Testing for discrimination can help to find potential problems, or it can reassure an institution that it does not discriminate. In addition, an institution can gain insight into how its lending practices appear from the loan applicant's perspective, a valuable insight not readily available through other internal audit methods.
Testing is a way of measuring differences in treatment.
A financial institution can use pre-application testing to uncover instances of overt or subtle discrimination against individuals protected under the ECOA and the Fair Housing Act. To detect illegal discrimination, testers visit financial institutions posing as prospective loan applicants. While they do not actually complete a loan application, testers do experience the important pre-application phase of the loan process. After discussing loan possibilities, they objectively document how they were treated and the information given to them by the institution's personnel. The testers pose as potential applicants for the same type of loan.