FDIC offers self-testing guide to help lenders root out bias.

The government's first practical advice on detecting and preventing illegal lending discrimination was released Wednesday by the Federal Deposit Insurance Corp.

"Side by Side: A Guide to Fair Lending" is designed to help lenders test themselves. The 56 page guide explains three types of pre-application testing and shows how to conduct a comparative analysis of loan files.

"We put it out to give banks. guidance in fair lending so they can do the right job," acting FDIC chairman Andrew C. Hove Jr. said in an interview Wednesday.

The 7,000 state banks supervised by the FDIC have received the guide, and it is available at no charge to any other institutions. consumer groups, or individuals.

Differences in Treatment

Self-testing is designed to detect differences in the treatment of applicants.

The most common testing involves sending two individuals to an institution to separately apply for the same type of loan. The testers should be similar except for the variable being tested, such as age or race. Their experiences are then analyzed for evidence of discrimination.

Multilayered testing involves the same process, but uses three testers.

The third type, complaint testing, uses one tester to investigate the experience of an actual loan applicant who claims he was discriminated against. The tester assumes characteristics similar to the actual applicant.

The FDIC guide also explains how to train testers and analyze results. The agency provides a quiz for the tester to fill out before he is sent to a bank. Answers about employment, race, and family help lenders determine which testers are best for which assignments.

Another questionnaire is designed to be completed by the tester after the bank visit. That form asks how the tester was treated, whom he talked to, and what information he was offered. The bank can then use that report to evaluate its lending practices.

Another way to detect discrimination, the FDIC said. is by comparing sample loan files. Sample files should include a target group of applicants that might be discriminated against and a control group of applicants at low risk for discrimination. The more detailed the analysis, the better the test. according to the guide.

A final chapter on enforcement actions and remedial measures includes a copy of the regulators' policy statement on fair lending released in April.

Fear of Punishment

Self-testing has been controversial because some banks fear regulators will punish them if they get unfavorable results.

The guide makes clear that agencies must refer evidence of discrimination to the Justice Department, even when discovered through a lender's selftesting.

But it adds that the lender's voluntary identification and correction of violations would be taken into account in decisions about how to enforce compliance.

Additional copies of the guide can be ordered by writing to: FDIC Office of Consumer Affairs, Room F-130, 550 17th St. NW, Washington, D.C. 20429.

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