What does the year have in store for fair lending and compliance professionals?
Some speculate that the new year and new administration could bring big changes — perhaps reduced authority or even a new structure for the Consumer Finance Protection Bureau.
But if you ask the CFPB, their priorities are clear.
The CFPB’s three priorities
In December 2016, the CFPB’s Assistant Director in the Office of Fair Lending, Patrice Ficklin, outlined three focus areas for the upcoming year on the CFPB’s blog:
- Redlining: The CFPB will continue looking for lenders who may be avoiding minority neighborhoods in their lending decisions (learn more about redlining here).
- Mortgage and student loan servicing: The bureau will work to determine whether borrowers who are behind on mortgage or student loan payments face greater difficulty getting back on track because of their race or ethnicity.
- Small business lending: Acting on concerns from Congress, the CFPB will pay closer attention to access to credit for minority and women-owned businesses.
What to look out for
As Finklin points out, the CFPB’s “work so far has resulted in over $400 million in payments and credits to over 500,000 consumers who experienced discrimination, and greater efforts by lenders to monitor their own lending practices for possible discrimination.”
Institutions found to be engaging in these practices – or who appear to be engaged in these practices due to a failure to closely monitor their lending decisions – can face overwhelming penalties.
The good news is that there’s a lot we can learn from the CFPB’s actions in 2016. Here are three places your institution might start.
Assessment areas: Taking a look back at the CFPB’s redlining settlements from 2016 – for instance, with Bancorp South and Hudson City Savings Bank – knowing your institution’s assessment area is key to properly monitoring your lending decisions.
Both Hudson City and Bancorp were accused of excluding majority-minority neighborhoods from its Community Reinvestment Act assessment area. Knowing your own assessment area is key to discovering discrepancies before the CFPB does. Knowing your REMA is also a good next step.
Compliance management: A proper compliance management system is paramount when it comes to monitoring your own fair lending numbers and rooting out discrepancies. And you don’t have to take Preiss&Associates’ word for it – the CFPB themselves touted the benefits of such a program in their 2016 Fall Supervisory Highlights saying:
“As with any consumer-facing program, financial institutions can mitigate fair lending and other risks associated with providing services in languages other than English by implementing a strong CMS that considers treatment of [limited English proficient] and non-English-speaking consumers.”
While the CFPB is specifically referring to a program that monitors for discrepancies among non-English speakers, the same can be said for programs that monitor other demographics. The CFPB even includes a list of factors to monitor for in their report. Preiss&Associates would be happy to help you implement such a program.
Responsibility: Lastly, no monitoring program can be effective if the information isn’t used effectively. Who in your institution is responsible for knowing your fair lending data? And how can you ensure they have the information they need?
The January issue of Mortgage Compliance Magazine recommends ensuring your Board of Directors has a clear understanding of “the types of discrimination and the requirements for an appropriate program.”
“As a part of the process of getting your Board ready for 2017,” the article continues, “you should ensure they have established a fair lending appetite and have communicated that to management.”
Keep in touch
Do you have questions about how your institution can best prepare for the year ahead? Do you need help implementing a monitoring program that works for you?
This year Preiss&Associates celebrates 25 years of providing trusted fair lending and compliance expertise to both large and small institutions. We would be happy to continue that tradition with your institution. Give us a call or shoot us an email. We’d love to hear from you.