Child support from the mother. Let's take a look at the 8 most common fair lending compliance myths. In part one of this series, we made the argument that an individual risk assessment should be performed for the area . ), are applying for loans that have similar risk characteristics such as loan term or fixed rate . Again, a diagram will help illustrate. Treat a borrower differently in servicing a loan or invoking default remedies. regarding fair lending risk management. 11 Generally, a lender must validate a credit scoring system . 5481 (13)). When you're identifying the systems, it includes both internal and external. o To evaluate Fair Lending risk with respect to race and ethnicity, we compare outcomes for each relevant group (i.e., Black, Hispanic, American Indian and Hawaiian) with . (See e.g., American Bankers Association Fair Lending Toolbox (2012 and as updated).) Completing a fair lending risk assessment is a challenging task as there are many things to consider in a financial institution that relate to the risk of discrimination. As COVID-19 continues to cause upheaval, institutions may find it necessary to use vendors more frequently than usual to relieve staffing burdens, conduct default and/or REO management, and perform other tasks with considerable fair lending and fair servicing risk. See 59 FR 18266 (April 15, 1994). It is adapted from the Interagency Policy Statement on Fair Lending issued in March 1994. It documents all of your fair lending risk exposure, the factors that are increasing or reducing that risk, and the remaining risk posed to your financial institution. 1. SolasAI is a first-of-its-kind solution to this problem. If a mortgage has a low interest rate that goes up in later years, the lender has to make a . 1. Disparate Treatment. Nevertheless, banks are still best advised to lay a solid foundation of fair lending risk management built around SMAART compliance that guards against disparate treatment liability by assuring they treat similarly situated people the same. The Fair Lending Risk Assessment should fully address the risk generated through the Credit Union's operations (real estate lending, consumer lending, business lending, loan servicing, collections, loss mitigation) and how well that risk is Discretion or exceptions in the underwriting or pricing process. In today's regulatory environment, it's time to make sure that you do . Illegal disparate treatment occurs when a lender bases its lending decision on one or more of the prohibited discriminatory factors covered by the fair lending laws, for example, if a lender offers a credit card with a limit of $750 for applicants age 21 through 30 and $1,500 for applicants over age 30. . In central New York 1, a mere complaint about fair lending practicesnot even a regulatory actionis enough to put a bank merger on hold and put jobs on the line.In Washington, DC, the Department of Justice and the Consumer Financial Protection Bureau (CFPB) have joined forces to impose a $9 million consent order on a . FHFA did not exist at the time and was not a signatory. It is also an issue in rural America. 1 "The Attorney General's 2011 Annual Report to Congress Pursuant to the . First published on 04/12/2010. The fair lending risk assessment itself is the preventative measure; a tool to identify and understand specific fair lending risks inherent to your organization. As banks reduce their physical footprint, fair lending risk may arise inasmuch as branches are closed disproportion-ately in majority-minority communities, or an institution leaves Poverty is not only an issue in inner cities, where people who are members of protected races and ethnicities are seen as most likely to live. Overview of Fair Lending Laws and Regulations This overview provides a basic and abbreviated discussion of federal fair lending laws and regulations. A fair lending risk assessment is simply a review of your current fair lending risk exposure. It is important . 8 Fair Lending Compliance Myths Myth Reality Ncontracts.com | 888.370.5552 Fair lending risk management can be complicated by misinformation. Here are eight red flags that may indicate fair lending risk. As this definition suggests, challenges to fair lending include discrimination, the use of irrelevant factors in lending decisions, and the inaccessibility . This is true even in the business of home mortgage loan servicing, for which so-called "fair servicing . Again, a diagram will help illustrate.

