In the current regulatory landscape, financial institutions are subject to ongoing scrutiny concerning fair lending practices. This scrutiny may arise from routine examinations by regulatory bodies or be prompted by customer complaints. Although larger banks tend to be held to higher standards in these matters, industry experts stress the importance of comprehensively understanding and mitigating risks through meticulous documentation, consistent policy application, and thorough training for institutions of any size.
Here are some key steps that apply to all institutions:
- Documentation and Consistency:
- Meticulous documentation of loan files is essential.
- Consistently use rate sheets and underwriting factors.
- Apply mitigating factors used in loan decisions uniformly.
- Document any overrides within automated underwriting systems and apply them consistently.
- Meticulous documentation of loan files is essential.
- Employee Training:
- Implement regular training programs for employees.
- Ensure training emphasizes consistent documentation practices.
- Proactive Risk Management:
- Stay informed about enforcement actions and litigation related to fair lending.
- Take proactive steps to mitigate potential risks.
- Fair Lending and CRA Programs:
- Understand the interaction of CRA and Fair Lending laws. Manage Community Reinvestment Act (CRA) and Fair Lending programs effectively.
- Policy Review and Enhancement:
- Regularly review and enhance loan policies to foster consistency; be fair lending-friendly; and minimize any disparate impacts on protected groups.
- Data Analysis:
- As feasible, utilize regression and statistical analysis for fair lending to expand the scope of monitoring efforts and enhance precision.
- We are in a data-driven world: Leverage data to understand and address fair lending risk.
- Expertise and Guidance:
- GET ADVICE. Seek external expertise to navigate the complexities of fair lending.
- Work with outside consultants periodically to improve compliance efforts from a policy, procedural, and independent review standpoint. Even if programs are managed internally, all of them need a second look at least annually.
Fair Lending Compliance Checklist for Banks:
- [ ] Review and update loan policies: Ensure they align with current regulations and best practices.
- [ ] Implement a comprehensive training program: Train employees on fair lending laws, regulations, and the bank’s policies.
- [ ] Ensure consistent application of underwriting standards: Avoid subjective decisions and document all exceptions.
- [ ] Monitor lending data: Regularly analyze data to identify potential disparities.
- [ ] Conduct self-assessments: Proactively identify and correct potential problem areas.
- [ ] Stay informed: Keep up-to-date with the latest regulatory changes and enforcement actions.
- [ ] Seek expert advice: Engage with consultants to provide guidance and support.
How Premier Insights Can Help
Premier Insights offers a range of services to help financial institutions protect and optimize their lending practices, manage risk, and ensure compliance. Financial institutions have utilized Premier’s expertise, personal attention, and scope of services for 30 years to provide confidence in their Fair Lending and CRA programs. Premier can help your institution by providing analyses you can trust and help guide lending practices and reduce risk.
