Introduction
Recently the Non-Discrimination Working Group of the Financial Fraud Enforcement Task Force presented a webinar entitled “Fair Lending Hot Topics.” Presenters and their topics were:
U.S. Department of Justice – “Recent Fair Lending Enforcement Efforts”
- Federal Deposit Insurance Corporation – “Risk Assessment”
- Consumer Financial Protection Bureau – “Fair Lending Compliance Management”
- National Credit Union Administration – “Data Reporting and Analysis”
- U.S. Department of Housing and Urban Development – “FHA LGBT Rule, Disability Discrimination, Maternity Leave Discrimination”
- Office of the Comptroller of the Currency – Loss Mitigation and Loan Modification” and
- The Federal Reserve Board – “Redlining”
While the webinar lasted 1.5 hours, I have highlighted some of takeaways below. If you want to download the slides, please go to our website at www.preissco.com.
Department of Justice
Recent cases have involved steering, pricing and underwriting. The underwriting case was Luther Burbank Savings which dealt with a minimum loan amount of $400,000.
- There is a trend towards “synergistic partnerships,” i.e. joint investigations, with other agencies rather than single agency investigations. An example is CFPB joint investigations with state agencies. The import of this trend is that it allows for investigation of more complex cases and increased referrals.
- When there are contested litigation as in the case of GFI Mortgage, DOJ is more aggressive. GFI admitted to factual stipulations rather than the usual no admitting to doing anything wrong. Furthermore, GFI had to pay the maximum civil money penalty despite being in financial difficulty.
Assess fair lending risk in the following six areas: pricing, underwriting, steering, redlining, marketing and loss mitigation activities.
- Two points that were little different: (1) steering does not require financial harm and (2) redlining applies not only to applicants not being able to get loans, but it also applies to services.
Depending on the nature, size and complexity of an organization, an effective compliance management system:
- Maintains up-to-date fair lending policies and procedures
- Provides regular fair lending training
- Conducts on-going monitoring for compliance with policies and procedures
- Reviews policies for potential violations regularly
- Conducts statistical analysis to identify potential disparities
- Assesses the marketing of loan products
- Accurate HMDA data is a legal requirement and inaccurate data can indicate a weak compliance management system.
When the Fed is assessing redlining risk, it assesses:
- How the institution compares to other “similarly situated” institutions with respect to originations, denials, etc. by geography
- Does the bank have branches in majority minority areas?
- Does the bank market to majority minority areas in the same way it does to other geographies?
Given the aggressive nature of the agencies on the consumer side, can it be long before the same approach comes to commercial lending?
- Given the aggressive nature of the agencies on the consumer side, can it be long before the same approach comes to commercial lending?
- A strong compliance program, while not inexpensive to design and maintain, is significantly cheaper compared to defending against an allegation of differential treatment. Our blog on per applicant restitution for some of the recent DOJ settlements range from $1,000 to $5,000 plus CMPs and contributions to various other programs.
Preiss&Associates is a fair lending consulting firm with more than 20 years experience in fair lending analysis. Contact Rick Preiss at 847-295-6881 or rpreiss@preissco.com.