Conflagrating the CRA with the fair lending laws diminishes the uniqueness of the CRA and risks reducing banking services in certain lower-income communities. These laws ensure financial institutions provide fair and equitable treatment and offer uniform services to all customers and when making . Risk management is all about identifying, measuring, monitoring and controlling risk, and fair lending risk is no exception. This sentiment was echoed in a recent article by the Associate Director and Counsel to the Federal Reserve Board's Division of Consumer and Community Affairs which highlights the fair lending risk digital targeted marketing poses to financial institutions (i.e., steering and redlining) and notes that the "growing prevalence of AI-based . Developed by BLDS, LLC a consultancy with decades of experience advising in fair lending and cutting edge data scientists, SolasAI provides innovative solutions to both the problem of unacceptable proxies and the problem of searching for less discriminatory models. It was the most serious financial crisis since the Great Depression (1929). 7.95% - 35.99%. The plan's details will depend on the nature of the risks identified. With regard to fair lending enforcement, NCUA explained that: -Most federal credit unions will not be selected for a fair lending examination or an offsite supervision; -Those selected for a fair lending exam or off-site supervision contact will have demonstrated the potential for a higher fair lending risk; and . . the risk of fair lending issues is low. The law is itself unsettled as to whether, and how, fair lending legal requirements might even apply to primarily loan servicing activities. They must be plausibly exogenous, that is, they cannot have been influenced or determined by . David W. Ogden , Franca Harris Gutierrez , Debo P. Adegbile , and Benjamin Chapin, WilmerHale In the first year of the Biden administration, the Consumer Financial Protection Bureau actively ramped up its fair lending investigations and enforcement activity. Fair Lending Risk Assessment Sample (continued) Term Length. s.hrg. The fair lending laws require that you: Not consider marital status. The FAQ summarize the change-in-terms notice requirements in Regulation Z at 12 CFR 1026.9 (c) (2) (v) (D), Regulation E at 12 CFR 1005.8 (a) (1), and Regulation DD at 12 CFR 1030.5 (a) (1). 3 Fair Lending Violation Examples. Just like the three factor example above, however, additional factors considered in the loan decision must be identified and quantified in order to be able to fully evaluate the loan decisions. First published on BankersOnline.com 4/12/10. We'll also cover aspects of formulating and maintaining an effective fair lending risk assessment, a critical component of an institution's fair lending compliance program. Since an overdraft is an extension of credit and charging different fees based on prohibited basis would violate Reg B, examiners are evaluating if there is any disparate treatment in rebating overdraft fees. Securities lending involves exposure to certain risks, including operational risk (i.e., the risk of losses resulting from problems in the settlement and accounting process), "gap" risk (i.e., the risk of a mismatch between the return on cash collateral reinvestments and the fees the Fund has agreed to pay a borrower), and credit, legal . Com-mercial lending policies and processes should be evaluated as part of the fair lending risk assessment. This position is a phenomenal opportunity for someone interested in fair lending and risk management to advance their knowledge of these subject areas! A definition of fair lending is that it is about financial institutions treating similarly situated applicants similarly. Fair Lending Implications of Credit Scoring Systems . Fair Lending Risks Article by Austin Brown & Loretta Kirkwood October 2014. . MITIGATING FAIR LENDING RISKS. Fair lending has been a focus of regulators for several years, so it was no surprise when the NCUA (National Credit Union Administration) identified it as one of their consumer compliance scope areas for 2021 [1].As the world around us continues to change, institutions who commit to performing data-driven fair lending reviews can expect . This article provides a non-technical overview of the main areas in which fair lending statistical analysis is typically applied and the sorts of analyses that can be performed in each area. It is the policy of this credit union to make credit products available to all Leave a Reply . The next external factor to consider in evaluating fair lending risk is to look at any loans performed by affiliates or brokers. assessed for fair lending risk, and issuers using these sorts of factors in custom scoring models should develop rigorous evidence of their business justification. Fair lending risk is perhaps compounded by the Federal Inter-Agency Guidance's warning that, while regulators will not criticize lenders, servicers, and others for deviations from pre-pandemic . Marketing Risk. Giving banks a fair chance to manage fair lending requirements. Timely evaluation of potential fair lending risk can help an institution course-correct before a pattern or practice of potentially discriminatory activity takes For this reason, institutions should consider whether additional or more frequent testing and monitoring make sense in the COVID-19 era, and for which business lines. Upcoming. In light of COVID-19 economic disruptions, these notice requirements arise in a unique posture. The article is organized based on common risk topics in the fair lending space (underwriting, pricing and other terms, redlining, steering and servicing). Answer: Yes, in addition to the more common pricing considerations, the CFPB recently published its latest Supervisory Highlights, Summer 2021 edition, which included a Fair Lending section that stressed the following additional key concerns raised by examiners in a recent supervisory review of a mortgage lender: Conducting marketing campaigns . In "Fair Lending Risk Management: Lessons from Recent Settlements," we distill the key lessons from these settlements that lenders can use to shape and enhance their own fair lending risk assessment and monitoring programs. Consider its size, scope, and complexity. state or federal regulator, or new fair lending risks that have emerged since the last fair lending examination. Stephen M. McGurl, Managing Director. Just like the three factor example above, however, additional factors considered in the loan decision must be identified and quantified in order to be able to fully evaluate the loan decisions. Risks & Opportunities of Regulatory Focus on Fair Lending . Many financial institutions (FIs) pride themselves on their ability to work with consumers . 3. Provide the following information about fair lending compliance reviews for the past two years: i. While it is unrealistic to expect that the NCUA would consider a credit union that merely conducts a Fair Lending self-assessment to have made the "not-to-be-examined team" (movie-compliance analogies can only be stretched so far), it is the prudent credit union that demonstrates its awareness of the potential for Fair Lending risk by . Every potential disparate impact you identify is a source of fair lending risk and a step closer to better risk management.

