regulations. Although the legality of an SPCP is confirmed under the Equal Credit Opportunity Act (ECOA) and Regulation B, institutions should still ensure fair lending and Unfair Deceptive and Abusive Acts or Practices (UDAAP) compliance are followed for all aspects of program development. 3. Draft a Written Plan Based on the identified needs, draft a clear and concise objective for the program. It should articulate the intended beneficiaries and the desired outcomes. This objective will be foundational in shaping the program’s parameters and guidelines. ECOA and Regulation B provide specific details that should be included in the written plan: a. The class of persons that the program is designed to benefit; b. The procedures and standards for extending credit pursuant to the program; c. Either (i) the time period during which the program will last, or (ii) when the program will be reevaluated to determine if there is a continuing need for it; and d. A description of the analysis the organization conducted to determine the need for the program. Items four through six below should be included in the written plan as well. 4. Develop Assessment Criteria While SPCPs aim to make credit available to a class of persons who, under the organization’s customary credit underwriting criteria, probably would not be approved for credit, it does not mean institutions should make loans that are counter to safe and sound lending practices. Developing tailored underwriting criteria that account for unique circumstances while still ensuring creditworthiness is key. 5. Determine Funding Sources Determine if the program will be funded through the institution or if partnerships with other financial entities or government bodies are appropriate. Some cities and states have established SPCPs that allow financial institution participation. Clearly defining the funding source ensures the program’s financial sustainability. 6. Establish Monitoring and Determine Program Duration Continuous oversight is essential for the success of an SPCP. Establish a mechanism to monitor loan distribution, repayment rates and overall program impact. As mentioned in Regulation B, there should be a defined timeframe for which the program is intended to last. This will aid in iterative refinement over time and allow management to evaluate program success. 7. Train Staff and Engage Stakeholders Key stakeholders within the organization should be informed and trained on the requirements of the SPCP. In addition, engaging community leaders, potential beneficiaries and other stakeholders, such as your prudential regulator, provide invaluable feedback. Their input can shed light on potential blind spots and ensure the program truly meets the community’s needs. 8. Marketing and Financial Education Ensuring the intended applicants are made aware of the program and its benefits is crucial to the success of the program. Offering financial literacy alongside the SPCP allows applicants to make informed decisions, thus reducing default risks. 9. Launch a Pilot Before rolling out the program on a large scale, consider launching a pilot. This trial phase will provide insights into the effectiveness of the program and offer an opportunity to adjust based on actual outcomes. At the conclusion of the pilot, gather feedback from all stakeholders. Analyze the data, understand the successes and challenges and refine your approach for the full-scale launch. Establishing an SPCP requires thoughtful planning and an understanding of community needs. With the right approach, institutions can develop SPCPs that truly bridge socio-economic disparities, fostering a more inclusive financial landscape. Homeownership can provide pathways to upward mobility through home equity, credit and asset-building.4 Purchasing a home is often the main way American families can build wealth, experience upward mobility, invest in their children’s well-being and long-term outcomes and improve mental and physical health. All are byproducts associated with increased homeownership. This issue is especially important for Black families, who, because of decades of discrimination in the housing market, now have homeownership rates that are 30 percentage points lower than white families.5 Slight adjustments to underwriting criteria or creating a down-payment assistance program for first-time homebuyers could help hundreds of thousands of families buy their first home.6 Proactively assessing the need for an SPCP in the community can strengthen your financial institution’s fair lending compliance management program and, ultimately, meet the credit needs of the community. Keenan is a Manager at CrossCheck Compliance, LLC and is a risk management and regulatory compliance leader with over 10 years of experience in banking and as a regulator. Most recently, he was a Senior Examiner with the Federal Reserve Bank of Atlanta, where he served as a Fair Lending Specialist, leading regulatory examinations of state member banks. Keenan can be reached at kneal@crosscheckcompliance.com. 1. Office of Public Affairs | Justice Department Announces New Initiative to Combat Redlining | United States Department of Justice. https://www.justice.gov/opa/pr/justice-department-announces-newinitiative-combat-redlining. 2. Interagency Statement on Special Purpose Credit Programs Under the Equal Credit (fdic.gov). https://www.fdic.gov/news/financial-institutionletters/2022/fil22008a.pdf. 3. https://www.consumerfinance.gov/rules-policy/regulations/1002/8/#a-1 4. Why Housing Matters for Upward Mobility: Evidence and Indicators for Practitioners and Policymakers | Urban Institute. https://www.urban.org/ research/publication/why-housing-matters-upward-mobility-evidence-andindicators-practitioners-and-policymakers. 5. Racial Differences in Economic Security: Housing | U.S. Department of the Treasury. https://home.treasury.gov/news/featured-stories/racialdifferences-in-economic-security-housing#_ftn3. 6. https://www.jec.senate.gov/public/_cache/files/a4c22e73-6752-4014-94045a5771b2e19a/social-mobility-brief-final.pdf. Utah Banker 17
RkJQdWJsaXNoZXIy MTg3NDExNQ==