The 8 Pervasive Fair Lending Compliance Myths - Ncontracts
The 8 Pervasive Fair Lending Compliance Myths A Fair Lending Training Module For Financial Institutions Internal Use Only 1
Training Outline Reintroduction to Fair Lending Debunking the Eight Common Fair Lending Myths: – “Our written policies and procedures have us covered.” – – – – – – “Fair Lending is really about the underwriting process.” “Our bankers fully understand fair lending compliance.” “We don’t have diversity in our market area.” “Fair lending is really about HMDA.” “We have a consultant that manages Fair Lending.” “The Compliance Department owns the Fair lending compliance for the bank.” – “We are a small community financial institution, Fair Lending compliance does not apply.” About TRUPOINT Partners Internal Use Only 2
Fair Lending Hot Topic A Top Priority of Regulators. Re-Introduction to Fair Lending Basics. Internal Use Only 3
Most Simplistic Definitions Dodd-Frank Act – Defines Fair Lending: “Fair, equitable, and nondiscriminatory access to credit for consumers.” ECOA: “A creditor shall not discriminate against an applicant on a prohibited basis regarding any aspect of a credit transaction.” Internal Use Only 4
Fair Lending – Primary Laws Equal Credit Opportunity Act (ECOA) – Reg B Fair Housing Act (FHA) Community Reinvestment Act (CRA) – Reg BB Home Mortgage Disclosure Act (HMDA) – Reg C Fair Credit Reporting Act Unfair and Deceptive and Abusive Practices (UDAAP) – Worded broadly and covers consumer lending Internal Use Only 5
Types of Illegal Discrimination Overt Evidence of Disparate Treatment – When a lender openly discriminates on a prohibited basis or expresses a discriminatory preference. There is overt evidence of discrimination even when a lender expresses, but does not act on, a discriminatory preference. – Example: Offer higher credit limits based on age. Marketing only to select areas in footprint. Comparative Evidence of Disparate Treatment – When a lender treats similarly situated credit applicant differently based on one of the prohibited bases (during underwriting, pricing, and/or assistance). Does not require any showing the treatment was motivated by prejudice or a conscious intention to discriminate beyond the difference in treatment itself. – Example: Charging more for mortgage loans to women. Limiting term for those borrowers over 65. Disparate Impact – When a lender applies a racially (or otherwise) neutral policy or practice equally to all credit applicants but the policy or practice disproportionately excludes or burdens certain persons on a prohibited basis. – Example: No residential loans for less than 60,000. Excluding row houses. – When an Agency finds that a lender’s policy or practice has a disparate impact, the next step is to seek to determine whether the policy or practice is justified by “business necessity.” Internal Use Only 6
Bankers Agree Fair Lending is Number One! According to a 2012 survey by the ABA. Survey Request: “Please rank what you expect will be your three most demanding compliance issues for 2012 at your institution.” Based on 436 respondents, here are the number one votes: 1. Fair Lending/HMDA (144 Votes) 2. 3. 4. 5. 6. 7. 8. Mortgage-Related TILA/RESPA (91 Votes) BSA/AML/OFAC (62 Votes) UDAAP (non-overdraft) (39 Votes) Debt Collection/Foreclosure/Mortgage Modification (24 Votes) Overdraft Rules and Guidance (15 Votes) CRA (14 Votes) Flood (13 Votes) 9. 10. 11. 12. 13. 14. Privacy/ID Theft/Information Security (11 Votes) Credit Card TILA (8 Votes) MLO Compensation/Registration (6 Votes) Check 21/Reg CC (5 Votes) SCRA and Military Lending (3 Votes) Regulation R (1 Vote) Internal Use Only 7
Expectations of the Regulators Based on Regulatory Compliance Conferences, Calls & Seminars Regulatory Agencies Encourage Institutions . – Institutions should conduct fair lending risk assessments at least annually Is it Required? No. But there is an expectation to maintain a current fair lending risk assessment. It is a critical component of a fair lending compliance management system. – Regulators Are Asking: “Is your Fair Lending Compliance Management System adequate?” Hearing from All Sources – Intensified and longer exams for all types of lending – A Focus on the numbers – Beyond HMDA Reviewing Consumer Reviewing Small Business Internal Use Only 8
The 8 Pervasive* Fair Lending Myths *Based on Actual Conversations & Observations. The most common Fair Lending misperceptions. Internal Use Only 9
Fair Lending Myth #1 Common Myth: “Our written policies and procedures have us covered.” Reality – As is the case with all compliance and risk management areas, having the policy in place is a great start; however, it is not a complete approach. – Regulators expect that there are Policies, Procedures and Practice Management/Monitoring in place. Internal Use Only 10
Risk exists for Fresno County when speed limits are not monitored. Internal Use Only 11
Risk exists for the financial institution when left unmonitored. Internal Use Only 12
Fair Lending Myth #2 Common Myth: “Fair Lending is really about the underwriting process.” Reality – It is not just about the upfront lending process. See next page as a graphic for where Fair Lending Risk resides. – It is every part of the credit transaction. – ECOA: “A creditor shall not discriminate against an applicant on a prohibited basis regarding any aspect of a credit transaction.” Internal Use Only 13
Marketing Risk Fair Lending Risk Visual Pricing Risk Steering Risk Current Approvals Delinquent Denials Redlining Risk Internal Use Only Underwriting Risk Servicing/ Loss Mitigation Risk 14
Fair Lending Myth #3 Common Myth: “Our bankers fully understand Fair Lending compliance.” Reality – Onsite interviews indicate a general awareness vs. a true understanding. – The bigger the bank, the better the understanding (due to amount of training, exposure, tone from top). Internal Use Only 15
