Fair lending and risk assessment overview dallas fed federal. Trupoint partners, its employees, and its affiliates assume no responsibility for use of, or errors and omissions in, any of the information on this site or related resources. The idea is that if a bank or credit union has a history of fair lending violations, the inherent risk of additional violations is increased. Trupoint partners is not affiliated with trupoint bank. This guide is intended for use by a credit unions board of directors and management, compliance officers, and others having responsibility for fair lending compliance. I am new to the internal audit role and it is on my audit schedule to perform a fair lending audit. The guide offers suggestions on how an institution can compare its treatment of loan applicants through self assessment. It is designed for bank ceos, presidents, compliance and cra officers, and others who have an. Weve undergone two exams with the first one year 2012 stating there were no violations but some minor concerns were disclosed. Affirmxs risk intel centers patented approach to combining the efficiencies of technology with the expertise of our people allows us to complete a fair lending risk assessment off site.
New risks and renewed interest in old risks these are the continuing challenges in the everchanging world of fair lending risk management. In this example, we might see that the predicted apr rates are similar for minority and nonminority applicants, but the actual rate is nearly a full percentage point higher for nonminority applicants. The knowledge that ca was created and owned by 29 state bankers association to provide bank compliance services to their membership organizations. If this is the case, then fair lending risk assessment should focus on evaluating the factors used in pricing for potential disparate impact risk, and verifying that controls are in place to ensure that pricing truly does follow the specified rate. Risk assessment free, secure risk analysis tool for banks and credit unions. Fdic consumer compliance examination manual september 2019. In conducting a fair lending risk assessment, the first thing to evaluate is a financial institutions past experiences relating to fair lending. The manual describes how we supervise and examine these companies and gives our examiners direction on how to assess compliance with federal consumer financial laws. Trupoint partners is a wholly owned subsidiary of ncontracts, llc. There is overt evidence of discrimination even when a lender expresses, but does not act on, a.
Interagency fair lending examination procedures ffiec. Risk assessment matrix background a bankers threads user asked if anyone would be willing to share a sample matrix in regards to securityrisk for privacy. Our examiners have told us that our overall rating should be medium to high but when i do our risk assessment, i cant seem to get any higher than low. So how do you ensure that your fair lending program and policies are up to date and effective. A lender offered a credit card with a limit of up to. Fdic consumer compliance examination manual september 2015.
Regulators have been focused recently on several new and reemerging fair lending issues during examinations and investigations of mortgage lenders. We will compile the observations from prior phases, including the results of the data analysis, into a fair lending risk assessment report. A fair lending risk assessment template can assist with the initial risk assessment process as it can help a financial institution ensure they cover all applicable areas. Thats why performing a fair lending risk assessment to see if there are any red flags makes much more financial sense than. Revised edition of sidebyside, a guide to fair lending the fdic has revised its 1994 edition of sidebyside, a guide to fair lending see fil4794. The checklist is not intended to be an absolute test of an institutions compliance management program.
It provides an overview of the new riskbased approach that examiners will use when assessing a lenders compliance with the equal credit opportunity act regulation b and the fair. How to conduct a fair lending risk assessment bankers online. Factor analysis of information risk founded in 2005 by risk management insight llc jack jones the basis of the creation of fair is. From a fair lending perspective, institutions can run analytics on existing loan portfolios to understand the level of fair lending risk exposure. The fair tm factor analysis of information risk cyber risk framework has emerged as the premier value at risk var framework for cybersecurity and operational risk.
Access to attorneys and compliance specialists for risk modelling and decisionmaking in advance of large business decisions. What efforts is the federal reserve undertaking to improve the efficiency of the fair lending examination process, particularly for community banks. There are many reasons lenders and the nation should engage in self critical analysis and selftesting of lending practices. Fair lending examination procedures summary and risk. Fair lending scope and conclusions memorandum fdic. Step five organize and focus residential risk analysis. This may not suggest an actual fair lending problem, but it might suggest an area where the financial institution may want to dig deeper. To complement the supervisory office so risk assessment process, the occ also selects banks and mortgage subsidiaries for comprehensive fair lending examinations using a risk based and random sample screening process that supplements the ongoing supervisory office efforts.
The call will feature a presentation on how bankers can perform an effective fair lending risk assessment and will include a questionandanswer session. Quantitative information risk management the fair institute. I am trying to teach myself, but definitely dont want to miss something. Fair lending assessment quiz fair lending analysis. Example 1for joint applicants, combine the debts and income of married joint applicants to calculate debt. At the conclusion of performing your banks fair lending risk assessment, what was your overall risk rating. Z statistics versus t statistics in fair lending analysis.
The affirmx fair lending risk assessment solution affirmx. This fair lending guide is divided into five sections. Fair lending risk assessment template compliance cohort. Second, the occ randomly selects a sample of banks and mortgage.
