Question

An institution's loan policy requires cosigners for all borrowers under age 25, regardless of credit history or experience. Borrowers over age 25 only have to provide a cosigner if their credit request needs additional support. This policy is considered:

A. Overt disparate treatment
B. Comparative disparate treatment
C. Disparate impact or effect
D. No discrimination

Answer 1

The loan policy requiring all borrowers under age 25 to have a cosigner, despite their credit history, is an example of disparate impact or effect, which could be seen as age discrimination. It potentially restricts financial opportunities for younger individuals in a way that is not applied to older borrowers.

Step-by-step explanation:

In the context of the financial capital market, the loan policy in question imposes a requirement for cosigners based solely on the age of the borrower, without considering credit history or experience. The policy specifies that all borrowers under the age of 25 must have a cosigner, whereas borrowers over 25 may only need a cosigner if their creditworthiness is in question. This practice is an example of disparate impact or effect, as it applies a broad policy that disproportionately affects a specific age group, potentially restricting their access to credit without regard for individual qualifications or creditworthiness.

This can be a concern under the Equal Credit Opportunity Act, which prohibits discrimination on various grounds including age. While some age-related restrictions can be legally permissible, they must have a clear and substantial relationship to the services in question. In the case of this lending policy, the categorical requirement for younger borrowers to have a cosigner could be seen as a form of age discrimination that could disproportionately limit their financial opportunities compared to older borrowers.