2017 Consumer Compliance Conference
Consumer Compliance March 21, 2017
Banking Supervision
Fair Lending and Risk Assessment Overview
Consumer Compliance March 21, 2017
Sara Rice and Kelly Toman
Common Violations and Hot Topics
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Regulation C – Home Mortgage Disclosure Act (HMDA) Government Monitoring Information, Income
Regulation B – Equal Credit Opportunity Act (ECOA) Adverse Action Notice – Action Taken, ECOA Notice, Federal
Agency Spousal Signatures – Joint Intent, Personal Guarantees on
Commercial Credit
Common Violations – 2015 and 2016
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Indirect Auto Lending Fintech – Online Marketplace Lending Loan Originator Compensation
Hot Topics
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Introduction to a Fair Lending Risk Assessment
The Risk Assessment Perspective From Why to How?
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Identify fair lending risk Gaps in risk controls Areas of highest risk
Implement a plan to mitigate identified risks NOTIFY BOARD OF DIRECTORS / SENIOR MANAGEMENT
Risk Assessment – What’s the Purpose?
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Risk Assessments – How to Begin?
Ask questions and test
assumptions Verify processes Ensure policies reflect ongoing
change Include the entire credit life
cycle
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Risk Assessments – Ask Questions and Test Assumptions
Does the commercial loan
department ever originate consumer loans?
Do we use a third party for collections?
Do we service our own loans? Have we ever received
complaints? Do we offer subprime loans?
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Risk Assessments – Policies and Procedures
• We haven’t made changes to
our loan policy in five years. • Each one of our lenders has
at least ten years of experience.
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Verify processes and ensure policies reflect ongoing change.
Risk Assessments – Credit Life Cycle
Solicitation and product selection Underwriting Pricing Servicing Monitoring Collection, foreclosure, and loss
mitigation Third party activities
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Fair lending applies from advertising to loan servicing.
Assessing Fair Lending Risk
Managing Risk Exposure The Residual Risk Equation
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The Residual Risk Equation
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Inherent Risk
Risk Mitigation/
Compliance Management
Residual Risk
Business Activity Risks Risks associated with business lines, products, and services
Regulatory Risk Legal, reputational, and / or financial harm that may result from
noncompliance Operational Factors Risk of inadequate or failed internal processes, people, or
systems, or risk from external events
Inherent Risk
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Redlining Risk Branching practices and / or assessment area delineations that
do not include minority areas Marketing Risk Targeted marketing practices
Pricing Risk Loan officer compensation based on loan pricing Discretion in loan pricing
Potential Risk Factors
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Steering Risk Loan officer compensation based on loan pricing
Underwriting Risk Lack of uniform underwriting and / or documentation standards
Potential Risk Factors
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Addressing Fair Lending Risk
Managing Risk Exposure What Now?
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Board and Senior Management Oversight Policies, Procedures, Limits, and Training Risk Monitoring and Management Information Systems Internal Controls, including Audit
Risk Mitigation/Compliance Risk Management
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What Now? - Managing Exposure
Inform the board of directors and
management Test and investigate Who, what, when, how, and why Take corrective action Ongoing monitoring and reporting
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High Residual Risk: How to manage fair lending risk exposure
React appropriately when risk is identified Fair lending risk should be addressed quickly and thoroughly
Be inclusive Actively pursue relationships and business opportunities Conduct outreach and look for partners Identify benchmarks and comparisons
Best Practices
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Questions?
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