Affirmxs fair lending risk assessment flra is your answer. Goal is to establish scope of the exam, and considers. Bank market areas are usually understood to be the cra assessment area or what is known as the banks trade area. Introduction overview of the risk focused framework the consumer compliance risk focused supervision program is designed to promote strong compliance risk management practices and consumer protection by ensuring that federal reservesupervised state member community banks com. Examiners expect banks to know where their compliance risks are and to devote resources to those areas that present the greatest risk to the institution. This booklet applies to the occs supervision of national banks. It is primarily concerned with establishing accurate probabilities for the frequency and magnitude of data loss events. New and reemerging fair lending risks mortgage banker. Section iv discusses analytical methods that may be used to assess fair lending risk in key credit card operation areas, including prescreened marketing, underwriting, pricing, and credit line assignment. At the conclusion of performing your banks fair lending risk assessment, what was your overall risk rating. At its simplest, the fair lending risk assessment should first measure and evaluate inherent risk, which is the intersection of the possibility of violating any fair lending related rule or regulation reg.
Fair lending outlier analysis dfbetas, cooks d traditional model validation holdout, stress testing. Completing a fair lending risk assessment is a challenging task as there are many things to consider in a financial institution that relate to the risk of discrimination. Regulatory environment enforcement actions fair lending risk assessment methodology fair lending risk assessment components enterprise risk life cycle resources 2. To complement the supervisory office so risk assessment process, the occ also selects banks and mortgage subsidiaries for comprehensive fair lending examinations using a risk based and random sample screening process that supplements the ongoing supervisory office efforts. As the scoping process continues, credit prod ucts are selected. That work is vital to ensuring fair and 2 equal treatment for borrowers. In that sense, it is a menu of resources to be considered and selected from, depending on the nature and scope of the examination being conducted. Sefl employ a bisg proxy methodology for race and ethnicity in our fair lending analysis of nonmortgage credit products that relies on the same public data sources and general methods used in elliott et al. Interagency fair lending examination procedures federal reserve.
Risk to consumers for the purpose of the cfpb risk assessment is the potential for consumers to suffer economic loss or other legallycognizable injury as a result of a violation of federal consumer financial law. Recognizing the risk gaps and the plan to resolve the gaps. Regulatory agencies follow a riskbased fair lending exam process. It is more important than ever that you understand the entire lending process in order to effectively manage fair lending risk.
Fair lending risk should be addressed quickly and thoroughly. Supervision and examinations consumer financial protection. Fair lending risk assessment template compliance cohort. Assessing your potential fair lending risk exposure. Statistical techniques and fair lending marsha courchane, david nebhut, and david nickerson abstract there remains strong concern that, even after several years of intense scrutiny, lending discrimination persists. Overview fair lending updates annamarie tabor, deputy fair lending director, office of fair lending and equal opportunity, consumer financial protection bureau risk based approach to fair lending tara l. Jul 28, 2016 6 core areas your fair lending risk assessment should cover. Giving banks a fair chance to manage fair lending requirements. A thorough risk assessment considers bsaaml, fraud, ofac, and institutionspecific factors, such as business lines and subsidiaries and how all of these factors interrelate. Disparate treatment overtlender openly discriminates on a prohibited basis can be written or verbal comparative evidencedifferences in treatment not fully explained by legitimate non discriminatory factors.
Risk assessment matrix background a bankers threads user asked if anyone would be willing to share a sample matrix in regards to security risk for privacy. This appendix offers a full range of information that might conceivably be brought to bear in an examination. In central new york 1, a mere complaint about fair lending practicesnot even a regulatory actionis enough to put a bank merger on hold and put jobs on the line. It provides an overview of the new riskbased approach that examiners will use when assessing a lenders compliance with the equal credit opportunity act regulation b and the fair. Understanding how your performance compares demographics and your peers is critical to identifying risk and preparing for a regulatory examination. Quantifying the risk, in turn, allows for effective prioritization of risk areas for attention or corrective action. Audit report united states department of the treasury.
To complement the supervisory office so risk assessment process, the occ. During each supervisory cycle, examiners perform a fair lending risk assessment in each national bank. Fair lending webinar the importance of peer market analysis. Fair lending risk is the likelihood that a financial institutions lending operations may be found to treat or impact applicants and borrowers differently on a prohibited basis. Understanding fair lending risk needs to include an assessment of credit within individual lending markets. Also included is a quick reference table of the residential lending discrimination risk factors. Statistical techniques and fair lending 279 3 the occ plans to issue new fair lending examination procedures that will supercede the october 1997 handbook. This guide is intended for use by a credit unions board of directors and management, compliance officers, and others having responsibility for fair lending compliance as.
