Fair Lending: If It Was A Snake...
Being a native Texan, one learns to remember (and live by) the numerous “gems” of wisdom passed down through the generations from our sage pioneer ancestors. Sayings like “Make hay while the sun shines…” teaches us to diligently work when the opportunity is there. “That dog don’t hunt” is another way of telling a person that something just doesn’t “add-up” or make logical sense. My favorite, and an appropriate description of the current compliance environment, is “If it was a snake, it would have bitten me.” Such is the case with Fair Lending.
In 2009, Interagency Fair Lending Examination Procedures were released to banks and credit unions in the form of 09-RA-09. Not much was said at the time with the exception of “It’s coming down the line…” (another convenient idiom used as a warning of the need for impending action or as a reason for others to procrastinate). Recently, NCUA began sending out letters advising of pending Fair Lending Examinations to be performed off-site for the receiving credit union(s). Obviously, we need to realize that we are now “down the line” and the “rattling” you may be hearing isn’t a baby; however you don’t have to be “bitten”.
There are a number of actions that you can take to be better prepared should your credit union become the recipient of a Fair Lending examination:
Review Basic Data Resources – this includes Loan Products, Lending Markets, Decision Centers, Lending Time Frames, and elements of Prohibited Basis;
Board and Management Support – Review of Policies, Procedures, and any reports related to Fair Lending. Policies should include Lending (Consumer, Real Estate, Business); Fair Lending (addressing ECOA/Reg. B and Fair Housing); Ability to Repay (can be separate or part of the Lending Policy), and; Appraisal Policy, Procedure and Guidelines;
Application Activities – Solicitation, Prescreening, Assistance for Borrowers/Members, Underwriting, Pricing and handling of Denials;
Lending Standards/Practices – Staff experience and training; Servicing activities; adherence to related rules (ex. SAFE Act Review);
Collection – Policies, Procedures, Practices in dealing with various member economic issues;
Internal Controls, Review – with relation to the above referenced areas.
In following through with the aforementioned items relating to Fair Lending, the Compliance Officer (or someone with that responsibility) such facilitate a Fair Lending Risk Assessment to determine the presence and levels of risk associated with lending and related operations. Not only should inherent risk be identified and quantified, but the potential impact of those risks should be documented.
There is no disagreement that we exist to serve our members through offering the best deposit and lending products of which we are capable. Credit union management should remember that fairness in our handling of member loans is not always a question of whether we are actually being equitable but how we are perceived in accomplishing that. As has been pointed out many times (by regulators and auditors alike), detailed documentation is always the best evidence. Keep an eye out for and monitor those items that quietly show up with the need for action “down the line”. In the words of Indiana Jones, “…I hate snakes…”