ABA Banking Journal - September/October 2015 - (Page 49)

>>> COMPLIANCE Four tips for threading the Fair Lending Needle bY eVAN spArKs NAVIgATINg regulatory expectations on fair lending has often felt like threading a needle-and these days, the needle's eye is getting smaller and smaller. In many fair lending cases, bankers are caught between avoiding fair lending risk in providing access to credit and the pricing and quality of the credit products they do provide. As Andrew Sandler, founding partner of the law firm BuckleySandler and CEO of Treliant Risk Advisors, puts it, bankers are trying to avoid both "redlining" and "reverse redlining." Sandler says that while risk-based pricing appeared to solve the access to credit problem, it now raises concerns associated with ability-torepay and other credit quality issues. Making matters more difficult, the regulatory environment is moving toward "zero-tolerance," says Irene Fang, a former official at the Office of the Comptroller of the Currency who is now with Wells Fargo as an EVP in charge of strategic analytics. Fair lending enforcement is increasingly driven by data analysis, and the Supreme Court's June decision in Texas v. Inclusive Communities Project affirmed the use of "disparate impact" theory to detect violations of the Fair Housing Act. And as regulators ramp up their use of analytics, they are becoming increasingly skeptical of discretionary pricing of financial products. To help bankers navigate the new waters of fair lending enforcement, bankers and experts at ABA's Regulatory Compliance Conference in June identified four key considerations: 1  Build a robust, data-driven fair lending compliance management system. "We can't keep throwing more full-time employees at the same set of problems," says Sandler. "We have to find automated ways forward so we can focus our human resources on solutions." To help with that focus, then, bankers need robust compliance management systems. Fang notes that when regulators see a strong CMS, they recognize a commitment to fair lending compliance. "You will not be low-hanging fruit," she says. A strong CMS leads to a healthy chain of internal protection, detection, reporting and corrective action, Fang adds. She also advises bankers that when data about customers' protected class statuses are not available, proxy analysis-using various data points to estimate demographic data, such as a zip code whose residents are predominantly from a single ethnicity-is expected to be employed to ensure fair lending compliance. Fair lending compliance systems must also be sensitive to what Cara James, SVP and head of compliance at Arvest Bank, Bentonville, Ark., calls "vulnerable" classes beyond the traditional protected classes-including the elderly, the young, service members and their families, the disabled and non-English speakers. 2  Watch out for discretionary pricing. Regulatory agencies have a "very dim view" of discretionary pricing," Sandler says, warning that it entails "presumption of discrimination." Regulators speaking at a Regulatory Compliance Conference panel the following morning seemed to agree. Eric Belsky, director of consumer and community affairs at the Federal Reserve, says Fed examiners are worried about smalldollar loan products "where a considerable amount of discretion is left up to an underwriter." The OCC's Grovetta Gardineer agrees, noting that her agency is seeing "a lot of discretionary pricing issues that lead to some concerns in the fair lending area and the lack of a standardized process for underwriting." Belsky recommends that banks offering these aba.com/BankingJournal | ABA BANKING JOURNAL 49 http://www.aba.com/BankingJournal

Table of Contents for the Digital Edition of ABA Banking Journal - September/October 2015

CHAIRMAN'S VIEW
UPFRONT
PICTURE THIS
ECONOMIC OUTLOOK
POISED AND PROACTIVE ON THE FARM
MEETING CUSTOMERS WHERE THEY ARE
INVESTING IN STRONG RURAL COMMUNITIES
ABA COMPLIANCE CENTER INBOX
OPERATIONS
BANKS IN INSURANCE
REAL ESTATE LENDING
BOARD MATTERS
INVESTOR PERSPECTIVE
LEGAL BRIEFS
FROM THE STATES
COMPLIANCE
INNOVATIONS IN SOCIAL RESPONSIBILITY
INDEX OF ADVERTISERS

ABA Banking Journal - September/October 2015

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