Trupoint partners is not affiliated with trupoint bank. Managing compliance risk through consumer compliance risk. This publication is a guide to the new interagency fair lending examination procedures. In conducting a fair lending risk assessment, the first thing to evaluate is a financial institutions past experiences relating to fair lending. Executive summary the consumer financial protection bureau cfpb is charged with ensuring that lenders are complying with fair lending laws and addressing discrimination across the consumer credit industry. This process entails a more involved analysis of the institutions compliance risk management processes. The fair tm institute is a nonprofit professional organization dedicated to advancing the discipline of measuring and managing information risk. This quick reference guide provides a brief, summarized version of the requirements and can help you perform a financial institution risk assessment. This booklet discusses statistical and judgmental sampling methodologies in the context of occ examinations. Weve undergone two exams with the first one year 2012 stating there were no violations but some minor concerns were disclosed. The affirmx fair lending risk assessment solution youve heard the horror stories. Each lenders overall fair lending risk will be assessed by considering its. Developed and implemented a fair lending audit risk assessment methodology and scorecard.
Fair lending applications aba intermediate school april 2019 1. Home of fair the standard quantitative model for information security and operational risk join the fair institute today join leading information risk, cybersecurity and business executives to collaborate on the development and the sharing of industryleading best practices for quantifying and managing information risk. At its simplest, the fair lending risk assessment should first measure and evaluate inherent risk, which is the intersection of the possibility of violating any fair lendingrelated rule or regulation reg. These resources provide guidance on how to comply with fair lending laws. Managing compliance risk through consumer compliance risk assessments by dorothy stefanyszyn and joe detchemendy, examiners, federal reserve bank of st. This article originally appeared as the cover story in the septemberoctober 2019 issue of aba bank compliance magazine.
A fair lending risk assessment should be conducted to assist the bank in understanding where risks may be present in the lending process. Trupoint partners is a wholly owned subsidiary of ncontracts, llc. Community bank risk focused consumer compliance supervision program i. This process entails a more involved analysis of the institutions compliance risk management processes, particularly as it relates to selected products, to reach an.
It is designed for bank ceos, presidents, compliance and cra officers, and others who have an interest in the fair lending. Fair lending dealing with heightened regulatory expectations. Regulators use different metrics when comparing your performance to peers, focusing on. Thats why performing a fair lending risk assessment to see if there are any red flags makes much more financial sense than. This process entails a more involved analysis of the institutions compliance risk man agement processes. Our policy is good, but we dont have a risk assessment to go with it. It goes handinhand with the qualitative aspects of fair lending risk assessment and. Absolutely everything you need to know about fair lending risk. Regulators have been focused recently on several new and reemerging fair lending issues during examinations and investigations of mortgage lenders. Fair lending risk assessment methodology 2 17 publish. How examiners will use hmda data in identifying fair lending concerns. Fair lending compliance resources national credit union. Fair lending is a critical component of a financial institutions compliance management system. Fair lending handbook office of the comptroller of the.
The idea is that if a bank or credit union has a history of fair lending violations, the inherent risk of additional violations is increased. From a fair lending perspective, institutions can run analytics on existing loan portfolios to understand the level of fair lending risk exposure. So how do you ensure that your fair lending program and policies are up to date and effective. Complaints in fair lending risk assessments and examinations. Oxley, chief, fair lending and cra examinations, federal deposit insurance corporation fair lending risk assessments kimberly g. Fair a case study where fair works well focusing on micro issues to establish a macro results breaking down elements of risk calculations in multiple elements precision based where fair does not work well first time, holistic risk assessment nonmetric driven environment. The assessment of fair lending compliance risk in credit cards is hampered by the ecoa prohibition on collecting information about the race, ethnicity, or sex of credit card applicants. Evaluating redlining risk can take a number of forms and methods. Lessons from recent settlements, we distill the key lessons from these settlements that lenders can use to shape and enhance their own fair lending risk assessment and monitoring programs. Fair lending and risk assessment overview consumer compliance march 21, 2017. A fair lending risk assessment template can assist with the initial risk assessment process as it can help a financial institution ensure they cover all applicable areas. Redlining risk is the potential fair lending risk stemming from the disproportionate lack of lending to majorityminority census tracts within individual markets.
In a recent webinar by the fdic, the agency reaffirmed and provided more detail about a banks rema, or reasonably expected market area. How to perform a financial institution risk assessment. It is not a methodology for performing an enterprise or individual risk assessment. The new fair lending challenges of cfpb hmda webinar. Fair lending risk assessments conducted during each supervisory cycle risk based examinations determined through analysis of hmda data and information collected in conducting the risk assessment 7. Most often, this work is based on econometric or regression analysis methods to predict the underwriting or pricing outcomes.
