The Fair lending roundtable was originally booked in a small conference room. However, 15 minutes before it was due to start, attendees were spilling into the hallway. After moving us to a bigger room, which was quickly filled, one could see that this is indeed a pressing and curious topic for mortgage bankers. We were fortunate to have Patrice Ficklin, who is the Asst. Director of Fair Lending, for the CFPB as one of the roundtable leaders. Also in attendance were Tom Eck of Capitol One and Lyn Farrell of Treliant Risk, who were able to share real world knowledge with us, as to what to expect in fair lending exams.
I’ve listened to or spoken directly with Patrice on multiple occasions, and I can tell you that she is quite warm and welcoming in her approach. She has a strong empathy for what the lenders are going through, as she was once on our side of the fence. I also believe that she strives to share as much as she can to prepare us for the inevitable. The number one item that she sees is the lack of a compliance management system. This means the basics of policy, procedures, monitoring, and training. Without a strong system surrounding this, you are likely to face some issues.
A question that many of us have on our mind was asked, and that is “What is considered acceptable business practices surrounding a defense to fair lending?” Essentially, there is not enough final exam data on that subject, to let us know what has passed as reasonable defense and what has not. However, in an effort to become more transparent in what they are searching for, there are service bulletins that are being drafted right now. These service bulletins will address the issues and findings of the exams that the CFPB sees in the examination process. The “tips” are catalogued anonymously so that the lenders who have had the findings are not detectable. The hope is that as these bulletins are issued, they will serve as a roadmap for what we should be doing.
Ms. Ficklin also talked about the development of checklists and other documents that are being developed by the CFPB staff that will serve as guidance and templates for us to use in preparation for our own exams. She hears us loud and clear that we are looking for the bright line regulations.
My take away from the question and answer session is to do the following:
- Ensure you compliance management system is in place and strong.
- Look at the CFPB exam template and answer all of the questions internally before an exam. (If you need that please let me know and I’ll email it to you)
- Check your data integrity and make sure all of you blanks are filled out and the blanks are filled out correctly. (i.e. no finance charge or APR on a loan?)
- Check your overlays and if they are causing Disparate Impact in any of your MSAs, change the overlay or build a rock solid foundation of business practice around it.
- Review your pricing policies and exceptions. Price uniformly per MSA.
- Understand that the exam will be long and rigorous and they will exam you eventually. Although they were unwilling to give details on the selection process, I personally know of large, small and in-between lenders who have received notice. When you only have 30 days to prepare for an exam, and they do not allow you to change that date, it is prudent to be prepared before you get the notice.
I am happy to review any concerns that you may have and help you formulate solutions. Please do not hesitate to reach out to me. We understand the solutions used by lenders, who have been there before you, and we are willing to share those tips and techniques.
