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Fair Lending: Dotting I’s and Crossing T’s
Wednesday, December 30, 2015 6:35 AM

By Steve Gibbs, CUCE, BSACS, AVP Shared Compliance, Credit Union Resources

Back in the day (the early 1980s), the subject of fair lending was simply a case of putting red pins in maps, looking at HMDA registers to make sure there was diversity among approvals and denials, and asking some very straightforward questions to loan officers and related staff. Credit unions I’ve served with have always been the role models for fair lending, providing funds to all people in all walks of life, remembering the philosophy: “People Helping People.”

Unfortunately, we are only one of a multitude of financial institutions available to the public, some of which have elected to put unfair criteria on various groups to avoid lending to them or charge them exorbitant interest rates. Because of this, financial institutions (across the board) are receiving fair lending examinations from their regulators. Credit unions have seen these in recent months through NCUA. 

Will this affect my credit union?

Yes, most likely. All financial institutions are subject to the underlying regulations (Regulations B and C, to include the Fair Housing Act, or FHA). NCUA, as well as other agencies, published Letter No. 13-FCU-02, 2013 Fair Lending Examination Program and Compliance Assistance. It's a good source of guidance to what the examiners want to see from you and your operation.

According to NCUA, the following are among their numerous decisional factors:

HMDA Outliers. NCUA will review the federal credit union’s annual Home Mortgage Disclosure Act (HMDA) report. This report must be filed if the federal credit union makes mortgages, has an office in a metropolitan statistical area, and is above the asset threshold required to report HMDA data. If a review of the HMDA report indicates that the federal credit union’s lending practices fall outside the normal range for pricing, denials, withdrawals, or lending terms when compared to other financial institutions, the federal credit union is considered an HMDA outlier. Federal credit unions that are HMDA outliers and demonstrate the potential for higher fair lending risk are subject to a fair lending exam in accordance with the FFIEC exam procedures.

Fair Lending Violations. In addition to HMDA data, NCUA will consider whether a federal credit union has received fair lending findings or violations noted in recent safety and soundness exams. This includes a review of the number of compliance exceptions for fair lending or other consumer lending regulations.

General Compliance Risks. Federal credit unions that receive moderate or high risk ratings on compliance issues during their most recent safety and soundness exam may be selected.

Other Factors. NCUA will also consider whether a federal credit union demonstrates the potential for higher fair lending risk because of the volume, types(s), or complexity of the products and services offered, types of communities served, and whether the federal credit union has been the subject of lending discrimination complaints.

This same issuance included the NCUA Fair Lending Guide. In addition, some credit unions are subject to an off-site fair lending supervision contact. If the off-site review indicates potential discriminatory practices or significant findings of non-compliance with fair lending laws or regulations, the credit union could receive a full fair lending exam during the next exam cycle.

There is also Fair Lending Guidance through the Consumer Financial Protection Bureau.

What can we do to be proactive?

Do your research. As we are all aware, regulatory changes are taking place every day and we cannot afford to get blindsided. Check websites for NCUA, CFPB, CUNA, and your league/association, as well as the Federal Reserve and FHA.

Make sure you have easy access to documents. As we have all heard, “If it’s not in writing, it doesn’t exist.” This will also expedite examination time as items are easily obtained.

Do a fair lending risk assessment. A risk assessment provides a clear, documented indicator to regulators that you are monitoring this area. There are a number of variations of this format available online, some more detailed than others. You may choose to do this internally or choose to outsource to give you a more unbiased review.

Educate staff. There are a variety of resources (as with the NCUA issuance) that may be used for instructional materials. As has been proven many times, a well-trained staff reduces risk from a variety of areas of liability.

Credit unions have been “living” fair lending for as long as they’ve been around. We need to remember that documentation, monitoring, and training will always lend support to our practices.