Just when you think the COVID-19 pandemic can’t make life and work anymore challenging, the Office of the Comptroller of the Currency has reminded us that the ongoing crisis has created an environment of increased Fair Lending risk.
In its Spring 2020 Semiannual Risk Perspective, the OCC notes that overall compliance risk is increasing, calling out Fair Lending risk in particular.
The agency says that the onslaught of CARES Act mandates, including Paycheck Protection Program (PPP) applications, combined with a shift to work-from-home arrangements at many financial institutions have created a perfect storm for Fair Lending risk. This includes Fair Lending compliance responsibilities associated with underwriting, monitoring customer activity, and opening new accounts, and communicating with customers (Fair Banking).
The OCC notes Fair Lending risk caused by:
High volume of lending-related requests. Requests for forbearance, deferrals, or loan modifications along with large numbers of PPP applications mean FIs are responding to huge numbers of consumer and business requests. With the increased volume comes the possibility that requests may not be addressed promptly. Additionally, it increases the likelihood of mistakes or oversights that could lead to Fair Lending violations.
Failure to update policies and procedures to reflect CARES Act mandates. The CARES Act impacts mortgage servicing, including early intervention, borrower contact, loss mitigation, and foreclosures, as well as reporting requirements. In many cases, these changes give FIs increased flexibility but taking advantage of that flexibility requires updating policies and procedures to ensure they are implemented across all departments to avoid disparate treatment.
Reduced staffing or staff working from home. Business, as usual, is not what it use to be at many FIs. Some are making do with less staff. Some are pulling staff from different departments to keep up with lending-related requests. Some have staff working from home. All these scenarios can create situations where oversight can be challenging, making it much harder to ensure regulatory controls remain effective.
Just because Fair Lending risk is on the rise, doesn’t mean that Fair Lending problems are expected. Make sure your FI is following these 4 best practices
Read also: Second “Buy Here, Pay Here” Auto Dealership in Hot Water Over Fair Lending
Don’t get caught off guard by Fair Lending issues. Make sure you’re taking action to avoid Fair Lending missteps and uncover issues before examiners do. Learn more by visiting our article on Building Your Own Fair Lending & Redlining Compliance Management System.