You don’t have to be a hypochondriac to be a little nervous about waiting for the results of a blood test, especially if you had cause to believe you might have some serious illness. The financial world’s equivalent of a blood test is the Fair Lending examination. Your examiner essentially puts your institution under the microscope to reveal any Fair Lending problems. This can be a nerve-racking experience if you aren’t confident in your institution’s Fair Lending Policy and practices.
Regulatory examiners expect financial institutions to adopt a comprehensive Fair Lending Policy; something that goes beyond simply incorporating a fair lending statement into your lending policy. Examiners want a separate policy that not only acknowledges your institution’s commitment to compliance with all fair lending requirements, but also identifies how your institution will monitor for and ensure compliance across your organization. Having a strong Fair Lending Policy will not only ensure a successful Fair Lending exam, but will also eliminate any anxiety that your institution’s “blood test” will yield unwanted results.
Here are a few items your Fair Lending Policy should include:
1. Compliance Throughout the Lending Process
Examiners want to know that you will ensure compliance throughout the entire lending process. This means your policy should address fair lending compliance as it relates to the marketing and advertising of your loan products, loan origination across all delivery channels, your loan decisioning process, including automated decisioning systems, and your loan servicing and collection activities.
2. Fair Lending Training
Your policy should address how new staff members and existing staff members will be trained in the fair lending requirements. The training should be customized to the specific job functions of the staff members and be sure to include training on the new HMDA reporting requirements that will begin in 2018.
3. Ongoing Compliance
Your policy should detail how you will monitor for compliance on an ongoing basis. This could include periodic reviews of approved and denied loans to ensure consistent application of credit union underwriting policies. In addition to your lending department, your monitoring efforts should include how you will monitor your call centers, social media channels and your complaint logs. For example, for your call centers you may want to include periodic reviews of the scripts used by the call center staff or used by your outsourced call center, as well as periodically listening to live or taped conversations between the call center staff and your customers or members. Also, your policy should include whether you assess your HMDA data for red flags that might indicate any potential discriminatory practices or trends and how HMDA reporting errors will be addressed to ensure correct HMDA data reporting.
4. Collection and Servicing Activities
Don’t’ forget about your collection and servicing activities. Your policy should include a process to periodically review your collection files to ensure that members of protected classes are afforded the same debt relief opportunities and are not treated more harshly than non-minority borrowers.
5. Vendors and Lending Partners
Lastly, your policy should address how you will monitor your vendors that are associated with your lending, servicing or collection departments for fair lending compliance. Particular attention should be paid to indirect lending partners to ensure that they are adhering to fair lending requirements, particularly as it relates to pricing.
Building a Fair Lending Policy that addresses each of these areas will go a long way toward making sure your fair lending blood work doesn’t reveal any painful surprises.
For information about AffirmX’s Fair Lending Risk Assessment service, please contact us at firstname.lastname@example.org.
Prior to joining AffirmX in July 2012, Ms. Pannier was President and CEO of a federal credit union. Ms. Pannier also previously served as Senior Compliance Counsel for the National Association of Federal Credit Unions (NAFCU) and Director of its Regulatory Compliance Department. In addition to her expertise in the legal and regulatory fields, Ms. Pannier has 20 years of credit union operational experience having previously served in a variety of capacities, such as Credit Manager, Director of Research and Development, and Vice President of Marketing. Ms. Pannier holds a Bachelor of Science degree in Economics from Towson University and a Juris Doctorate from the University of Maryland School of Law. Ms. Pannier is a member of the Maryland Bar Association and the American Bar Association and has served on the faculty of the NAFCU Compliance School, the CUNA Mortgage Lending School and the Credit Union Executive Society School of Business Lending.