Fair Lending Policy Risk, Senior (Hybrid Work Schedule) Freddie Mac McLean, VA 3 weeks ago Be among the first 25 applicants Once you locate areas of potential fair lending risk, your bank will be able to take proactive steps to better serve all its customers. The FFIEC Interagency Fair Lending Examination Procedures require that a risk profile be developed based on the organization, staffing, training, recordkeeping, auditing, and policies of the institution. Without a risk assessment, you would not be able to determine where to even begin any testing. Pitfalls to Avoid When Developing a Risk Assessment for Fair Lending- Part Two. In "Fair Lending Risk Management: Lessons from Recent Settlements," we distill the key lessons from these settlements that lenders can use to shape and enhance their own fair lending risk assessment and monitoring programs. The good news is that assessing your fair lending risk is a win-win proposition. That extends to marketing, which means that financial institutions need to ensure that they are marketing their services equally to similarly situated individuals. Leave a Reply . The term "fair lending" is defined under the Consumer Financial Protection Act of 2010 as ".fair, equitable, and nondiscriminatory access to credit for consumers" (12 U.S.C. The Fair Lending Risk Assessment To start the process of building your fair lending program, a foundation must be laid. As an initial step, lenders should identify relevant markets for analysis. It also suggests that third party lending models may be particularly subject to fair lending risk given the limited history of some models in the marketplace. For example: a. to mitigate risk, you must find it. The blurrier the lines becomes, the more risk exists. what you can and cannot consider; Government monitoring information - when to get it and how to handle it, including the new URLA/1003 application form . ***IAll of the above. ECOA states that you may not discriminate based on these prohibitive factors: Race, Religion, National Origin, Sex, Gender Identity, Marital Status, Age, Receipt of Public Assistance. and that foundation is the fair lending risk assessment. The risk assessment would be considered your guide to where the fair lending risks are in your organization. IV. The risk-based approach will give you the opportunity, in an efficient manner, to apply preventive measures to mitigate fair lending risk. assessment will consider loan volumes, market diversity, and product complexity, but fair lending compliance applies to all lenders. The risk assessment plan that you develop must address all three. It may sound a bit overwhelming at first, but these tools will help you in the process of building and strengthening your fair To effectively monitor for fair lending risk, institutions will need robust data analytics to identify any potential disparate treatment or disparate impact concerns. The first referral involved two of the fair lending risk factors that the agencies have identified and used for some time: (1) broad discretion in pricing by loan officers or brokers, and (2) financial incentives for loan officers or brokers to charge borrowers higher prices. So, consider thinking of fair lending compliance as a business opportunity instead of a regulatory burden. Violations of the Equal Credit Opportunity Act include disregard of: The income of a working spouse. Fair lending risk is perhaps compounded by the Federal Inter-Agency Guidance's warning that, while regulators will not criticize lenders, servicers, and others for deviations from pre-pandemic standards in the course of prudently delivering borrower relief, such leeway may result in discretionary and differential treatment of borrowers . Alimony as income. The most noted risk factors considered when . If you exclusively or heavily market any of these targets, at the exclusion of the others in your market . After you've completed your analysis of fair lending risks, consider the results holistically. regarding fair lending risk management. Address regulatory trends and institution specific risk. Predatory lending targeting low-income homebuyers, excessive risk-taking by global financial institutions, and the bursting of the United States housing bubble culminated in a . Therefore, the fair lending risk from the customer demographics is naturally going to be less than the risk of a 25 branch institution located in Chicago and its suburbs. If your analysis identifies risks, or if consumer advocates, community groups, or regulators express concerns, develop a plan to mitigate the risks. That is, for example, a prohibited basis applicant should be treated like a non-prohibited basis applicant if they have similar personal economics (DTI, LTV, credit score, etc. This type of analysis will require certain data points to assist in determining the consistency of decisions made throughout the consumer lending process, and some of those data . Your fair lending risk assessments should regularly analyze customer complaints to identify trends such as disparate treatment, discouragement, or steering. 1. Once you locate areas of potential fair lending risk, your bank will be able to take proactive steps to better serve all its customers. must generally find out, consider, and document a borrower's income, assets, employment, credit history and monthly expenses. The Fair Housing Act adds Handicap and Familial Status. What types of penalties could be assessed under Fair Lending? As a historical note, in 1994, a number of Federal agencies published a Policy Statement on Discrimination in Lending (1994 Statement) which, in part, described how Federal agencies use their authorities to oversee fair lending compliance. Risk management is all about identifying, measuring, monitoring and controlling risk, and fair lending risk is no exception. Federally regulated fair lending is a closely-coordinated combination of requirements and prohibitions in several consumer protection and civil rights laws and regulations. McGurl Risk Advisors LLC. 117-165 anticipated nomination of janet l. yellen, to be secretary, department of the treasury 117th congress (2021-2022) since each product may have different pricing that must be . This includes where . Consider whether current levels of monitoring are appropriate in light of the . 2. Contributed by . Here are eight red flags that may indicate fair lending risk. applicants,butthepolicyorpracticedisproportion-ately excludes or burdens certain persons on a prohibitedbasis,thepolicyorpracticeisdescribed ashavinga .

