were resolved on a reasonable basis Analysis of approval/denial rates show no significant disparity based on any prohibited factor. Analysis of the loan rate/terms/fees for approved loans show no significant disparity on a prohibited basis. Analysis of approval/denial rates show differences between protected classes. Analysis of the loan rate/terms/fees for approved loans show some limited differences on a prohibited basis. The underwriting process is not centralized and high volume of consumer loans are originated in several geographies and by third parties, including mortgage brokers. Marketing practices are very limited and show no evidence that would discourage a “reasonable person” from applying for a loan. Marketing practices do include more images of individuals than protected class members. A potential for discouragement exists. Marketing images are clearly targeted to only one segment of the population. There are no images of protected classes and no minority employees in any significant public contact position. The interagency fair lending procedures were updated in August of 2009, the link to the procedures can be found at: Many financial institutions are reporting that examiners are doing more in-depth interviews with loan officers and may routinely ask for the resumes of new loan officers. Fair lending risks can be mitigated through these steps: Training – THIS IS A HOT BUTTON Monitoring pricing and policy exceptions Reporting exceptions to the Board and/or Audit committee for review Changing policy if there are excessive continued exceptions Limiting any discretion in loan pricing Requiring documentation of lending decisions Completing a fair lending risk assessment
Member Complaint Response Pricing Reviews – FDIC Assessing an Institution’s Inherent Risk •Examine using a risk-based methodology •Evaluate the bank’s structure; credit products; any changes to the institution or its loan products; policies and procedures; and demographic information •Consider bank’s fair lending compliance program •Identify institutional inherent risks “Red Flags” that Equate to Increased Pricing Risk •Raw disparities between target/control groups •Unmonitored/insufficient monitoring of pricing discretion •Lack of clear, written pricing policies •Lack of documentation for/tracking of exceptions •Financial incentives by office or originator •Complaints Conducting a Pricing Review Review bank policies and procedures •Interview bank personnel •Gather and evaluate loan data •Conduct statistical analysis: –Bank-specific: no “one-size-fits-all” analysis –Models are developed based on bank’s pricing criteria –Generally, at the portfolio level The Importance of an Effective Compliance Management System Banks should create an effective compliance management system that includes: –Clear, written policies that detail the specific discretion afforded to employees and third parties –Documentation and tracking of exceptions to policy –A robust monitoring system that is conducted regularly (i.e., quarterly basis) and at both the portfolio and broker/dealer level –Taking appropriate corrective action Post-Origination Fair Lending Risks - OCC OCC Fair Lending Risk Assessments •Conducted in every supervisory cycle •Focus on entire life cycle of the loan •Includes servicing, loss mitigation, and foreclosure activities –Evaluate quality of bank’s risk management –Training of post-closing staff and third parties –Complaints and litigation