As credit unions focus on so many new regulations, don’t lose sight of your compliance responsibilities with existing regulations—in particular, compliance with fair lending laws. Here’s why you can expect fair lending compliance to heat up this year.
The Dodd-Frank Act defines “fair lending” as “fair, equitable, and nondiscriminatory access to credit for consumers” [Section 1002(13)]. Dodd-Frank also created the Office of Fair Lending and Equal Opportunity within the Consumer Financial Protection Bureau (CFPB).
The CFPB focuses on promoting and enforcing fair lending compliance through coordination with other federal agencies (including the Justice Department) and state regulators. It directly provides enforcement for credit unions with more than $10 billion in assets. NCUA’s Office of Consumer Protection is responsible for certain duties related to fair lending, including conducting fair lending examinations at federal credit unions.
Fair lending generally encompasses the laws and regulations spelled out in the Equal Credit Opportunity Act (ECOA), the Fair Housing Act (FHA) and the Home Mortgage Disclosure Act (HMDA).
Many credit unions think of fair lending only as it relates to home-secured loans, but ECOA covers most loans and is subject to fair lending requirements. Fair lending risk might arise in any aspect of the loan transaction including pricing, underwriting, processing applications, advertising, or loss mitigation.
The risk is very common in areas where policies might be vague or employees might have broad discretion, such as pricing and underwriting.
Having a fair lending compliance policy isn’t enough to constitute a compliance program when it comes to fair lending. To mitigate compliance risk, credit unions should include the following in their fair lending compliance programs:
- Updating the fair lending policy;
- Training all employees annually;
- Monitoring policy and procedures for compliance; and
- Collecting and reporting accurate HMDA data.
In the past year, the Justice Department and the Department of Housing and Urban Development (HUD) pursued various fair lending complaints. These complaints relate to underwriting issues involving women on maternity leave, social security disability income, and a minimum loan amount policy.
HUD since has issued additional information related to discrimination on the basis of temporary leave and disability, which are prohibited by the FHA. For temporary leave, the FHA protects borrowers from being discriminated on the basis of familial status, sex, or disability.
This means a woman on maternity leave shouldn’t be denied a loan for which she qualifies if she can continue to meet the income requirements to qualify for a loan. HUD says that “borrowers on temporary leave are considered employed.” Credit unions can mitigate this risk by treating applicants on maternity leave similarly to other applicants.
As for discrimination on the basis of disability, HUD has indicated creditors can’t impose different terms and conditions for a mortgage loan on the basis of disability or request unnecessary and unduly burdensome disability income documentation.
The prohibition includes requesting a doctor’s letter that addresses the duration, nature, or severity of the disability. So review your policies and practices to ensure you aren’t discriminating on the basis of disability in any aspect of the lending transaction.
Take time this year to review your fair lending policies and procedures and take additional steps to mitigate fair lending risk. Your credit union also should prepare for additional changes to HMDA reporting resulting from the Dodd-Frank Act and continue to follow the cases the Justice Department pursues.
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