Regulator Insights on Fair Lending Risk: 3 Great Reminders
During their webinar yesterday, federal regulators highlighted three hot topics in Fair Lending. In case you missed it, here's a quick overview and some key takeaways:
This week, the CFPB, FDIC, Federal Reserve Board, OCC, DOJ and HUD hosted the 2014 “Federal Interagency Fair Lending Hot Topics” webinar through the Outlook Live series.
It was a great refresher for three important Fair Lending items: 1. Fair Lending Trip Wires, 2. Components of Successful Fair Lending Risk Assessment, and 3. Elements of a Successful Fair Lending Compliance Management System.
Here are a few things worth highlighting from yesterday's webinar:
1. Fair Lending Trip WiresThe following are a few Fair Lending trip wires identified by CFPB exams:
- Policies that consider prohibited basis in a manner that violates ECOA or presents risk of a Fair Lending violation;
- Discretionary policies without sufficient controls or that monitor to control risk;
- Insufficient documentation for pricing and underwriting exceptions; and
- Data inaccuracies that impair the institution’s self-assessments.
2. Components of a Successful Fair Lending Risk Assessment
- Product Features - Portfolio, purchased, government-backed, traditional saleable, alternative;
- Delivery Channels - Branch, loan production office, phone/mail, internet, third-party;
- Underwriting - Centralized/decentralized, credit scoring, judgmental, third-party, exceptions;
- Pricing - Standard across institution, regional, risk-based, discretionary;
- Marketing - Standard across institution/markets, targeted programs, special purpose programs, branch level;
- Originator Compensation - Flat fee, straight salary, volume/percentage of loans, terms, referral;
- Reputation Risks - Complaints, ratings, litigation, referrals to other agencies;
- Supervisory Concerns - Violations, MRAs, institution-identified issues, previous supervisory issues;
- Compliance Controls - Policies/procedures, training, audit/testing, self-evaluations, resources devoted.
3. Elements of A Successful Fair Lending Compliance Management System
- Up-to-date Fair Lending policy statement;
- Regular training;
- Ongoing monitoring for compliance with Fair Lending and other policies and procedures;
- Review of lending policies for potential compliance violations;
- Statistical analysis, depending on the size and complexity of the organization;
- Regular assessment of marketing of loan products;
- Meaningful oversight of Fair Lending compliance (to which the NCUA added the following):
- Policies and Procedures (all loan products and phases including advertising, marketing, underwriting, servicing, loss mitigation, and third-party oversight);
- Board of Directors Management Oversight (including allocation of resources);
- Monitoring/Testing and Corrective Actions;
- Compliance Audit; and
- Complaint Management.
TRUPOINT Viewpoint: The Outlook Live webinar provided a solid overview of best practices and potential trip wires. We use many of these same principles on a day-in, day-out basis in our consulting work.
For a different vantage point to explore many of the same elements discussed above, check out these 8 common Fair Lending myths that we see exist within financial institutions. You can gain immediate access to these myths by clicking the image.
Conducting risk assessments and maintaining a strong compliance management program, as defined above, can help limit the inherent risks within your institution. When you're ready to tackle your Fair Lending risk, we hope you'll consider partnering with TRUPOINT.