ABA Banking Journal - September/October 2015 - (Page 49)
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:
Build a robust,
"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.
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
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Table of Contents for the Digital Edition of ABA Banking Journal - September/October 2015
POISED AND PROACTIVE ON THE FARM
MEETING CUSTOMERS WHERE THEY ARE
INVESTING IN STRONG RURAL COMMUNITIES
ABA COMPLIANCE CENTER INBOX
BANKS IN INSURANCE
REAL ESTATE LENDING
FROM THE STATES
INNOVATIONS IN SOCIAL RESPONSIBILITY
INDEX OF ADVERTISERS
ABA Banking Journal - September/October 2015