Fair lending law prohibits discrimination in credit transactions on protected bases. Regulators pursue two theories.

Disparate treatment is different handling of similar applicants because of a protected characteristic. It may be overt or shown by comparative file review — matched pairs of applicants with similar profiles and different outcomes. Discretion in pricing, in exceptions to policy, and in the steering of applicants between products is where it surfaces.

Disparate impact is a facially neutral policy with a disproportionate adverse effect, which the lender must justify as meeting a legitimate business need not achievable by a less discriminatory alternative.

Where the risk concentrates. Pricing discretion at the branch or dealer level; underwriting exceptions granted informally; marketing and branch footprints that exclude areas; and redlining analysis based on lending patterns relative to peers.

Self-testing. Statistical analysis of originations, pricing and exceptions by protected class is the standard control. Conducted properly it may attract privilege and self-test protections; conducted casually it produces discoverable findings without the protection.

Remediation. Where a disparity appears, the response is to narrow discretion, document exception reasons, and monitor. Regulators treat an institution that found and fixed a problem very differently from one that did not look.