League InfoSight Highlight: Matters Requiring Immediate Attention (MRIAs)

By Glory LeDu, CEO, League InfoSight & CU Risk Intelligence

We have often mentioned that the Consumer Compliance Outlook published by the Federal Reserve System is a great resource. Their fourth issue was released this week, and the main article focuses on the top-issued fair lending matters requiring immediate attention (MRIAs) and matters requiring attention (MRAs). The Federal Reserve produces this publication (and this article specifically) to help their covered institutions assess compliance risk by identifying areas where other financial institutions have faced challenges, how they remediate those challenges, and provide ways to mitigate those risks. This is insight that can benefit us all.

Below are the top Fair Lending MRIAs/MRAs for state member banks that were identified by the Federal Reserve in 2022.

1. Failing to conduct Fair Lending Risk Assessments. The goal of a risk assessment is to identify and mitigate the residual risk that remains after identifying fair lending risk and the controls implemented to mitigate the risks.
   
   
2. Failing to conduct Fair Lending Training. Compliance departments can become complacent and overlook the benefits of recurring fair lending training, especially for board members and management. Training is most effective when it’s recurring, often annually.
   
   
3. Failing to Gross Up Nontaxable Income When Underwriting is Based on Gross Income. The primary reason is that policies and procedures are not in place to require underwriters to gross up nontaxable income when underwriting is based on gross income. Banks have been likely to maintain this policy or practice, calculating income for products not subject to investor standards that require gross-up of income, such as the standards of Fannie Mae and Freddie Mac.
   
   
4. Risk Monitoring and Management Information System (Exception Monitoring). If loan officers have discretion, it should be monitored, especially in pricing or underwriting. Having clear, written, objective pricing and underwriting criteria helps to limit lender discretion; allowing loan officers to make exceptions to those rules can increase fair lending risk.  Oversight should be maintained over loan officers’ use of discretion by tracking and monitoring (including the frequency, amount, and magnitude) to confirm that exceptions do not result in potential disparities on a prohibited basis.
   

Make sure to reference the resources available within CU PolicyPro (Policy 7120: Fair Lending) and InfoSight (Fair Lending Laws and Regulations under the Loans and Leasing Channel). 

As always, if you have any questions, comments, or concerns, please reach out to us at [email protected].