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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