One of the primary risks associated with fair lending is the concern for disparate treatment when it comes to Marketing and related activities. Is your marketing department prepared to support your organization with crisp and efficient answers to some fairly basic questions?
Marketing is one of the primary areas of risk associated with Fair Lending. Below, we will outline three ways that marketing plays a key role in your institution's Fair Lending compliance.
Your marketing team should be prepared to engage with the regulators on the following three subjects:
Consider the following: How does your lending compare to your underlying market demographics? Is your proportion of applicants significantly different than the group’s representation in the total population of the market area (e.g. census)? Using HMDA data as a high-level proxy for demand and eligibility for debt products across your market, how do your lending activities (demographics-associated applications and originations) compare to the market’s HMDA data?
Best Practice: The marketing team should be able to compare and contrast the underlying Census Data, HMDA (even if you are not a HMDA reporter), the organization’s lending activity. This analysis of market demographics will allow you to gain a better understanding of how your institution serves your respective communities.
Consider the following: How does your marketing addresses the entire market area (including minority populations)? What marketing mediums are employed (sponsorships, radio advertising, lead purchases, etc.)? What is your allocation of marketing dollars between these mediums? What prohibited basis groups do these mediums serve?
Best Practice: The marketing team should be able to discuss the organization’s marketing efforts and expenditures in comparison to the underlying market demographic and lending results. This data will help your institution have a better understanding of how marketing initiatives compare to the lending results.
Consider the following: Do any of your marketing programs exclude one or more regions or geographies within your marketing area that have higher percentages of minority group residents in comparison to the remainder of the marketing area? Do any of your distribution channels focus on serving one racial or ethnic group in the market?
Best Practice: The marketing team should be able to discuss the macro marketing approach (e.g., Direct Mail and Distribution Channels) and what techniques are used to bring awareness of the organization’s products and services. With this awareness, you may be better able to assess whether your marketing and distribution efforts are reaching all members of your community.
Conclusion
Fair Lending is a team sport for financial institutions. Marketing is only one of the main Fair Lending risks, but it's very important. Your marketing team should understand fair lending and understand their role (and risk) associated with their functional responsibility. We have observed financial institutions where the firm’s marketing representatives lack clear answers in regards to the firm’s marketing efforts. A small investment of time and effort will help your institution develop crisp responses to these considerations, and will demonstrate the firm’s understanding of and commitment to Fair Lending.
If your organization does not have a designated head of marketing, who in the organization is prepared to discuss the financial institution’s approach to marketing? Will they have clear and direct answers?