Fair Lending Myth #4 Common Myth: “We don’t have diversity in our market area.” Reality – ECOA Act Prohibits Discrimination Based on Race or Color; Religion; National Origin; Sex; Marital Status; Age (contract); The applicant’s receipt of income derived from an public assistance program; The applicant’s exercise, in good faith, of any right under the Consumer Credit Protection Act Applies to any extension of credit, including extensions to small businesses, corporations, partnerships and trusts. – Fair Housing Act Prohibits Discrimination Based on Race or Color; National Origin; Sex; Familial Status (children under the age of 18 living with a parent or legal custodian, pregnant women, and people securing custody of children under 18); Handicap Applies in all aspects of “residential real-estate transactions” Internal Use Only 16
Fair Lending Myth #5 Common Myth: “Fair Lending is really about HMDA.” Reality – Interagency Fair Lending Exam Procedures - Steps: Step One : Develop an Overview (Prior Exam Focus, Credit Ops, Products, Volumes, Self-Tests/Self-Evaluation) Step Two: Identify Compliance Program Risk Factors (Compliance Record, Prior Issues, Data/Recordkeeping, Monitoring, Training, Policies) Step Three: Review Residential Loan Products Step Four: Identify Residential Lending Discrimination Risk Factors Step Five: Organize and Focus Residential Risk Factors Step Six: Identify Consumer Lending Discrimination Factors Step Seven: Identify Commercial Lending Discrimination Factors – More and More Common – Review of Consumer/Auto Loans as well as Small Business. Internal Use Only 17
Fair Lending Myth #6 Common Myth: “We have a consultant that manages Fair Lending.” Reality – Fair Lending compliance and the required behaviors of lenders/service personnel cannot be fully outsourced to a consultant. Fair Lending is a team sport and requires everyone’s involvement (Consultant, Compliance, Executive Management, Front-Line Personnel). – The right Fair Lending consultant can provide the following services for your financial institution: Conduct a regular risk assessment (based on the Fair Lending Interagency Examination Procedures) Identify the right areas of focus (where to spend time) Analyze comparative analysis with management reviews Provide clear recommendations Internal Use Only 18
Fair Lending Myth #7 Common Myth: “The Compliance Department owns the Fair Lending compliance for the bank.” Reality – The compliance department certainly has a role (e.g. Compliance Management including Training, Fair Lending Policies, Monitoring). – Effective ownership starts with the “tone from the top.” – The entire bank should support fair and responsible lending principles and oppose discrimination in the provision of services. – Every employee has the responsibility. Internal Use Only 19
Fair Lending Myth #8 Common Myth: “We are a small community financial institution, Fair Lending compliance does not apply.” Reality – ECOA and FHA apply to everyone! – The amount of fair lending risk depends on many variables (e.g. complexity of products, diversity of market, etc.). – While the level of intensity differs, fair lending is a part of every compliance exam. Internal Use Only 20
Myths “The great enemy of the truth is very often not the lie -- deliberate, contrived and dishonest, but the myth, persistent, persuasive, and unrealistic. Belief in myths allows the comfort of opinion without the discomfort of thought.” - John F. Kennedy 35th President of the US 21
Avoid the 8 Common Fair Lending Myths! Based on Banker Common Statements During Risk Reviews 1. 2. 3. 4. 5. 6. 7. “Our written policies and procedures have us covered.” “Fair Lending is really about the underwriting process.” “Our bankers fully understand Fair Lending compliance.” “We don’t have diversity in our market area.” “Fair Lending is really about HMDA.” “We have a consultant that manages Fair Lending.” “The Compliance Department owns the Fair Lending compliance for the bank.” 8. “We are a small community financial institution, Fair Lending compliance does not apply.” Internal Use Only 22
About TRUPOINT Partners 6100 Fairview Road, Suite 105 Charlotte, NC 28210 704-401-1730 (main line) www.trupointpartners.com Internal Use Only 23
Expert Analytics. Powerful Insights. Clear Direction. About TRUPOINT Partners: Based in Charlotte, North Carolina, TRUPOINT Partners serves financial institutions nationwide. We leverage compliance know-how and data analytics to provide clients with insight and answers to many of their most challenging issues. Our team of dedicated analysts, statisticians, demographers, bankers, and compliance professionals’ are committed to providing our clients with clear Fair Lending, CRA, HMDA, and lending compliance guidance. Our goal is to reduce our client’s regulatory compliance burden and exceed their expectations every day. Request more information and see why over 500 financial institutions’ consider TRUPOINT Partners an indispensable part of their organization. Internal Use Only 24
Training Outline Reintroduction to Fair Lending Debunking the Eight Common Fair Lending Myths: -"Our written policies and procedures have us covered." -"Fair Lending is really about the underwriting process." -"Our bankers fully understand fair lending compliance." -"We don't have diversity in our market area."
May 02, 2018 · D. Program Evaluation ͟The organization has provided a description of the framework for how each program will be evaluated. The framework should include all the elements below: ͟The evaluation methods are cost-effective for the organization ͟Quantitative and qualitative data is being collected (at Basics tier, data collection must have begun)
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Fair lending guarantees the same lending opportunities to everyone. Is there a law that protects my fair lending rights? Yes. The federal Fair Housing Act protects your fair lending. rights. The Oice of Fair Housing and Equal Opportunity. enforces the federal Fair Housing Act and state and local enforcement agencies enforce fair housing laws .
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Fair lending prohibits lenders from considering your race, color, national origin, religion, sex, familial status, or disability when applying for residential mortgage loans. Fair lending guarantees the same lending opportunities to everyone. Is there a law that protects my fair lending rights? Yes. The federal Fair Housing Act protects your .
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