Last month, the regulators hosted the annual Interagency Fair Lending Hot Topics webinar. In it, they talked about HMDA, Fair Lending analysis, consumer lending, and more. Read on to learn pro tips from the webinar.
In last month's Interagency Fair Lending Hot Topics webinar, which is hosted by the Board of Governors of the Federal Reserve System, the regulators shared unique perspectives on their priorities for 2018 and beyond.
In this post, you'll learn the key areas of focus, differences between this year and prior years' webinars, and pro tips to help you improve your compliance.
The key topics discussed were:
- HMDA
- Special Purpose Credit Program
- Consumer Lending Compliance
- Fair Lending Analysis and Monitoring
- Consumer Complaints
- Denial Disparities in Fair Lending Compliance
[Get this free kit, Prep for Compliance Success in 2018, to learn even more pro tips!]
HMDA was the focus of two of the seven sections in the webinar: "HMDA Update" and "What's Up With HMDA?". It is impossible to know the impact of the HMDA changes on Fair Lending compliance yet - but the regulators are very focused on HMDA compliance.
Pro Tip #1: If you're a HMDA reporter, expect regulatory attention on HMDA to keep increasing, and prepare accordingly. More data means more insight and more opportunities to identify potential risk of discrimination. As the months pass, the regulators will likely get more sophisticated at analyzing your data for compliance and risk.
If you're not a HMDA reporter, know that the regulators and examiners are likely to use the learnings gained from deeper analysis in your exams, too. We don't know yet what that means in a practical sense, but now is definitely not the time to revert to Excel for your Fair Lending analysis.
Speaking of analysis and non-HMDA lending, this webinar focused in particular on consumer lending analysis for Fair Lending compliance. In the webinar, the regulators noted that while consumer loans serve the community, Fair Lending risks do exist and need to be actively managed by financial institutions.
Pro Tip #2: Fair Lending applies to more than just HMDA, and consumer lending will be under unique scrutiny as the focus on HMDA lending also increases. Your non-HMDA data analysis should look for disparities that may indicate discrimination, particularly in pricing.
The webinar noted that the potential for Fair Lending risk in consumer loan pricing exists when:
- The bank grants the loan originators broad discretion to set the interest rate and fees.
- The bank does not use rate sheets or other pricing guidelines.
- The bank does not require the loan originators to clearly and consistently document pricing decisions, including exceptions.
- The bank does not monitor for potential pricing disparities on a prohibited basis.
This focus on consumer lending is unique. In fact, since these webinars began in their current format in 2013, it's the first time that consumer lending has been a "hot topic." In the past, consumer lending might have been discussed in the context of other subjects, but never as a primary focus in its own right.
If you make consumer loans, you need to be analyzing them for Fair Lending risk. It's really that simple.
(If you're interested, here are links to the webinar decks for 2017, 2016, 2015, 2014, and 2013. Before 2013, the webinars took a slightly different format. Here are the slides for 2012 and 2011. For more archives, click here.)
Another area of compliance that is usually included in these Hot Topics webinars was omitted this year: Redlining risk. Last year, more than half of the webinar was spent on Redlining. It was also a focal point in the 2012 webinar, and has been discussed in many of the other years. In this year's Hot Topics webinar, Redlining was barely mentioned.
However, we don't believe that this is due to reduced interest in Redlining compliance. In our recent experience with customers who are dealing with exams and regulatory scrutiny, we've found the opposite to be true - Redlining remains a priority. Even though it was omitted from this Hot Topics webinar, the DOJ listed it as one of their top priorities earlier this fall.
Pro Tip #3: Even though Redlining wasn't directly addressed, it remains important. The additional HMDA fields will provide even more data to be analyzed, and will likely result in even more detailed perspectives on Fair Lending disparities, including Redlining. Ignore the regulatory focus on Fair Lending - and Redlining risk - at your own peril.
The best way to understand your Fair Lending risk in every phase of the lending process (from Redlining all the way to Servicing) is through data analysis. Even though the upcoming HMDA changes are overshadowing other areas of compliance, it's important to keep an eye on your Fair Lending risk across your entire institution.
[Read Also: 7 Ways of Analyzing Your Data for Redlining Compliance Risk]
During the webinar, the regulators also emphasized how important Fair Lending data analysis is to your institution's compliance management program.
Pro Tip #4: Even if you don't think you have risk, you need to be monitoring your Fair Lending performance. Take some time to evaluate your Fair Lending monitoring program, including your Fair Lending data analysis program, to ensure that you're actively identifying and effectively managing risk.
When the regulators review your Fair Lending risk, they'll evaluate your compliance management system. As part of this process, they will consider your Fair Lending monitoring program and Management Information Systems (MIS).
Below are a few quotes from the webinar that provide more detail:
- "The components of a Fair Lending monitoring program will differ based on a bank’s size and complexity but should include, at a minimum, an analysis of a bank’s lending data, and an exceptions and overrides review."
- "Banks should conduct periodic analyses of their bank data for Fair Lending risk."
In addition, the regulatory agencies highlighted that analysis should cover non-HMDA data. The webinar focused on the gender- and ethnicity-identification methods, saying "banks should implement a reasonable method to identify credit applicant characteristics that are not present in all loan data."
In different sections of the webinar, the regulators covered more qualitative aspects of Fair Lending compliance, such as Board oversight, exceptions policies, and consumer complaint management. However, this isn't exactly new. Almost every Hot Topics webinar talks about the various aspects of a strong compliance management system.
Pro Tip #5: Remember that, the more things change, the more they stay the same. Even as Fair Lending compliance gets more complex, the fundamentals stay the same. Now, as ever, your goal is to develop a compliance management program commensurate with your institution's risks.
It's easier said than done, especially with changes like the HMDA Final Rule and the Regulation B Special Purpose Credit Programs. However, it can be helpful to keep your overall goal in mind, even as the routes to achieve it become more complex.
TRUPOINT Viewpoint: As you prepare for 2018, you might be interested in this free resource! Know that TRUPOINTis ready to help you crush your Fair Lending, HMDA, CRA, Redlining, and BSA/AML compliance goals!
Subscribe to the Nsight Blog
Share this
Top 13 Proven Benefits of HMDA Software for Fair Lending Compliance [Part 2]
3 Fair Lending Focal Points for the CFPB in 2017
