Opportunity Act (ECOA): race, color, religion, national origin, sex, age, marital status or receipt of public assistance. Similarly, under the Fair Housing Act, the prohibited bases include race, color, national origin, religion, sex (including gender, gender identity, sexual orientation and sexual harassment), familial status and disability. These prohibited bases also apply to debt collections. A potential Fair Lending issue could arise if, during the debt collection process, the collections department fails to provide a borrower with information or services regarding any aspect of the lending process, including debt collection. Examples: • The bank tends to work more with married couples, assuming they have two incomes and are more likely to repay the debt if the bank refinances the loan. Single borrowers are not offered a refinance as quickly, based on the assumption that their repayment ability may not be as strong. • A loan officer who performs their own collections tends to work more closely with male borrowers, giving them multiple workout options to avoid foreclosure, while similar options are not offered to female borrowers. To help avoid these situations, the institution can conduct its own analysis of collection procedures with Fair Lending in mind, using available collection data. This process can highlight potential concerns or disparities. MITIGATING FAIR LENDING RISK IN COLLECTIONS What can financial institutions do to avoid any perception of Fair Lending issues in the debt collection process? A good starting point is to centralize the collection process and prohibit lenders from collecting their own debts. Ensure the bank has written collection procedures that include the loss mitigation options offered by the institution. Promote consistency in procedures so that the same options are offered to all borrowers. Procedures should instruct collection staff on how to use the various means of communication — including text messages, email, social media and phone calls — to effectively and fairly reach borrowers. Consider how the institution is represented in these communications. Avoid using third-party debt collectors unless you are very familiar with their practices and compliance with the Fair Debt Collection Practices Act (FDCPA). Address any incentives paid by the bank to ensure compensation structures do not promote unfair treatment or result in discriminatory outcomes. FAIR LENDING AND OTHER REAL ESTATE OWNED (OREO) If the worst-case scenario occurs and the institution must manage Other Real Estate Owned (OREO), are Fair Lending concerns over? Wrong! Examination manuals clearly instruct examiners to look for potential Fair Lending concerns within OREO practices by reviewing statistics on foreclosures and deeds in lieu of foreclosure. They also direct examiners to assess any disparities between groups of individuals in the maintenance, marketing and disposition of OREO properties. For example, do disparities appear in property maintenance tied to the race or ethnicity of the neighborhood? If so, this could constitute a Fair Housing violation. Collection procedures should also describe how OREO properties will be maintained and marketed. Be specific about the type of maintenance, repairs or renovations to be performed, and identify who is responsible for making those decisions. To avoid Fair Lending issues, ensure all OREO properties are maintained equally, regardless of the demographic characteristics of the neighborhood. Examples of potential disparities: • OREO lawns in non-Hispanic neighborhoods are mowed regularly, while those in Hispanic neighborhoods are neglected. • Debris removal or utility maintenance is performed consistently in some areas but not others. Such inconsistencies may suggest discriminatory practices. INTEGRATING FAIR LENDING INTO THE COLLECTION FRAMEWORK If the institution hasn’t already documented its collection and OREO processes within its Fair Lending Risk Assessment or collection procedures, now is the time to enhance those documents and provide greater clarity. In the end, ensure your financial institution can demonstrate that its procedures support Fair Lending compliance throughout the entire lending process — including debt collection and the management and disposition of property taken in the collection of debt. 15 WEST VIRGINIA BANKER
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