By: Rhonda Coggins, CRCM, National Compliance Services Director
Compliance stakeholders always seem to have a strong focus on regulatory changes ahead of them. It’s an important part of staying ahead of the curve to ensure you’ve taken steps to comply with new rules. However, there are also some areas where a compliance-related program is put into place and then set on “auto pilot,” where a concept of “no news is good news” is used as a guideline.
Fair lending can be one of those areas, where sometimes knowing that you haven’t received a complaint can give you a false sense of security. Recently, supervisory agencies have issued more guidance on fair lending and its importance. This shows us that this topic is still in the forefront and continues to be a focus.
One recent important issuance came to us from the Bureau of Consumer Financial Protection. Their Fair Lending Report highlighted numerous actions they have taken to “expand fair, equitable, and nondiscriminatory access to credit and to ensure that consumers are protected from discrimination.” The Bureau describes certain outreach via a symposium to discuss fair lending strategies and overcoming barriers to working with the Office of Innovation and entrepreneurs in prioritizing nondiscriminatory access to credit. From a guidance and rulemaking perspective, a majority of focus has centered on HMDA and Reg. B. While stakeholders have been awaiting further action related to the Dodd Frank Act and the collection of data on small businesses, the status of that action has changed from “pre-rule” to “long term.”
Another important fair lending resource is the recent 2019 Fair Lending Interagency Webinar, which brought together speakers from six federal agencies. In discussing innovation, redlining, analysis, complaints, as well as observations from HMDA reviews, we’re reminded once again that fair lending remains a critical topic and the days of “auto pilot” are long behind us.
So, when have you most recently performed some targeted, focused work on your fair lending program? Was it the last annual review of your policy?
If there is one thing I know that can help reset the importance of fair lending by your management, it’s knowing that even if you treat everyone the same, you can still end up with fair lending problems. How? Well, certain credit policy parameters such as, for example, minimum loan amounts, can sometimes result in disparate treatment. Also, the use of credit-related models, which may be seen as removing a human element from underwriting, does not remove your fair lending risk.
So what is a financial institution to do? How do we make our programs more robust? Some high level takeaways are to perform periodic reviews of your program and policy, ensure fair lending risk assessments are also reviewed and updated, review any use of models and ensure they are included in your risk assessment, consider the implementation of a fair lending committee, ensure your complaint process is robust and, of course, implement an effective training program. Lastly, as fair lending settlements often reach several million dollars, the risk management of this area cannot be overlooked.
Besides that, fair lending…. It’s good business!