2012 is going to be a big year for Fair Lending issues.
- In late December 2011 the Department of Justice (DOJ) entered into the largest residential fair lending settlement in the agency’s history. The $335 million settlement resulted from the lender charging higher rates and fees to African-American and Hispanic borrowers than non-Hispanic white borrowers.
- Attorney General Eric Holder has made clear that DOJ is gearing up for additional fair lending suits. DOJ has filed or resolved ten fair lending matters since last February and has an additional seven lawsuits, and more than ten open investigations pending.
- The Supreme Court has agreed to review a case that deals with the question of whether disparate impact cases are actionable under the Fair Housing Act.
- The Consumer Financial Protection Bureau (CFPB) has announced that fair lending oversight and enforcement will be a top priority for the agency.
OK. So, if 2012 is a big year for Fair lending issues what should we do?
To survive you must take care of the basics. If you have a Fair Lending Compliance Management System (CMS), then it is time for a CMS tune up. If you do not have a Fair Lending CMS, then you need to build one now.
What elements must be included in a Fair Lending CMS? It should include a risk assessment, policy, procedures, training, controls and audit/review.
You begin building a CMS by conducting a risk assessment. You look at your strengths and weaknesses. Determine the risk that is inherent in your lending operations. You measure the risk. Consider options to reduce the risk. Evaluate the risk remaining after putting mitigating measures in place.
Examiners demand policies and procedures. The risk assessment indicates where improved or new procedures are needed.
Every bank reduces fair lending risk, in part, by training. The training needs assessment is based on the risk assessment. The needs assessment determines who needs fair lending training and the aspects of fair lending in which training is needed. Document your efforts.
Monitoring is an essential element of the CMS. Whether conducted by internal review/audit staff or outside auditors, the review/audit measures the effectiveness of the other components of the CMS. Even the best designed CMS is worthless unless it is effective at preventing illegal discrimination.
Get started. Review your CMS now. If you lacking a component – build it immediately. There are always areas in which improvements can be made. Has your CMS been updated for new products added over the past few years? Are your training efforts and training records up to date? Has action been taken on any weaknesses identified in your last review/audit/examination? Select one or two areas and make improvements.
Hopefully your efforts result in Fair Lending being the non-event of 2012.