Lending Compliance & Non-English Speakers: What You Need to Know
For years, regulators, community groups, and others have been encouraging financial institutions to do more to reach unbanked and underbanked populations, especially those with limited English proficiency (LEP). While many financial institutions (FIs) have sought to serve this community, concerns over lending compliance—challenges like fair lending and unfair, deceptive, or abusive acts and practices—have made some lenders cautious when providing products and services in languages other than English.
To help eliminate uncertainty and help institutions better manage the risk, the Consumer Financial Protection Bureau (CFPB) has released principles and guidelines to help institutions comply with Dodd-Frank Unfair, Deceptive, and Abusive Acts and Practices (UDAAP) provisions, the Equal Opportunity Act (ECOA), and other laws when providing products and services to LEP consumers.
Read on for the highlights.
The market for non-English language financial products and services
In the United States, it is estimated that 22 percent of the population over the age of five speak a language other than English at home. That is roughly 67.9 million people. Within that group, about 37.6 percent have limited English proficiency. That equates to over 25 million individuals.
The CFPB has been focused on this group for years, so much so that the consumer segment was the emphasis of the November 2017 issue of the Bureaus Spotlight. Since that publication, the CFPB hosted a July 2020 industry roundtable on LEP consumers and followed it up in August with requests for information on credit access for LEP consumers. The request asked:
Should the Bureau provide additional clarity under ECOA and/or Regulation B to further encourage creditors to provide assistance, products, and services in languages other than English to consumers with limited English proficiency? If so, in what way(s)?
While there has not been any new clarifying regulation, the CFPB’s principles and guidelines do offer valuable insights that can help institutions reduce compliance risk when serving and lending to LEP populations in languages other than English.
Among the guiding principles, financial institutions may want to:
Provide disclosures of any non-English language services available. Give LEP customers clear and timely disclosures in their language communicating the degree of language support available and the channels available for communicating and asking questions.
Create a special purpose credit program (SPCP) to increase access to credit for certain underserved LEP consumers. An SPCP is meant to benefit a class of people who would otherwise be denied credit or would receive it on less favorable terms. While it is not necessary to have an SPCP to serve LEP customers, an SPCP would make it possible to consider a prohibited basis such as race or national origin to serve underserved communities. Regulation B, which implements the ECOA, sets forth compliance standards and general rules for SPCPs.
An SPCP must have a written plan detailing the class of persons the program is meant to benefit, procedures and standards, a specific timeframe for operating, an analysis justifying the need for the program, and a set time for re-evaluating the need for the program. (These requirements were released by the CFPB in December 2020.)
Compliance management systems and limited English proficiency consumers
Another key element is a compliance management system (CMS). A CMS is important for every financial institution. There are two ways to address compliance management when serving LEP consumers, the CFPB notes:
- Develop an LEP-specific compliance management system (CMS).
- Include LEP in the institution’s fair lending, UDAAP, and/or consumer compliance CMS.
Download our whitepaper: What is a Compliance Management System?
Like all CMSs, an LEP-related CMS should be commensurate with the institution’s size, complexity, and risk profile. It should include a compliance program, third-party oversight, and fair lending compliance that reviews policies and procedures for features that may pose an increased fair lending risk.
Beyond the basics of compliance management, a CMS for LEP consumers should address:
Documenting decisions. The CFPB strongly encourages documenting the reasons behind language, product, and service offerings. This includes everything from systems and infrastructure to cost estimates. It is also smart to document plans to expand or discontinue offerings and include information demonstrating consumer use (or lack of use). Conducting a market study focused on competitors is a great way to understand what is being offered in your area—everything from products and services to hours of operation and even fees associated with offerings.
Monitoring. Services and changes should be monitored for fair lending and UDAAP risk. For example, an institution might benefit from assessing whether staff working with this market segment and staff in similar roles outside this market:
- Receive the same type and frequency of training
- Provide the same information
- Have the same level of authority
Advertising, including promotional materials and scripts, new products, and changed products should be reviewed for fair lending and UDAAP risk. Marketing materials and disclosures should be easy for LEP consumers to understand.
Fair lending testing. There should be a regular statistical analysis of loan-level data for potential disparities on a prohibited basis in underwriting, pricing, or other aspects of the credit transaction. You should consider reviewing the data by market (branch) and loan officer. This will allow better insight to manage any potential disparities, really allowing for program insight.
Third-party vendor oversight. If an institution contracts for any element of its LEP program, the institution needs adequate vendor management and monitoring. This will ensure the vendor is not creating fair lending or UDAAP risk that you are responsible for. This is especially true when it comes to underwriting and pricing decisions.
Mitigating compliance risk when providing non-English service
A financial institution that wants to serve customers in languages other than English may want to use the following considerations to help mitigate ECOA, UDAAP, and other compliance risks:
Language selection. Is this a national bank looking to serve Spanish speakers or a local institution that wants to serve a specific minority community? The reason should be documented using valid informational sources.
Product and service selection. Which programs are most used by LEP customers? Are these generally available to non-English speakers? How do you communicate with this audience? Are there features of a product or service (including policies, procedures, and practices) that might pose a high-risk for unlawful discrimination, such as geography as a proxy for a prohibited base?
Language preference and collection tracking. Financial institutions can ask consumers about their language preference and track this data—but it cannot be used to exclude consumers from offers sent to similarly situated consumers with different language preferences.
Translated documents. Institutions still must follow state and federal laws for translating documents. If translation is not required, a financial institution should have a policy for determining whether and to what extent, it will translate documents, and who will do it. Translated documents must be accurate. The CFPB recommends prioritizing documents that will most impact consumers. The CFPB and other government agencies have libraries of translated documents and glossaries that may be helpful.
Does your institution offer products and services in languages other than English? Make sure you are addressing the potential fair lending compliance risk.