Credit Union Legal Update – Fall 2013
A priority in 2014 is for federal credit unions to prepare for a NCUA Fair Lending Examination. Fair lending laws have existed for a number of years. They now have the focus and attention of: the NCUA Board; the NCUA Office of Consumer Protection, and the Consumer Financial Protection Bureau. The regulators have made it clear – fair lending should be on everyones compliance agenda. The NCUA has issued a letter to federal credit unions outlining their examination program which includes a fair lending guide, a best practices document, as well as a frequently asked questions document. In addition the NCUA held a webinar and created a Fair Lending Compliance Resource web page. The CFPB has also issued several bulletins. The most recent pertaining to indirect lending auto lending programs.
Not only is fair lending the law, it is a good business practice. Fair lending laws include: Equal Credit Opportunity Act as implemented by Regulation B; the Home Mortgage Disclosure Act as implemented by Regulation C; and the Fair Housing Act. They also include the NCUAs rules and regulations concerning non-discrimination requirements for real-estate related loans and the recent CFPBs warnings to lenders about indirect auto lending programs.
The Equal Credit Opportunity Act prohibits discrimination in any aspect of a credit transaction. It establishes procedures for requirements for notices a lender must file after taking ‘adverse action’ against an applicant. Adverse action means the denial or revocation of credit, change in terms of an existing credit or refusal to grant credit in substantially the terms requested. The general rule is for an adverse action notice must be delivered to the applicant within 30 days of receiving the application.
The Fair Housing Act prohibits discrimination in all aspects of ‘residential real-state related transactions’ including making loans. A lender may not discriminate on a prohibited basis.
It is important to note that most federal credit unions will not be selected for a fair lending examination. The NCUA will ‘target’ certain credit unions designated as HMDA Outliers (where lending practices fall outside the normal range); those that may have had reported lending violators; those that offer general compliance risk; and certain ‘other factors.’
The NCUA will first schedule off-site supervision/examination contacts where they will review policies, procedures and audits or verification of certain assessments. They will request an evaluation of accuracy of a loan application registers for those that submit HMDA reports, using the 2009 FFIEC Intra-Agency Fair Lending Examination Procedures.
Best practices with regard to Fair Lending include developing risk assessments, developing fair lending compliance programs, and monitoring pricing positions.
Potential Fair Lending risk factors include:
- Lack of specific guidelines for pricing;
- Use of risk based pricing that is not based on objective criteria or applied inconsistently;
- Lack of clear documentation or reasons for pricing positions;
- Lack of monitoring for pricing disparities; and
- Financial incentives of loan originators that charge higher prices.
The ‘good news’ is that NCUA and the CFPB have published a number of documents that provide guidance and assistance in preparing for an examination. Such items include:
- The NCUA Letter
- The Fair Lending Guide
- A Best Practices Guide
- The FFIEC Intra-Agency Fair Lending Examination Procedure Guide
- The Fair Lending Report
- The CFPB Bulletin 2012-04
- The Memorandum of Understanding and Information Sharing between the CFPB and the Department of Justice
- CFPB Bulletin 2013-02 on indirect lending
- Conducting Consumer Compliance Risk Assessments Webinar
- CFPB Examination Procedures – ECOA
- NCUA Fair Lending Compliance Program April 4, 2013
- FDIC Compliance Examination Manual
- FDIC Fair Lending Update – 2012, Banker Outreach Program
- OCC Fair Lending Comptrollers Handbook 2010 https://www.occ.gov/publications/publications-by-type/comptrollers-handbook/index-comptrollers-handbook.html
- Federal Reserve Bank of Chicago – Bankers Guide to Risk-Based Fair Lending Examinations https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=2ahUKEwidiu3nno7eAhUEhOAKHQvHBOIQFjAAegQICRAC&url=https%3A%2F%2Fwww.chicagofed.org%2F~%2Fmedia%2Fothers%2Futilities%2Fabout-us%2Fcca%2Fbankers-guide-to-risk-based-fair-lending-examinations-pdf.pdf&usg=AOvVaw0l7-ez_jbXuXXg4zJBCRhK
- Consumer Compliance Outlook 1st Quarter 2012, Fair Lending Webinar Questions & Answers
- Consumer Financial Protection Bureau Website
- Federal Financial Institutions Examination Council Interagency Fair Lending Examination Procedures
- Federal Financial Institutions Examination Council Interagency Fair Lending Examination Procedures Appendix
- CFPB Bulletin 2013-11 on HMDA
- CFPB HMDA Resubmission Guidelines
- NCUA Press Release – Federal Financial Regulators Proposing Joint Standards for Assessing Diversity Policies and Practices of Regulated Entities Pursuant to Section 342 of the Dodd-Frank Act https://www.ncua.gov/newsroom/Pages/NW20131023JointStandards.aspx
- NCUA Press Release – Federal Regulators Provide Guidance On Qualified Mortgage Fair Lending Risks https://www.consumerfinance.gov/about-us/newsroom/federal-regulators-provide-guidance-on-qualified-mortgage-fair-lending-risks/
- 2013 Interagency Fair Lending Hot Topics Webinar
We have sought to simplify the search. All critical Fair Lending Examination documents can be found here.
The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2019.