A Holistic View of Fair Lending: The Loan Lifecycle
Tory had a chance to write a guest blog for ComplianceTech. See a preview below…
Of the countless fair lending reviews I’ve conducted as an examiner and consultant over the past dozen years, I’ve noticed that some compliance professionals know a few things about fair lending. They understand why following a rate sheet is important, they may complete secondary reviews of adverse action notices, and they may be involved with reviewing and approving marketing materials.
But many professionals are too narrowly focused, in my view. To truly manage fair lending performance, you must look at it from a holistic view. I call this the “loan lifecycle approach”. This method starts from the first piece of marketing you create and goes all the way through the loan decision, stopping along the way for each risk. Educating compliance and audit professionals on all aspects of the loan lifecycle is key to managing all of your fair lending risk.
Marketing – this is where fair lending starts. What is included in your messaging? Where are you marketing? Do you know what neighborhoods your billboards are located in, or what your marketing department is using for demographics for online targeted marketing? There is so much more to marketing than making sure the “Member FDIC” and “Equal Housing Lender” logos are included.
Applications – the interactions that you decide to include in or exclude from your applicant pool can increase or decrease risk. Do you buy applications or create your own? Any customer-facing employee can potentially discriminate against an applicant, and you should train your people on the right way to handle applications.
Redlining – where are you receiving applications and from whom? Are you penetrating all areas of your market including low- and moderate-income and higher minority areas? Have you ever plotted loans on a map? Redlining cases are the kinds that make the newspapers, and they are never for the right reasons. The larger your institution and the more metro areas you operate in, the higher your redlining risk.