Self-testing through the use of mystery shopping, match pair testing, monadic testing and post-application telephone surveys can help financial institutions adhere to fair-lending laws while ensuring consumers receive accurate and understandable information to support sound credit decisions.
Match pair testing and mystery shopping use testers or mystery shoppers who pose as potential or actual buyers. Unlike statistical procedures that require outcomes (e.g. loan approval or denial) and rely on statistical principles, mystery shopping provides a record of the experience encountered by the tester.
There are several critical steps in conducting a self-testing program. The first is developing a clear objective along with an action standard. A good example is:
The objective of the program is to determine the existence of disparate treatment of prospective loan applicants on the basis of race or ethnic origin. The program will examine the following areas and nonminority and minority comparisons will be made:
Access to information, questioning, products offered and recommended, features and terms discussed, closing costs and rates quoted, courtesy and invitation to apply. Disparate treatment will be judged based on the existence of statistical differences at the 95% confidence level.
Second, choose an appropriate research design and appropriate number of mystery shops or tests. Many times the number of mystery shops and interviews conducted is based on cost. Verify the number of mystery shops and interviews will satisfy the objective and the action standard. For example, if the objective is to ensure equal treatment then a match pair testing design where minority and nonminority testers receive matched profiles and test the same locations is appropriate.
Third, design the questionnaire properly. It needs to be free from bias and easy to understand and administer. The mystery-shop questionnaire should be in checklist (yes/no) form with subjective questions (e.g., overall shopper satisfaction at the end of the questionnaire). This helps reduce bias by keeping the mystery shopper focused on what happened during the mystery shop. Order the questions in the same order as the sales and service process. This helps the mystery shopper accurately record the details of the shop. The consumer survey may contain a series of yes/no and rating questions as well as questions that allow the consumer to express his thoughts verbatim. The customer should be asked for his overall satisfaction at the beginning of the survey. This limits bias as the customer will think only of the topics important to him when answering the question.
Fourth, select the right analytical approach. The analytic approach must describe the results by key decision criteria and point out patterns in the data important to the decision makers. A research program designed to verify compliance with fair-lending laws and ensure fair sales practices should report and quantify the treatment of nonprotected and protected classes of potential and/or actual loan applicants (e.g., black versus white). Comparisons need to be made between protected and nonprotected classes and conclusions made concerning whether protected and nonprotected classes receive similar access to information and whether the information received is similar and appropriate.
Fifth, put in place an action plan based on the results. This should be a requirement and a team needs to be in place to develop and implement it.