Guidance in the appendix to the interagency fair lending examination procedures provides details on how to obtain relevant information regarding such situations along with methods of evaluation, as appropriate. It is designed for bank ceos, presidents, compliance and cra officers, and others who have an interest in the fair lending examination procedures. The affirmx fair lending risk assessment solution youve heard the horror stories. Such functional forms are used in which the measurement dependent variable is categorical or a limited outcome.
With a 10 minute orientation and an internet connection, you can be on your way to diagnosing your institutions risk. If your institution has programs for these types of loans, we will include them in the analysis. Bankers guide to riskbased fair lending examinations. This booklet focuses on compliance with the fair housing act, equal credit opportunity act, and regulation b the consumer protection regulation that implements the equal credit opportunity act. Describe any inherent fair lending risks relating to the banks structure or management. Absolutely everything you need to know about fair lending risk. The fair tm institute is a nonprofit professional organization dedicated to advancing the discipline of. Completing a fair lending risk assessment is a challenging task as there are many things to consider in a financial institution that relate to the risk of discrimination. New and reemerging fair lending risks mortgage banker. Upon completion of the program you will understand how to develop a fair lending risk assessment by. Managing fair lending starts with knowing where you stand. Lack of issues tracking and monitoring lack of fair lending risk assessment. These resources provide guidance on how to comply with fair lending laws. This publication is a guide to the new interagency fair lending examination procedures.
Federal fair lending regulations and statutes interagency fair lending examination procedures introduction overview of fair lending laws and regulations. Fdic fair lending examination specialists will host a fair lending conference call for bankers on january 14, 2009. Fair lending risk assessment predatory lending adequate disclosure of terms conditions, fees manual or automated underwriting and discretionary authority loans based on ability to repay, not equity interest rate and fees do not exceed true risk of loan and costs proper disclosure and imposition of credit insurance. For example, in home mortgage, home equity, small business. Fair lending compliance for financial institutions. Lessons from recent settlements, we distill the key lessons from these settlements that lenders can use to shape and enhance their own fair lending risk assessment and monitoring programs. Plus, youll get a free mini fair lending risk assessment matrix, just for. The supervision and examination manual is our guide for examiners to use in overseeing companies that provide consumer financial products or services. Tom koller, national bank compliance coordinator, financial institutions. While the guide covers federal fair lending laws and regulations that affect federal credit unions, it does not address all federal consumer protection laws or any state laws. Assessing your potential fair lending risk exposure. Also included is a quick reference table of the residential lending discrimination risk factors. Risk to consumers for the purpose of the cfpb risk assessment is the. Some of these 17 documents are based on the occs community bank supervision handbook which has since been updated.
This publication is intended as a summary of the fair lending examination procedures. Fair lending handbook office of the comptroller of the. The fair lending risk assessment of mortgage pricing decisions determines whether similarly situated minority and nonminority borrowers receive differential treatment from mortgage lenders with regard to pricing loans. A welldeveloped fair lending cms is the best way to prevent fair lending problems in the first place. The guide offers suggestions on how an institution can compare its treatment of loan applicants through selfassessment. In an underwriting evaluation for fair lending analysis, for example, what is measured is either approval or denial. Regression analysis for fair lending with respect to underwriting analyses generally use what are known as discrete choice models. Maintaining information concerning personal characteristics collected as part of a selftest separately from application or loan files. While composing the fair lending risk assessment, we will develop recommendations designed to enable the financial institution to address.
Understanding the fair risk assessment nebraska cert conference 2009 bill dixon continuum worldwide 1. Although this prohibition reduced the fair lending risk of financial incentives at the mortgage loan originator level, the fair lending risk for mortgage pricing was not eliminated. Running a statistical analysis may uncover areas of potential concern, which allows management to conduct further analysis before regulators are. Consumer risk assessment cfpbs risk assessment process is designed to evaluate on a consistent basis the extent of risk to consumers arising from the activities of a particular supervised entity and to identify the sources of that risk. Examiners are cracking down on missteps in fair lending. The federal reserve supervises approximately 800 state member banks, and fair lending is a critical component of the consumer compliance supervision process. A self evaluation or a self test may provide for a streamlined exam. Unlike consultantled risk assessments, fair lending risk check allows you to conduct a selfassessment at your pace.
Fair lending compliance resources national credit union. For example, some banks that originate mortgage loans for the secondary market now set. Federal fair lending regulations and statutes interagency. Cliftonlarsonallen understands the fair lending laws for financial institutions purchasing loans through an indirect auto lending program, and can help assess whether your financial institution is at risk of noncompliance and provide guidance to help mitigate your risk. However, approaches for evaluating fair lending risk in credit card lending need to account for its. There are many similarities between mortgage and credit card lending in terms of how fair lending compliance is evaluated. It does not require heavy investment in licenses, hardware, it, or training.
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