In a CFPB Blog post dated December 16, 2016, Patrice Ficklin, who is the Director for the Office of Fair Lending and Equal Opportunity for the CFPB, stated the Fair Lending priorities of the bureau.
“While the Bureau has taken important strides in our efforts to protect consumers from credit discrimination and broaden access to credit, we continue to identify new and emerging fair lending risks and we will monitor institutions for compliance. Going forward, we are increasing our focus in these areas:
- We will continue to evaluate whether lenders have intentionally avoided lending in minority neighborhoods.
- Mortgage and Student Loan Servicing.We will determine whether some borrowers who are behind on their mortgage or student loan payments may have more difficulty working out a new solution with the servicer because of their race or ethnicity.
- Small Business Lending.Congress expressed concern that women-owned and minority-owned businesses may experience discrimination when they apply for credit, and has required the CFPB to take steps to ensure their fair access to credit.
What does this mean for your company? Plenty!
Mortgage Bankers: Word on the street is telling me that the examiners are pressing heavily in the following areas during exams that are in progress right now!
- Pricing Exceptions
Tips to Prepare:
- What does your diversity pattern look like in each MSA?
- If you have more loans in majority non-minority markets, what is your plan to change that?
- How do you monitor all of your pricing exceptions? Pricing exceptions include discretion exercised, actual concessions on price or cost, waivers of fees or extension costs, management level concessions (branch or region). Where are exceptions being given? Are there a lot more in majority non-minority markets versus majority minority markets? If an examiner asked you today, for a list of your pricing exceptions, could you provide this?
Bankers: I am receiving increased calls about CRA Rating downgrades and Commercial lending diversity issues. It appears that these are high target items for the regulators right now.
- Increased CRA and Fair Lending Scrutiny
- Diversity in Small Business Lending-We are seeing an increased focused on the evaluation of commercial lending to women and minority-owned companies.
Tips to Prepare:
- CRA and Fair Lending are different, but they go together hand in hand. When was the last time you took a deep look at both of those strategies together? We only need to look at the most recent example of Wells Fargo to know that the examiners are stepping up their scrutiny of Financial Institutions on these issues. Now is the time to take a second look to see what you are missing, as any downgrade in your rating will have a traumatic ripple effect on your business.
- Take a look at your small business lending and commercial lending. While small business lending is identified in the CFPB blog post mentioned earlier in this article, I have received several calls from banks in panic mode over commercial lending. This was generally not an issue in previous exams, but is now top of mind in the CRA and Fair Lending exams. Have you looked at your diversity for commercial and small business lending?
Servicers: Demonstrating that you are serving clients fairly and equally may seem easy, yet the reality is far different. Strict procedures, escalation processes and testing of these processes are paramount to your success. Lenders, if you hire a third party to perform servicing on behalf of your company, you are responsible for their practices. Proper third party management oversight and testing will be needed to ensure that your servicer is demonstrating “best practices” for fair servicing.
Tips to Prepare:
- What is the customer experience when they contact the servicer with an issue? What is the escalation process if the client feels they are not helped appropriately? Is that described to them? Do they know their options or does the consumer get stuck in call center bureaucracy? You really need to evaluate this based on the customer experience, and the only way to do that is to test your system. Further, the testing should then include disparity testing between minority and non-minority clients.
- Lenders, you are responsible for your vendor’s practices so ask yourself, “How do we test the customer experience?” Does our customer have a direct route to us if they believe they are not being serviced properly? Who is monitoring the SLAs (Service Level Agreements) in the contract between you and your vendor? What are those results? If you’re not sure, you have some work to do in order to be prepared!
- Remember, frustrated clients that get nowhere with you can easily file a complaint with the CFPB!
Acceptable practices do not need to be cumbersome or costly. If you need assistance, reach out to us. We are great at fixing Fair Lending and CRA issues!