In our December 2017 Newsletter, we gave a summary of the November 16, 2017, Outlook Live Webinar on 2017 Interagency Fair Lending Hot Topics. Fair Lending is an issue that continues to be a hot topic and this webinar gave some good insights.
The Federal Reserve discussed Compliance Management for Consumer Loans, specifically pricing discretion and exceptions. It even provided a sample spreadsheet that could be used for exception tracking.
The FDIC discussed Fair Lending Monitoring Programs. Similar to the exception tracking, what you need to do really depends on the level of pricing discretion you allow. If you don’t allow pricing discretion, all you really need to do is confirm that your pricing conforms to your guidelines. However, to the extent discretion is allowed, you need to dig deeper, until you can hopefully explain that any disparities are the result of credit-related factors. Another thing they pointed out is that use of a third party doesn’t protect you from fair lending risk, “Risks associated with third-party relationships are the same as if the bank had performed the service directly”.
HUD gave a summary of the over 8,000 complaints it received in 2016 and the Department of Justice discussed Denials Investigations and Cases, while the NCUA also discussed Special Purpose Credit Programs.
Most banks allow pricing discretion to one extent or another, which is why file documentation is so extremely important! Why was one applicant given the opportunity to pay down a credit card while another applicant was denied quickly? The subjectivity involved with fair lending makes it one of, if not the most, challenging aspect of a compliance program. Seemingly innocent actions can lead to big problems. Concerns over potential discrimination continue to result in referrals to the Department of Justice, including those dealing with redlining, pricing, underwriting, spousal signatures, and credit reporting.
Want to learn more? Be sure to check out the Fair Lending webinar we did back in January for more information on this and other hot Fair Lending issues.