Imagine you want to buy a home. You hear a radio ad for a mortgage lender, but the tone feels…off-putting.
The lender refers to a neighborhood you’re considering as a “war zone” and describes a local grocery store as “Jungle Jewel” due to its diverse clientele.
Would you be encouraged to apply for a mortgage with this lender?
If you think this scenario is far-fetched, think again.
US appeals court gives CFPB more freedom to fight housing discrimination
The Townstone Financial Case
This is the real-life case of Townstone Financial, a Chicago-based mortgage lender.
Townstone’s radio show, meant to attract clients, instead caught the attention of the Consumer Financial Protection Bureau (CFPB) for all the wrong reasons.
The CFPB sued Townstone, alleging these statements (and others like them) discouraged Black applicants from seeking mortgages.
The Legal Twist
But here’s where it gets interesting: Initially, a district court dismissed the case, arguing that fair lending laws only protected those who had already applied for credit.
The CFPB wasn’t having it.
They appealed, and in a surprising twist, three conservative judges on the U.S. Court of Appeals for the Seventh Circuit agreed with them.
Their ruling?
Marketing fairness matters.
That is, fair lending obligations don’t start when you fill out an application. They start the moment a lender begins marketing.
The Implications
For lenders and creditors, the message is clear: Your marketing is now under the fair lending microscope.
To navigate this landscape, several quantitative methods can help identify potential biases in your marketing strategies. For example, lenders should perform:
- Audience Composition Analysis: Assess the composition of your target audience compared to other audience benchmarks, such as the demographics of the communities your products and services serve, the demographics of your overall customer base, and/or the demographics of current users of the advertised product.
- Response Rate Analysis: Compare response rates across different demographic groups by channel and campaign to identify potential disparities in how different groups are engaging with your marketing efforts.
- Offered Terms Analysis: Compare key loan term statistics (average, minimum, maximum, standard deviation) across protected groups to uncover potential disparities in offers.
- Geographic Distribution: Evaluate the geographic distribution of your marketing efforts to ensure you’re not excluding certain neighborhoods and communities.
FairPlay’s Role
A fast-growing use case at FairPlay is helping creditors implement analytical approaches to ensure their outreach is both effective and fair. Our tools assist in automating the testing of marketing outcomes and provide actionable insights to refine outreach strategies.
Conclusion
Remember, in the world of lending, your marketing isn’t just a megaphone—it’s a welcome mat. Make sure it’s rolled out fairly for everyone.
