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While this comes up very rarely, it would be our practice to lower to usury. This variance would be documented on an “exception” log with the reason, and included in periodic analysis.
This is similar in my mind to matching competitor rates, but the support is usury instead of docs from another FI.If you’re going on a usury amount from as long ago as you can remember, you may check with legal to see if there’s a higher value that may apply. Below are some citations that may help. I’m in KY; most of this is from a notice from KY Bankers Association from 2019.
12 USC 85 allows national banks to lend at the highest rate available to any lender in the state where the bank is located. This is commonly referred to as “Most Favored Lender” status.
12 USC 1831d allows for a similar “Most Favored Lender” status for state-chartered banks
KRS 286.3-214 also allows for a similar “Most Favored Lender” status for state-chartered banks, but we noticed recently that the language is much broader than either of the federal statutes, in that it does not appear to have the same limit on interest charged and specifically states that a bank may charge “interest at any rate allowed national banking associations by the laws of the United States of America.”
This is a great question; I agree with Robin the key risk to consider is Disparate Impact, or even Abusive depending on results.
While my current Bank does not participate in the Secondary Market I remember this aspect being hard to evaluate from the last Bank as it soo far into the Operational details. The key to me is frequent and robust monitoring, more at a ~trend level (by Applicant Types, Sales Market, Officer, etc) to ensure you identify anything that may be inconsistency or unintended consequences. There are several software out there designed specifically to enable robust monitoring on even a real-time basis depending on risk/need. Tammy Butler, who was affiliated with one of those vendors, issues a blog that I thought did a good job of explaining some of the risks here. https://fairlendingdiversity.com/compliance-persons-guide-pricing-gibberish/
