Pub. 10 2021-Issue 2

The Commun i tyBanker 14 Tailoring Your Fair Lending Program to Address Regulatory Trends and Institution-Specific Risk F air lending has been a focus of regulators for several years. Consequences of non-compliance can be devastating to a bank, as formal regulatory action can often bring significant fines, penalties, attract negative attention and potentially stall mergers and acquisitions. As the world around us continues to change, institutions that commit to performing data-driven fair lending reviews can expect to receive dividends from their efforts for years to come. Historically, fair lending reviews have primarily focused on ensuring borrowers received equitable treatment, regardless of gender, race and ethnicity. Procedures usually consist of policy reviews, an analysis of approval/denial rates by protected class and a comparative file review. While these procedures make for a strong foundation, institutions should assess whether they address all inherent risks based on their operational structure and product offerings. To ensure your review program is up to par, institutions should first consider conducting a fair lending risk assessment to accurately understand and prioritize risks. Because fair lending risk exists at every stage of the lending process, institutions should evaluate risk for all lending stages and all loan types. Institutions should also consider each of the following: 1. Loan Segments: are all segments and their unique risks being reviewed? 2. Basis of Discrimination: are all bases — beyond the big 3 (gender, race, ethnicity) — being reviewed? 3. Tailored Approach: is our review targeting our institution’s specific risk areas? Loan Segments Many institutions have traditionally focused their efforts on HMDA (Home Mortgage Disclosure Act) reportable loans. The HMDA data set is a great starting point as it includes all applications, physical addresses and vital demographic information. Unfortunately, on average, these loans typically represent only a