Fair Lending

Stay on the Right Side of Fair Lending: 2023’s Top 5 FAQs

Fair Lending remains a hot topic with regulators and special interest groups.

During 2023, our clients experienced heightened scrutiny around identifying patterns of disparity that could result in discrimination allegations and enforcement actions.

Review the five key issues clients have faced and consider evaluating them at your institution.

  1. Redlining
    • Assess your lending patterns in substantially minority census tracts to identify evidence of redlining due to continued substandard lending performance in minority locations through periodic lending analysis.
    • Map lending activity to get a visual representation of where you are originating loans and where you are not originating loans. Maps can also help you identify missed business opportunities.
    • Examiners are performing deeper dives into banks’ lending performance in majority Black- and Hispanic- populated census tracts. Know where your majority Black and Hispanic populated census tracts are and how you are lending in those areas.
  1. Borrower Demographic information
    • Conduct a lending analysis to determine how the lending activity penetrates prohibited basis groups and compare your performance to peers.
    • Understand that examiners focus on the high percentage of applications where the demographic information response is “I do not wish to provide information” as a form of disparity.
    • Ensure procedures are in place to have customers complete the demographic information at application for themselves as opposed to loan officers completing the demographic information after the fact and using the “I do not wish to provide information” field.
  1. Appraisal Bias
    • Understand that appraisal bias exists and that your Appraisal Policy should contain a non-discrimination statement.
    • Review language that could imply a form of devaluation of the property based on a home’s location or its owner when conducting Appraisal Reviews.
    • Train annually on the topic of appraisal discrimination as part of the approval process for appraisers or AVM vendors.
    • Implement a reconsideration of value (ROV) process to ensure consistent practice when customers make requests.
  1. Monitoring
    • Provide management with reports that focus on lending patterns, particularly loans to prohibited basis groups and substantially minority census tracts.
    • Establish action plans to address any substandard performance in comparison to peer lenders. Also, fully document your efforts to increase performance, where applicable.
    • Document and present all outreach efforts to the Compliance Committee, Audit Committee, or Board of Directors.
  1. Special Purpose Credit Program
    • As Banks continue to have less than peer performance noted in their lending analysis of prohibited basis groups or substantially minority census tracts, the regulators constantly remind financial institutions of the opportunity to utilize the Regulation B Special Purpose Credit programs in their webinars, conferences and regulatory exam exit meetings. Identify unmet credit needs in your community and develop a Special Purpose Credit program to address them.
    • Regulation B outlines the requirements for Special Purpose Loan programs.
    • Continue to monitor publications, webinars, and enforcement actions to ensure that your Fair Lending practices include the necessary controls and actions that mitigate your risk.

TCA provides A Better Way to help you navigate and understand fair lending complexities. Contact us at (800) 934-7347 or [email protected] if you have any questions!

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