Fair Lending remains a top priority for regulators. Are you aware of the Fair Lending risk in your financial institution? In this blog, learn 7 key Fair Lending compliance risks you need to know, plus a free eBrief!
Fair Lending compliance can be complex - but having a clearer sense of your risk exposure can make it simpler.
The first thing to remember is that Fair Lending covers every stage of the crediting process - from marketing all the way to servicing.
The second thing to remember is that Fair Lending applies to all loans - not just HMDA loans. If you are involved in lending at your institution - even if you're not officially in compliance - you are responsible for supporting Fair Lending efforts and complying with Fair Lending laws and regulations.
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With that in mind, let's jump right in to the 7 primary Fair Lending risks to evaluate at your company:
7 Key Fair Lending Risks You Need to Know
1. Compliance Management Program Risk
Your Fair Lending Compliance Management Program (CMP), sometimes referred to as a Compliance Management System (CMS), is the word used to describe all the policies and practices you use to manage and mitigate your Fair Lending risk. Your CMP will likely include monitoring, data analysis, risk assessments, training and more.
Is your CMP robust enough to effectively manage and mitigate your Fair Lending risk? The strength of your CMP needs to be commensurate with the inherent risk profile of your institution.
2. Redlining Risk
Redlining has been a major regulatory hot topic lately, so you've probably been hearing a lot about Redlining risk. In fact, the CFPB listed it as one of their top Fair Lending priorities for 2017 and beyond.
Do you know your Redlining risk? In today's regulatory environment, it's time to make sure that you do.
3. Marketing Risk
Fair Lending is all about ensuring that similarly situated individuals are treated similarly. That extends to marketing, which means that financial institutions need to ensure that they are marketing their services equally to similarly situated individuals.
One question to consider as you assess your marketing risk is: Are we receiving applications consistent with our market demographics?
Fair Lending data analysis can provide a clear answer to this question. To learn more about how TRUPOINT can help with your Fair Lending data analysis, click here.
4. Steering Risk
As you assess steering risk - or any Fair Lending risk - you will be looking to determine if similarly situated individuals are treated similarly. Any evaluation of steering risk will benefit from the insight provided by Fair Lending data analysis.
One question to consider as you review steering risk is: Are we directing certain applicants to particular products? By analyzing your data, you'll be able to identify any disparities that may indicate that certain groups of applicants are being directed to certain products.
5. Underwriting Risk
Underwriting risk is key area of Fair Lending risk. When analyzing your data, pay attention to the number and rate of originations and denials. As you assess your risk, look for any vague or subjective underwriting criteria or other potential for discretion in the process. Pay close attention to any exceptions, too.
6. Pricing Risk
Pricing risk is the risk that certain applicants are getting more or less beneficial pricing than other similarly situated applicants. Loan officer compensation is a particularly hot topic when it comes to pricing. Are all similarly situated applicants receiving similar pricing? If not, you may have pricing risk exposure.
As you analyze your data, you'll be looking for incidence of rate spread, and disparities in the pricing charged.
7. Servicing Risk
Consumer complaints are common during servicing, and consumer complaints can trigger regulatory attention. In analyzing your servicing risk, ensure that similarly situated individuals are being treated consistently. You'll also want to pay attention to any disparities in loss mitigation servicing options, decision processing times and collections processes.
Please note that even if your bank outsources servicing, you are still responsible for that third party's Fair Lending compliance.
TRUPOINT Viewpoint: Get this free eBrief to learn more about these 7 Key Fair Lending compliance risks, including key questions to ask in order to assess your risk both qualitatively and quantitatively:
Thanks for reading, and as always, let us know if we can help you improve your Fair Lending compliance program in any way!