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5 Basics of Strong Fair Lending Compliance Management in 5 Minutes

2 min read
Jul 21, 2016

Fair Lending compliance can be complex, but there are 5 basic elements that any strong compliance management system should have. See how your Fair Lending compliance management system compares!

Fair Lending is a complex and evolving regulation, and remains a key compliance priority for the regulators. To manage Fair Lending compliance risk, financial institutions need to have a strong Fair Lending Compliance Management Program. Here are 5 basic elements that every bank, mortgage company and credit union needs to include in their Fair Lending CMP.

1. Fair Lending Compliance Training

Fair Lending compliance is a team sport! Everyone at your institution needs to understand its importance. That's why you need to provide general Fair Lending compliance training for all employees, management and board members. Also consider role-specific training for individuals involved in the credit process. Make sure to include ways for tracking attendance and measuring comprehension, as well as repercussions for failing to attend training or pass the comprehension assessment. 

Make sure that your training outlines what is permitted by your policies (i.e. rules for declining or file documentation requirements), and that your training aids are adequate. Consider supplementing your Fair Lending training with sensitivity training to help prevent discrimination by employees who deal directly with applicants and customers.

2. Internal Fair Lending Monitoring

A strong internal fair lending monitoring system will help ensure that policies are met by your institution's actual practice. Monitoring, or self-testing, may include regular data analysis, policy reviews, exception management reviews, internal risk assessments, and more. Your monitoring program will depend on your institution's size and complexity; larger and more complex institutions will need to have larger and more complex monitoring systems.

3. Consumer Complaint Management

Effective complaint management is an essential part of a comprehensive compliance program. Complaints are valuable source of information that can help financial institutions understand their reputation and improve program delivery and service.

Pay particular attention to complaints that allege discrimination in pricing or underwriting, either submitted directly to your institution or to third parties like the CFPB or social media. 

4. Independent Testing and Auditing

Independent reviews from Fair Lending compliance professionals may help you identify weaknesses and manage risk - before the examiners arrive. Your independent testing, auditing and risk reviews should evaluate disparities across channels, departments and stages of the crediting process.

[Read More: Fair Lending 101: Defining Fair Lending Audits, Risk Assessments, Self-Tests & More]

5. Third-Party Vendor Risk Management

Financial institutions are responsible for managing third-party vendors, because regulators will review the activities conducted through third-party relationships as if the activities were done by the institution itself.

Compliance risk arises when third parties violate Fair Lending regulations or do not comply with the financial institution’s internal policies. 


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