The open-end (not home-secured) guidance notes that . Bottom Line. Disparate treatment applies to a wide range of issues such . Fair Lending Fair Lending Laws and Regulations IV - 1.2 FDIC Consumer Compliance Examination Manual - March 2021 Use different standards to evaluate collateral. we consider whether to recommend Comparative File Reviews (CFRs) - in . Your fair lending risk assessments should regularly analyze customer complaints to identify trends such as disparate treatment, discouragement, or steering. Until recently, a broad national opioid settlement seemed elusive Class Action Filing Trends The Notice must describe the nature and basis of the claim or dispute and set forth the specific relief you seek from ECS ("Demand'') Counsel for the Settlement Class have pursued the Litigation on a contingent basis and have paid all the costs of the . Fair Lending Policy Page 1 October 2015 Fair Lending/Nondiscrimination Policy and Procedures POLICY STATEMENT The board of directors, management, and staff of [insert the name of your credit union] are committed to the practices of fair lending. Loans Performed by Affiliates & Brokers. FIRREA Penalties ($7,500 per violation of laws and regs, $37.5K if also UDAP, reckless, and pattern of practice, $1,375MM if substantial loss to bank or benefit to party) 3. Consider Prosper is a solid option for borrowers with moderate to good credit, but it does have a few drawbacks, including potentially high APRs . The blurrier the lines becomes, the more risk exists. Apply now and learn why there's #MoreAtFreddieMac! compliance program, the following must be considered: . 5. First, model validation needs to occur before the model is put into use. They can help to generate business for a mortgage lender by allowing consumers to be approved for a loan. An "acceptable" score varies with the lender's appetite for risk; however, an acceptable score usually falls around 600. . 5. The goal is to help you understand inherent and residual fair lending risk, manage . For example, if the institution disproportionately denies fee rebate requests for protected classes, there could be fair lending risks . 1. civil/criminal enforcement under FHA and ECOA. This person will be responsible for supporting model governance activities, with emphasis on fair lending issues. 1 "The Attorney General's 2011 Annual Report to Congress Pursuant to the . Risks arising from mismanagement or misuse of models The mismanagement or misuse of credit scoring models can be an issue for both fair lending compliance and credit risk management. The Equal Credit Opportunity Act (ECOA) prohibits discrimination in any aspect of a credit transaction. Many financial institutions (FIs) pride themselves on their ability to work with consumers . Use different standards for pooling or packaging a loan in the secondary market. Exceptions that deviate from standards or best practices created by a lender, such as pricing or credit scores, are not always a bad thing. An initial validation and periodic revalidations must occur to allow the scoring system to consider age. Validation Timing: There are three phases in model use in which model validation is important.

****Both of the above. The financial crisis of 2008, or Global Financial Crisis, was a severe worldwide economic crisis that occurred in the early 21st century. Discretion or exceptions in the underwriting or pricing process. Of the three types of discrimination, this is the most common and the most likely to be targeted in a fair lending review. Two areas of the bank that now have been impacted are the loan servicing area and loss mitigation. Any third-party suppliers with access to protected healthcare, financial, or credit card data must be identified and included in the risk assessment. As part of our commitment to provide fair lending, M&T requires its officers, employees, agents and third parties we deal with to act in accordance with the letter and spirit of all fair lending laws and regulations by performing all aspects of lending (including the marketing of credit products, the application process, making of credit . The date and scope of fair lending examinations or other reviews conducted by the CFPB or any state or federal regulator; A second fair lending hot topic is the enhanced regulatory scrutiny resulting from the banking industry's shift into digital banking. A fair lending risk assessment template can assist with the initial risk assessment process as it can help a financial institution ensure they cover all applicable areas. Not discriminate in lending decisions. The magnitude of fair lending risks posed by aspects of crisis consumer relief are far from clear. Fair Lending is all about ensuring that similarly situated individuals are treated similarly. 36 or 60 months. A bank's inherent commercial fair lending risk should be considered to help determine the controls and monitor-ing required for fair lending.