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Fair Lending & PPP: Who Tells Your Story?

4 min read
Jul 22, 2020

As we predicted earlier this year, the Paycheck Protection Program is becoming a hot topic in Fair Lending. Public interest groups are looking for evidence of discriminatory lending while the Consumer Finance Protection Bureau (CFPB) is actively looking for Fair Lending violations.

Here’s what you need to know.

CFPB Says It Will Review PPP for Fair Lending

The CFPB will be taking a look at Fair Lending within the PPP program as part of its recent shift to “prioritized assessments” to gather information about markets that pose the highest risk of consumer harm as a result of the COVID-19 pandemic.

As part of the assessment, the CFPB is looking to assess compliance with ECOA and will request information on:

  • The steps an FI is taking to ensure it complies with fair lending laws when implementing the program
  • Additional restrictions the institution has placed on PPP loans that exceed the SBA’s requirements for the program
  • Steps were taken to ensure the institution complies with Regulation B’s adverse action notice requirements

It will not assess compliance with the underlying requirements of the PPP or the CARES Act since FIs didn’t have to assess creditworthiness.

This is a move we predicted earlier when we noted the disastrous initial PPP rollout would bring more attention to Small Business lending practices and perhaps spur the CFPB to implement section 1071 of the Dodd-Frank Act, which amended ECOA to require the collection and reporting of information on credit applications submitted by small businesses and women-owned or minority-owned businesses.

In a July 16 webinar, the Bureau also said it will focus supervision on areas dealing with consumers struggling with loan payments and areas addressed by the CARES Act including:

  • Residential mortgage servicing
  • Student loan servicing
  • Auto loan servicing
  • Consumer reporting
  • Debt collection

The CFPB will also be asking about changes made to an FI’s compliance management system (CMS) in response to the COVID-19 pandemic.

Download the PPP Loan Data Analytics Sample Sheet.


Were Black-Owned Businesses Discriminated Against?

Meanwhile, a study suggesting that black borrowers had a harder time accessing PPP funds due to discrimination has been making headlines in influential publications like The New York Times, Politico, and The Hill, among others.

The National Community Reinvestment Coalition (NCRC), a public interest group that promotes Fair Lending, had identical numbers of similarly situated, matched pairs of black and white male and female testers call financial institutions to ask about PPP loans. (The black testers had slightly better credit.)

Analyzing 126 interactions at 17 FIs and 32 branches in the Washington, D.C. area, the study found that in 43 percent of interactions, the white tester was favored. Black testers were less likely to be presented with the same information or given the same level of service quality and encouragement that black testers. NCRC used a chi-square test to reach its conclusions.

As Fair Lending analytics enthusiasts, Ncontracts believes strongly in the value of analyzing data to uncover discrimination and other Fair Lending problems. However, an adequate sample size is a key component of any analytics. While there is no doubt that discrimination sometimes occurred when businesses applied for PPP loans, the NCRC figures aren’t necessarily representative of the industry of any single FI.

With over 4.4 million PPP loans made, the sample included in the study is more anecdotal in nature. A deeper analysis is necessary for a complete picture of discrimination. (The testing was performed via telephone, using testers with “racially identifiable” voices and names—a fact not included in most coverage of the study results).

PPP & Fair Lending: How Do You Measure Up?

With the CFPB proactively looking at Fair Lending within the framework of the PPP program and public interest groups making headlines with their perspective, FIs need to ask one question: Who is going to tell your PPP Fair Lending story?

When faced with surveys and statistics suggesting widespread discrimination, it’s important to be prepared to share your FIs story using objective data. Fair Lending analytics enables an FI to quantify its Fair Lending performance to determine if improvements are needed. Fair Analytics software can quickly pinpoint the loans that are causing disparity to make it possible to identify and remediate Fair Lending risk. 

How can Fair Lending analytics help you tell your story?

Keeps you from getting lumped in with the whole industry. When data comes out showing problems with discrimination, it’s important to have data that represents your institution’s commitment to Fair Lending. Having objective data at the ready prepares you to talk specifically about your FI with regulators, journalists, public interest groups, and consumers that are concerned about discrimination. It replaces speculation with data.

Shows you’re proactive. Demonstrate that your FI is dedicated to preventing discrimination by taking a proactive role in assessing your PPP performance. If you uncover a problem, it gives you the opportunity to address them and prevent future issues. It’s much better for your FI to note a red flag than for an examiner to find it.

Show that your controls work. Fair Lending analytics helps demonstrate whether or not your Fair Lending controls are effective, allowing you to talk about what you do to ensure lenders and other staff take Fair Lending seriously. It lets you show how you accomplish your Fair Lending goals.

Nfairlending Analytics software will help you identify Fair Lending risk exposure, stand in the examiners' shoes and see what they see, and also ensure that your good efforts to improve are working as intended. We'd love the opportunity to provide a quick, risk-free demo


Check out our article on Building a Strong Lending Compliance Management System for even more guidance!


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