The fair tm factor analysis of information risk cyber risk framework has emerged as the premier value at risk var framework for cybersecurity and operational risk. Section vi discusses how the management of fair lending. Fair lending examination procedures summary and risk factors. Analytics in fair lending and regulatory environments deanna neal first vicepresident corporate compliance suntrust bank.
This guide is intended for use by a credit unions board of directors and management, compliance officers, and others having responsibility for fair lending compliance. This publication is intended as a summary of the fair lending examination procedures. The courts have recognized three methods of proof of lending discrimination under ecoa. Analyzing the fair lending risk of credit card operations. Develop a fair lending risk assessment methodology c. Factor analysis of information risk fair is a taxonomy of the factors that contribute to risk and how they affect each other.
The concerns encompass issues of lending denial disparities, use of predatory lending tactics. Louis financial institutions face a variety of compliance risks every day, ranging from the risks associated with new products and services to the risks of operational failures involving. B, fha, udap, and to a lesser extent hmda and cra with where those possibilities lie within your bank. It is designed for bank ceos, presidents, compliance and cra officers, and others who have an interest in the fair lending examination procedures. Conducting consumer compliance risk assessments examiner insights.
Fair lending soon followed initially just for the largest banks. Fair lending laws also contain provisions to address predatory lending practices. Adi consulting evaluates fair lending risk for many lenders. Does anyone have a fair lending risk assessment they would be willing to share.
Fdic releases guidance on redlining risk and the concept. This supervision and examination manual provides internal guidance to our supervisory staff. Fair lending risk assessments conducting a risk assessment methodology template streamlined risk assessment. Based on the risk assessment, examiners may initiate full scope fair lending examinations or other appropriate supervisory activities to ensure compliance with fair lending laws and regulations. Fair lending risk assessments conducting a risk assessment methodology. The affirmx fair lending risk assessment solution affirmx. Take this free 5minute quiz to assess your fair lending compliance risk and see how your program stacks up. A small number of loans with many exceptions each could be as worrisome as a lengthy list of loans with one or two exceptions each. Trupoint partners, its employees, and its affiliates assume no responsibility for use of, or errors and omissions in, any of the information on this site or related resources. It provides an overview of the new risk based approach that examiners will use when assessing a lenders compliance with the equal credit opportunity act regulation b and the fair. To determine risk to consumers, the risk assessment considers the interaction of two broad sets of.
Interagency fair lending examination procedures ffiec. The practice of making loans that rely on the liquidation value of the borrowers home or other collateral rather than the borrowers ability to repay. Revised edition of sidebyside, a guide to fair lending the fdic has revised its 1994 edition of sidebyside, a guide to fair lending see fil4794. Developed a process to identify and document relevant information about the institutions lending products, customer base, geographies and other key factors. Some of these 17 documents are based on the occs community bank supervision handbook which has since been updated. Bankers guide to riskbased fair lending examinations. Guidance in the appendix to the interagency fair lending examination procedures provides details on how to obtain relevant information regarding such situations along with methods of evaluation, as appropriate. Analytics in fair lending and regulatory environments. In addition to highlighting the banks risk profile, monitoring the fair lending risk controls and closing the risk gaps the bank often learns additional. Identifying the controls the bank uses to identify fair lending risks. Quantitative information risk management the fair institute. Our examiners have told us that our overall rating should be medium to high but when i do our risk assessment, i cant seem to get any higher than low. Fair lending examination procedures summary and risk. As an industry leader in compliance technology, affirmx provides credit unions with a comprehensive fair lending risk assessment as one component for a.
Examiners are cracking down on missteps in fair lending. Those that use risk based risk pricing form of lending be careful use of ratematching, interest rate discounts, or granting flexibility to indirect lending personnel in granting interest rates do not violate fair lending rules written policies need to be specific with respect to. October 6, 2015 session 2 fair and responsible banking documentation best practices 3 a fair lending risk assessment is a tool to systematically evaluate an institutions fair lending risk, how well it manages that risk, and the likelihood that it is complying with fair lending laws and regulations. This booklet focuses on compliance with the fair housing act, equal credit opportunity act, and regulation b the consumer protection regulation that implements the equal credit opportunity act. Fair lending assessment quiz fair lending analysis. The next section in your fair lending risk assessment should focus on the credit unions policies and approach to lending, with emphasis on credit decisioning, pricing, and applicant. It does not bind the cfpb and does not create any rights, benefits, or defenses, substantive or procedural, that are enforceable by any party in any manner.
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