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“That stupid saying “What you don’t know can’t hurt you” is ridiculous. What you don’t know can kill you. If you don’t know that tractor trailer trucks hurt when hitting you, then you can play in the middle of the interstate with no fear – but that doesn’t mean you won’t get killed.” ― Dave Ramsey

Not knowing the practices of your front line in any industry will cause chaos in your business; and possibly put you out of business. To illustrate this, I don’t need to look any further than the recent complaint by the CFPB and DOJ regarding BancorpSouth Bank.  Bottom Line Cost: Over $10 Million

How does your front line represent your company?  The originators and processors are your company messengers to the consumer.  How well they present you has a direct impact on your bottom line, growth potential and yes, even your exam results.  In the exam process for BancorpSouth Bank, we saw the first evidence for the use of “Testers” by the CFPB who are also known as “Mystery Shoppers”.

Mystery Shoppers will call or visit your originators and “test” the responses and treatment that they receive.  They are generally so fair about this, that you can’t possibly fail if your originators are trained well.

Here is an example from the BancorpSouth Bank case:

“the testers posed as first-time homebuyers and asked the same BancorpSouth loan officer about their eligibility for a mortgage loan.  Each African-American tester was assigned a slightly better financial profile than the corresponding White tester, including a higher credit score, higher monthly income, more funds available for down payment, less debt, and more favorable information in their credit history.  The testing showed that BancorpSouth’s loan officers treated African-American testers less favorably than White testers”

Here is what they Found-Now remember that the African-American testers had a better financial profile!

-The white tester credit score was 622.  They were told by the originator that 620 is the minimum and so “you qualify for every program” BancorpSouth offers.

-The African-American client had a 625 credit score and was told “normally they want you to have a 640 credit score” and conventional loans are “not as lenient” as FHA loans so an FHA loan was a “better bet” for her.

PROBLEM:  The bank’s guidelines state the minimum credit score for both conventional and FHA loans is 620.

But it doesn’t stop there!

-The loan officer provided a written closing costs and monthly payment estimate to the White tester, but not to the African American Tester.

-The White tester and African-American tester were both told they could qualify for $200,000 (remember the African-American tester had more income, less debt).  The loan officer told the White tester to call if she found a house for $235,000 to see if she qualified for more.  The loan officer told the African-American tester to call if she found a house for $210,000 to see if she qualified for more.

While this case is certainly worth a good reading by all of you to see the extent of the testing, I won’t go into anymore scenarios, because I hope you get the picture by now.  The bottom line is that two similarly situated clients “tested” multiple branches in the same company, and disparate treatment occurred in every branch tested.

Now I know that many of you are sitting back and thinking that this doesn’t happen in your shop.  After all, you give your originators “fair lending” training every year.  My question to you is have you really looked at that “fair lending” training?  Sure, you may have checked off the “box” so that the examiners see you did it, but the reality is that the training used by many of you is below sub-par.  It does little to train your originators for testing like this, nor does it prepare your originators for expected behavior that is subsequently tested.

I am presently accepting training contracts for fair lending practices for your front line. Please reach out to me if you want solid training that will pass the Mystery Shopping test!  The training can be done via webinar or in-person.

The CFPB advertised for employees to become Mystery Shoppers a couple of years ago.  Those Mystery Shoppers are now on board and are probably spot testing many of you right now.  Here are some best practices to prevent problems with your frontline:

  1. Invest in great training. I cannot stress that enough.
  2. Hire Mystery Shoppers or have someone internally do that on a regular basis.
  3. Let your originators know you are doing it so they can be mindful of this practice.
  4. Give the originators feedback on the testing and remediation training when they don’t respond appropriately.
  5. Be very clear in conversation and in writing about your expectations for treatment of prospective clients.
  6. Give them proper language to face common situations like borderline clients or credit issue clients. If your originators are all on the same page with the same response, your testing will get better results.
  7. Review the results of the testing at the Executive level on a regular basis so that you understand what needs to be fixed, before an examiner tester reveals your company faults.

If you would like to read the BancorpSouth case, you can access it by clicking here 201606_cfpb_bancorpsouth-joint-complaint.  Specific to this topic are pages 21-26.  Fair Warning-Parts of it are downright scary!

Tammy Butler, Master CMB

Author Tammy Butler, Master CMB

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