Fair Lending Reviews Are Now Part of Every Compliance & CRA Exam
TRUPOINT Partners' Andy Barksdale and Justin Smith share insights from recent Fair Lending discussions in Louisianna.
Justin Smith and I had the opportunity to spend some quality time with our good friends at the First National Banker’s Bank in Baton Rouge this week. We were speaking to a large group of compliance officers who had signed up for an entire day of Fair Lending discussions. Our part of the program was focused on providing a quick overview of fair lending and reviewing the analytics commonly associated with a fair lending review. We shared the day’s stage with other bankers and regulators.
The regulators confirmed what we have been hearing. The examiners now conduct a fair-lending exam in conjunction with every compliance exam and CRA exam. In order to understand their approach to the Fair Lending component of the exam, we recommend you consult the interagency exam procedures (http://www.ffiec.gov/pdf/fairlend.pdf).
The regulators also shared two pieces of advice that were worth sharing with everyone:
• Beware of the Double D: In areas where disparities and discretion exist, there’s a high probability that examiners will demand details including a file review. For example, if there are pricing disparities between males and females AND your financial institution allows for loan officer discretion in establishing the loan rates, you can expect to receive heightened interest in taking a deeper dive on the related policies, procedures and the data.
• Beware of Subjective Language: If your policies and procedures contain subjective language such as “good character,” “strong depositor,” or “good history,” make sure you pin down exactly what those terms mean for your financial institution so that all employees are making decisions based on the same set of guidelines. Lack of clarity leads to “subjectivity” which often translates into “discretion.”
Many years ago, as a banker fresh out of college, one of the first things you were taught was the “4 C’s of Credit” which included: Character, Capacity, Capital and Collateral. Character had typically referred to the financial history of the borrower. Has the person declared bankruptcy? Does the person have a good credit record? Does she have a stable job? In today’s banking environment, it makes sense that you remove the subjective terms and employ clear and concise definitions for character and credit.
The FDIC also confirmed what we know to be some of the highest risk areas in fair lending that should be included in your annual review including:
• Pricing Risk (beyond HMDA including consumer)
• Underwriting Risk (approvals/denials)
• Redlining Risk (geographic lending patterns)
• Steering Risk (product/channel)
It was great to be part of such an informative event. It was good to see the enthusiasm around the fair lending issues impacting all financial institutions. Finally, it was also gratifying to hear regulators recommend that financial institutions regularly conduct the kinds of analyses and reviews we provide at TRUPOINT Partners.
Remember: Fair Lending is now part of every compliance examination and goes beyond HMDA filing. It is the responsibility of every financial institution to know their numbers, and we at TRUPOINT Partners can make that much easier.
Free Fair Lending Reports: You can get free fair lending reports on your bank along with a complementary review of your data at http://www.trupointpartners.com/compliance-data-analytics-info-request.