Best Practices for Analyzing Your Fair Lending Program in 2021
With each new administration comes shifts in regulatory focus and concern. As regulatory agencies begin to develop their new enforcement focus, financial institutions must proactively consider where their risk profile is most vulnerable. Having an adaptive fair lending program that truly identifies both strengths and risk mitigants, as well as potential higher risk areas and areas for growth and improvement, will be crucial in communicating effectiveness to regulators and establishing customer confidence.
An effective fair lending program establishes a culture of nondiscrimination and includes policies, procedures, and risk assessments that evolve with the nature of financial institutions’ products and services. Financial institutions should establish a robust program that includes exception monitoring, secondary review, training, and consumer complaint monitoring, and the program should be commensurate with your institution’s risk profile.
As the new administration begins its implementation of administrative enforcement in consumer protection, it’s expected that in 2021, a focus on fair lending will remain a high priority of regulators. In October 2020, the U.S. Department of Housing and Urban Development implemented the disparate impact standard final rule, which allows for liability to be established based on a policy’s or practice’s discriminatory effect, even if the practice wasn’t motivated by a discriminatory intent. Financial institutions should assess whether the lending decision policies and procedures in place might result in any effect that could be interpreted as discriminatory and take prompt action to implement mitigants.
In January, H.R. 166, Fair Lending for All Act, was introduced. If passed, this bill will add sexual orientation, gender identity, and an applicant’s location as classes protected against discrimination. This may require additional analysis when performing an annual fair lending risk assessment.
Additional recently released guidance from the FDIC provides beneficial tools to help financial institutions determine applicable areas of focus when performing the annual fair lending risk assessment. On February 23, the FDIC released five technical assistance videos for financial institutions regarding fair lending oversight. In addition, on March 1 the agency expanded its Consumer Compliance Examination Manual and Fair Lending Scope and Conclusions Memo. The manual includes additional information regarding examiners’ scoping process. The memo now includes the five total sections but indicates which sections examiners complete based on each financial institution’s identified inherent fair lending risk.
BKD provides fair lending solutions from experienced professionals in consumer, mortgage, small business, and credit card analysis. For more information, refer to the additional resources below, reach out to your BKD Trusted Advisor™, or use the Contact Us form below.