In order to safeguard compliance, lenders must continuously assess the quality of their fair lending practices to ensure that they are operating in accordance with regulations. Strong assessments can reveal where lenders may need to change their processes and practices to reduce the risks of non-compliance and enhance their fair lending practices. In today’s strict lending atmosphere, poor evaluation methods are simply not an option for lenders that want to remain in business.
Determine Your Risks
To effectively evaluate the quality of your fair lending platform, you need to understand where your risks lie for non-compliance. “Determine where your fair lending compliance management system sits on a scale from strong to weak for your bank’s size, structure, resources, diversity and complexity of operations.” (1) Your business must also calculate its fair lending risks in terms of the SMAART (Systems, Monitoring, Assessment, Accountability, Response, Training) model. Use this model to determine an overall rating for your business’s fair lending risk.
Consider the Future
Of course, when you calculate your company’s risks, those calculations are based on today’s lending atmosphere. However, when you consider policy and practice changes, you also need to forecast some of tomorrow’s likely risks. Your fair lending practices are not stagnant, and the future may present its own challenges for your lending practices. By anticipating issues related to fair lending practices, you can better reduce your risks and safeguard your operation.
What Are Your Compliance Controls?
If you are concerned about compliance (and what lending business isn’t?), you have to assess the quality of your controls, the elements that help insure that you are operating in accordance with regulations. Adopting software for “fair lending analysis purposes” (2) allows you to operate with sound compliance controls in place so you can effectively self-monitor your lending practices. Because fair lending audits are increasing, having this software to protect your operation is paramount.
Once you have your compliance controls in place and have determined your operation’s risk factors in terms of fair lending, you can begin to make the necessary adjustments or, perhaps, the big changes that are needed to reduce those risks that threaten your business. When you locate red flags in your system, you are obligated to develop solutions so that those risks are brought to a minimum threat level. Naturally, you’ll want to prioritize your risks. Which ones need immediate action? Which ones need further investigation and monitoring before you can exact a change? In some cases, no change may be needed, but at least you can be comfortable knowing that your risk assessment provided the information you needed to make that decision.
The lending industry has undergone strenuous changes, and all lending organizations must comply with new regulations or face substantial penalties. Although you may believe your agency is lending in accordance with fair lending regulations, you don’t know for certain until you assess your risks and evaluate the quality of your fair lending practices. By using effective resources and tools like compliance-friendly software, you can minimize your risks and operate with greater peace of mind.
1. American Bankers Association, “Fair Lending Risk Assessment,” http://www.aba.com/ABA/Toolbox/FairLending/FairLending_Tool3r.pdf
2. LoanLogics, “Controls for Compliant Borrower Pricing Discussions,” http://loanlogics.com/fair_lending.html