Credit unions should expect more focus on fair lending in 2022

The NCUA has been increasing its focus on fair lending compliance as part of the regular exam or as a separate fair lending exam.

While a risk-based approach is used in determining the need for a fair lending exam, credit unions should expect some level of fair lending focus with the regular exams.

Some factors used in determining the level of focus include Home Mortgage Disclosure Act (HMDA) data outliers, prior fair lending violations, prior regulatory compliance issues and complaints, as well as other factors such as product and pricing structures.

The National Credit Union Administration (NCUA) held a webinar in December that included common fair lending issues and considerations. Some of the items discussed were:

• Informal processes for responding to member complaints, which could lead to missed trends or issues that could have fair lending implications.
• Lack of employee training on applicable laws and regulations.
• No independent audits being performed for regulatory compliance areas.
• Lack of formality in compliance management, such as a lack of risk assessments, policies, procedures or appropriate oversight from the board of directors and management.
• Discrimination based on marital status, such as pricing loans differently for married joint applicants versus nonmarried joint applicants, signor requirements and overall preferential treatment.
• Age discrimination, such as using age in an automatic loan approval system, even if the application is subsequently approved following a manual review.
• Lack of oversight and procedures to mitigate the risk of appraisal bias at credit unions offering real estate loans. Part 70.31 states that a federal credit union may not rely on an appraisal of a dwelling if it knows or should know that the appraisal is based on consideration of the race, color, national origin, religion, sex, handicap or familial status of any applicant or joint applicant. Liability for actions taken by third parties on a credit union’s behalf may also transfer to the credit union.

So what are some things the credit union can do to be ready?

• Update compliance risk assessments to include products and services that could have fair lending implications.
• Review training materials and make sure applicable employees are receiving the appropriate level of training, including refresher training.
• Consider including compliance management, fair lending and HMDA compliance audits in your upcoming internal audit and regulatory compliance audits.
• Consider using data analytic reports to identify anomalies in HMDA and consumer loan data.
• Evaluate the effectiveness of the credit union’s complaint response process.

Whether you are subject to an NCUA fair lending exam or not, these practices are important in mitigating the risk of violations, assisting in detecting potential violations and reducing the potential for consumer harm.

How Wipfli can help with fair lending assessments?

As a trusted advisor to credit unions, Wipfli can offer guidance and support, from regulatory compliance exams, risk assessments and general consulting to help with mitigating the risk of fair lending violations. Contact us today or learn more on our fair lending services web page.