Fair lending laws have been in place for decades, but the regulatory focus on fair lending has become more acute in recent years. On its own, that's not necessarily a bad thing—but the regulators' heightened attention is exposing organizations to increased fair lending risk.
Lenders that fail to comply with fair lending laws not only face steep fines, they also face a serious reputational risk. And, when it comes to fair lending compliance, it's important to remember that discrimination does not need to be intentional in order for it to violate the law.
Here are 16 proactive steps you can take right now to get out ahead of potential risk.
Review your current policies to make sure they address key aspects of fair lending compliance
- This includes policies around marketing, pricing, underwriting, and collections
- Ensure these policies are communicated regularly throughout the organization.
Update your fair lending policy statement and review it often
- This is a good best practice across the board, but especially for those with a high volume of mortgage loans or any other segment identified as high risk.
- Ensure that your policy addresses all of the elements required by Regulation B.
- Review your fair lending policy statement quarterly if needed, but review it at least once a year.
- Things change within the business. Take the time to stay on top of what’s happening and update policies appropriately.
Hold fair lending training for employees, officers, and board members regularly
- Fair lending training should be completed by all employees involved in any aspect of taking, evaluating, acting on a credit application, or furnishing/maintaining credit information. In addition, persons involved in marketing and credit operations should receive appropriate instruction relative to their responsibilities
- The Fair Housing Act goes a step further to require training for persons involved in “any aspect of residential real estate including financing, selling, renting, advertising, brokering, and appraising of housing.”
- Training should include specific examples of how to avoid discrimination and should include training on how to avoid unconscious biases which could result in inequities in the lending process.
- Training should also include scenarios that cover how to evaluate creditworthiness, how to avoid disparate impact, and how to be aware of redlining issues.
- Board members should understand what their responsibilities are as well as their potential liability in terms of fair lending laws, and training can help them identify areas where the organization may be vulnerable to liability and understand their responsibilities in terms of overseeing risk management.
Take advantage of new guidance from the CFPB or Federal Reserve Board when it's released
- For example, the CFPB revised its "Fair Lending" booklet in 2017 explaining Regulation B, which includes changes from the Dodd-Frank Act and clarifies the regulation's requirements for collecting information about an applicant's race and ethnicity.
- The CFPB recently announced changes to its supervisory operations to better protect families and communities from illegal discrimination, including in situations where fair lending laws may not apply, which includes an update to its exam manual for evaluating UDAAPs.
Implement strong oversight by management and the board
- Senior management and the board should oversee your fair lending compliance efforts and make sure that every employee is aware of their personal role and responsibilities as it relates to fair lending practices.
Collect and analyze HMDA data annually to identify potentially discriminatory trends
- Perform regular statistical analysis for disparities based on prohibited class in pricing, underwriting, or other aspects of a credit transaction.
- Keep track of "problem areas" that develop in your analysis and be ready to explain them. If they cannot be explained, then implement corrective action.
Be sure to monitor all marketing and outreach activities as part of larger fair lending risk management programs
- This typically includes a review of the entire loan origination process and a fair lending risk analysis in your marketing plan development
Regularly assess marketing materials and understand the algorithms and data points used to distribute them
- Campaign awareness is critical—who is the target audience? How and why are they being targeted?
- Make sure that marketing materials do not contain any discriminatory statements or information (e.g., age and family size limits) or images (e.g., single borrower) that could be characterized as steering, redlining or otherwise limiting access to credit.
Ensure targeted campaigns aren’t based on personal characteristics
- Proactive compliance involves developing and implementing policies and procedures that are designed to ensure targeted campaigns aren’t based on personal characteristics protected under the Equal Credit Opportunity Act (ECOA)—this includes race, gender, a person’s interests, behaviors, demographics or geography.
Monitoring for compliance with other policies and procedures intended to reduce fair lending risk, including controls on loan originator discretion
- Review the incentive programs for loan originators to ensure that they are designed to promote compliance with fair lending laws and regulations.
- Monitor loan originator activities to reduce the risk of unlawful discrimination and steerage of applicants into higher-priced products.
- Observe how the institution processes applications and how loan originators interact with consumers.
- Ask loan originators questions to assess their knowledge of fair lending requirements and their understanding of the fair lending policy.
Monitor consumer complaints submitted both internally (via calls, emails, etc.) and externally (to regulators)
- Monitoring is helpful for identifying any trends and determining whether additional training is needed or changes should be made to your policies and procedures.
- Learn how to use the CFPB's Consumer Complaint Database in your compliance program with this cheat sheet.
- Establish an effective complaint resolution process for fair lending complaints and provide for prompt corrective action where appropriate.
Implement a complete social media compliance process
- This should include content approvals, content monitoring, brand mentions, client comments or complaints, etc.
- Conduct periodic reviews of social media usage policies and procedures for compliance with fair lending laws and regulations.
- Implement an automated technology that can discover and monitor mentions of your brand across social media platforms and can monitor employees’ posts for compliance with fair lending laws.
Monitor any vendors, partners, and third parties who market on your behalf
- If your brand is included in their messaging, you may be held responsible—even if you were not directly involved in the transaction.
- As part of their oversight responsibilities, the CFPB has focused a lot of attention on organizations’ relationships with third parties.
- You must be proactive about monitoring those entities for compliance with fair lending laws.
Avoid the risk of redlining by understanding any geographic filters in use
- Don’t place constraints on your customers by making assumptions about their situation and what you think is the right product for them.
- For instance, if you're only pulling credit on applicants who live within a certain radius of your main branch, you may not be preventing redlining as intended.
- When pulling credit on loan applicants that are not based strictly on geography, you can better meet the requirements set forth by ECOA and HMDA.
Provide controlled marketing messaging that’s pre-approved by compliance
- Eliminate the risk of copy that violates fair lending laws.
- Test all messaging before launching campaigns to ensure they don’t have unintended consequences for specific ethnicities or genders.
- Use constant monitoring and feedback loops to ensure ongoing compliance.
Whenever possible, make sure that you are being proactive and not reactive
- You want to be able to identify any possible compliance issues before they occur.
- Get out ahead of examinations and enforcement actions by taking the steps now to comply with fair lending laws and avoid paying for non-compliance later.
Get more expert insights on marketing compliance
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Be Proactive In Your Fair Lending Compliance Efforts with PerformLine
PerformLine’s ready-to-use rulebooks are an essential part of our platform that help make compliance easy. Specific to fair lending and racial equity, our Bias & Discrimination and Fair Lending Act (FLA) rulebooks will quickly flag any compliance issues for review by monitoring content against these rules.
These proprietary rulebooks, paired with PerformLine’s powerful omni-channel platform and our team of experts, will elevate and strengthen your organization’s compliance management system.