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Disparate Impact, Fair Lending and the CFPB-Part Two

Marketing Practices and Outreach

Disparate Impact is such a fuzzy law that I like to break it down into departments, to help you evaluate how you are doing.  One area that is particularly perplexing is marketing outreach.  The Fair Lending analysis is done per the MSA(s) that you do business in.  The examiner will look at the areas within that MSA to determine many things, one of which is marketing outreach and market penetration.  This used to be a concern that only banks faced when it came to CRA requirements.  Yet as mortgage bankers, we are seeing similar principals applied to us.

Let’s assume that the examiner brings in a map of your MSA and on this map there are dots; each one representing a loan that you closed.  Based on the distribution of the dots, the examiner will be able to see visually the areas that you lend or do not lend in.  They then compare this with regions within your MSA that are higher population densities of protected class borrowers.  If there are little to no loan closings in those areas, then they will most likely have lots of questions regarding fair lending.

One of the ways that they do this is by reviewing all of your marketing material.  This includes:

  1. Collateral Material like brochures and flyers.
  2. Advertising-Both the Ad and the Publication/Publication Type
  3. How you solicit for business (i.e. real estate agents, builders, online)
  4. Where you solicit for business.
  5. Social Media/Website

As they review these they “test” the materials to see if you are:

  1. Reaching out to all markets in your area.
  2. Provide adequate products to the areas you are targeting.
  3. Demonstrate inclusion in your advertising through verbiage and pictures.
  4. Encourage all qualified clients to apply regardless of the area.
  5. Establish bonds with those who can help you lend in underserved areas, such as non-profit housing counseling agencies.

If they believe that your marketing approach is not equally inclusive of all areas, and that you do not demonstrate serving all types of clients, then the CFPB exam supervisors may refer you to the DOJ for fair lending violations.  At that point, the DOJ looks at the evidence and decides whether or not they will pursue litigation.  Even if they choose not to pursue litigation, you will most likely receive recommendations, and in some cases supervised guidance to make sure you have implemented the required changes.

It is so much easier to be pro-active then to sit and hope.  So to be pro-active, do some self analysis before an examination.  There is very specific guidance and a checklist, in the fair lending supplement from the CFPB.  If you would like that document, please reach out to me and I will email it out to you.  tbutler@optimalblue.com

Tammy Butler, Master CMB

Author Tammy Butler, Master CMB

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