Lenders are focused on bringing in and closing loans, but that’s not where their responsibility to a financial institution ends. Lenders also have an important role to play with compliance.
Fair lending regulations are designed to prevent discrimination in any aspect of the lending process. As a compliance professional, your fair lending compliance management program is all about ensuring that similarly situated individuals are treated similarly, and the potential for discrimination to occur is limited.
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Lending personnel should always be aware of:
These are the foundational elements of a fair lending program.
What is Fair Lending Discrimination?
Everyone! Compliance is a team sport. Anyone working in the institution who isn’t aware of compliance could cause a risk.
It starts at the top. Your board of directors needs to set the tone. Everyone at the institution is accountable for compliance—including loan officers and servicers.
Ignorance is not bliss. If you are not compliant or do not understand the importance of compliance, it’s not just a problem for your institution. It can also hurt your career. Compliance violations stay with you forever. They are public records and easily searchable. If your institution is subject to penalties or has a bad reputation, it can prevent you from seeking new opportunities at other institutions.
Don’t be the lending employee responsible for causing major issues.
Tips for Prepping Commercial Lenders for Fair Lending Changes Ahead
3. Fair lending is hard to wrap my head around. How can I help my institution prevent fair lending enforcement or litigation?
One of the most helpful thing you can do is report complaints.
When your FI receives and records a complaint, it is gaining valuable insights that can help uncover non-compliance—whether it’s an outside regulation or an internal policy. Complaints provide an opportunity to help you know that there is an issue that needs to be corrected.
Everyone needs to follow your institution’s policy for complaint management and properly log complaints—even if you have a verbal conversation and you think that you solved the issue already. With so many places for consumers to complain—everywhere from social media to the Consumer Financial Protection Bureau (CFPB)—your institution needs to know what customers and members are saying and leverage that information to correct deficiencies before they are brought up by an examiner or consumer group.
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The potential for Unfair, Deceptive or Abusive Acts and Practices (UDAAP) risk is always a consideration—especially when considering the life of the loan from the time of solicitation and application through servicing. Any deviation of treatment, terms, or offerings from fee waivers to loss mitigation can bring UDAAP scrutiny.
The CFPB has filed actions against servicing companies for deceiving borrowers and mishandling the borrower’s payments. Third parties that handle any mortgage, loan process, or marketing for your institution can also hurt you, your reputation, and your borrowers.
Remember: Neither borrowers nor regulators differentiate between your institution and third-party vendors working on your behalf. They will hold your institution responsible for any harm they cause.
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You need to know enough about lending compliance to have a good, solid understanding of rules and expectations.
It is not about the citations or being able to regurgitate the law. You need to understand the concepts, the impact, and your own policies and procedures so you can put them into action when working with borrowers. You need to be armed with enough knowledge to understand fair lending and/or UDAAP pitfalls. You should be able to make decisions that put your borrowers’ needs first and align with your institution’s risk tolerance.
Want to learn more? Download our whitepaper 7 Fair Lending Compliance Risks.