The best defense, he said, is to keep track of lending patterns before the examiners come in. That calls for either hiring a statistician or incorporating an ongoing computer program, or both.
“I don’t know if you’ve paid attention to the fair lending examinations that are coming out. If you haven’t, you should realize that this is a critical, critical area,” said Kelly, who is president and CEO of SpiritBank, Bristow, Okla.
He noted that the Justice Department recently hired or assigned a total of 60 new attorneys specifically to enforce fair lending laws. Also, he said, “The regulators are charged with going out and being rigid and, in many cases, over the top in trying to identify fair lending violations,” Kelly said.
In general, he said, examiners will come into the bank and review documents, especially a test sample, to see if there is any indication of illegal discrimination. If they find, or suspect, such a situation, the bank will have 15 days to respond before the case is referred to the Justice Department. That agency then decides whether to send it back or prosecute. “Either way, once that happens, you have a situation where you’re going to have some kind of penalty that you’re going to have to deal with. It probably will be a public matter,” he said.
In one example, he cited the case of a $30 million-asset bank that had 11 borrowers with a total of $19,000 in loans, yet was involved in a prolonged, expensive legal battle to demonstrate that it did not discriminate on the basis of sex.
“Once you get into it, you do have to get a statistician, which is costly,” Kelly said. “If you have up front the software where you are able to slice and dice your own numbers, then you are going to be able to see if you have a problem…I would say you’re a lot better off to know beforehand.”
Neither ABA nor its affiliate Corporation for American Banking has endorsed any specific vendors in this area. CAB has begun to research related providers, however, and has identified the following potential companies and related services offered:
Fair Lending Wiz is a fair lending management solution that provides analysis that allows a financial institution to identify potential risk and take corrective action to remedy unfair lending practices.
[The company also recently unveiled an updated tool, the Wiz Compliance Dashboards solution, which it says can provide banks with a “complete and consolidated view of their Community Reinvestment Act and fair lending data. As a result, an institution’s front-line compliance professionals, along with its C-Level executives, can quickly and efficiently analyze performance against goals and benchmarks they’ve established to comply with CRA and fair lending requirements.” More information at http://www.wolterskluwerfs.com/NewsEvents/PressReleases/press041311.html.]
Provides fair lending self-assessments and offers specific recommendations to improve the institution’s fair lending compliance risk management system. They also provide a customized automated fair lending monitoring tool; fair lending due diligence which assesses lending risks when merging or acquiring another institution; and fair lending litigation support to assist with government investigations and civil litigations.
Provides reviews of HMDA and CRA data along with fair lending analysis. Reviews are conducted at the loan level to help financial institutions evaluate their fair lending performance. Monitoring is continuous.
Offers fair lending analytics and governance services to assist with compliance and help banks identify and address potential issues before they become major problems. Protiviti can design, build, and support the implementation of risk assessment frameworks; implement or enhance fair lending monitoring and testing programs; and use its proprietary statistical monitoring tools to detect and investigate significant trends or patterns in an institution’s lending data. The firm also creates and provides fair lending training and awareness materials; conducts or provides support for fair lending audits; and helps develop, implement, and manage plans to respond to and resolve fair lending enforcement actions.
Fair lending services include: fair lending risk assessments, comparative file review; transaction testing; exam remediation; training; and policies and procedures.
Comply Fair Lending is a software solution based on the FFIEC fair lending examination procedures.
Centrax is Marquis’ CRA, HMDA, and fair lending software. In addition to Centrax, Marquis also provides a fair lending risk assessment.
The company’s Fair Banking solution helps financial institutions identify risks, improve regulatory performance, and measure risk exposure.
Shamus automates compliance and fair lending risk analysis for mortgage, auto and consumer lending data. Institutions can conduct fair lending analysis consistent with the Interagency Fair Lending Examination Procedures, provide benchmark reports, and audit HMDA data integrity.
TruPoint Fair Lending Analysis and Review services are designed to assist compliance professionals with insight into the institution’s lending practices and to uncover any potential violations.
Key Compliance Services is a financial services compliance consulting firm that offers a CRA and fair lending analysis tool—Compliance Data Collector Plus.