. To reduce the stack to a manageable level, quick cuts are made, such as, if the applicant appears on the SDN list they are removed from consideration. In any culture certain names are more common than others, such as Bill Smith. It does not take a lot of work to determine if the individual on the SDN list is same individual on the credit application; but some effort is required.
Click the following for a copy of the CMP agreement: https://www5.fdic.gov/EDOBlob/Mediator.aspx?UniqueID=be771ba5-c2f2-41f4-87fa-735e9dc3b1f7