You Cannot Overlook Fair Lending Compliance

Written by: Bill Dolan, CMB, AMP

During the 70’s and 80’s, if you are a dinosaur like me, you’ll remember the TV commercial that ran for “FRAM ” oil filters where the mechanic would say, “You can pay me now, or pay me later.” A catchy phrase back then but one that still resonates and holds much relevance, especially today within the lending industry.    

Under the current Administration, both the DOJ and CFPB have advised FFIEC to focus their attention on the Fair Lending initiative, a real hot button over the last several months.     

As a financial institution, building a strong and effective Fair Lending Compliance Risk program and implementing critical controls is essential, for it covers every aspect of the credit process from marketing to servicing, applying to all your loans, not just HMDA loans.

In this current cycle, each and every bank and credit union today, are watching expenses, cutting from marketing, travel, training, reducing headcount, if necessary. But there is one area that institutions cannot cut corners with and that is compliance, especially Fair Lending Risk.

At SCA, we realize that Fair Lending compliance can be extremely complex at times, but our team of proficient and skilled compliance consultants can help you build a stronger Fair Lending compliance program making it far simpler for you.

Ask yourself the following questions regarding your Fair Lending program today:

• Does my Fair Lending program effectively capture and mitigate our Fair Lending risk to our company’s inherent risk profile?

• Does your bank or credit union market your services equally to equivalently situated individuals and are you receiving applications with your market demographics?

• How do you assess steering risk? Are your LO’s or branches directing certain applicants and borrowers to particular products?

• How are you analyzing your data to identify disparities?

• How closely are you paying attention to the number and rate of your originations and denials?

• Are you assessing your risk when it comes to vague or subjective underwriting criteria when you analyze your data?

• Are your similarly situated borrowers receiving similar pricing or are there disparities in the pricing changed?

• Do you analyze your servicing risk when it comes to addressing consumer complaints and do you have any potential disparities when it comes to collections processes, decision processing times, and loss mitigation servicing options?

• Do you know your Redlining risk? If not, you sure need to because it is a top priority for your regulators.

Regulatory scrutiny of Fair Lending will continue to heighten but by partnering with SCA, we will provide you with the trust and confidence we have been providing our clients for almost thirty-three years.

You may be asking yourself, why do I need this service? What has changed under Fair Lending? What has changed is the amount of scrutiny and enforcement that has been ramped up, especially with Redlining.  Attorney General Garland spoke at a recent press conference and stated that there were 20+ enforcement action cases pertaining to Redlining alone, with dozens of active investigations in their pipeline. That in itself should be a cause for concern and raise a few red flags, as lenders, both big or small are exempt when it comes to Fair Lending and Redlining.        

At SCA, we pride ourselves on advising our clients to be proactive and to be prepared instead of waiting for a Fair Lending examination to strike. The implications today for an institution not being prepared for a Fair Lending examination should be of the greatest importance to you because it has the most serious impact and repercussions to any bank or credit union such as downgrading in key compliance ratings, legal risks, civil monetary penalties and restitutions to your affected borrowers, delays or denials of corporate applications and potential mergers and acquisitions, but to me, the greatest reverberation and backlash is reputational damage that can last for years.

Let SCA shore up your institution’s Fair Lending Compliance Risk Program along with Fair Lending Best Practices. As the adage goes, you can pay SCA the cost of implementing a strong Fair Lending Risk Program today, or you face potential consequences further down the road.

For more information regarding SCA’s consulting and fulfillment services, reach out to Bill Dolan, Director at: Wdolan@scapartnering.com or (617) 694-2617. Visit SCA’s website at www.scapartnering.com.