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HMDA Rule to Increase Fair Lending Visibility

At PolicyWorks, we’re able to keep our pulse on the credit union industry, and specifically credit union compliance. We can see the areas of concern which most impact credit unions at a given period of time, based upon our daily interaction. In addition to the Military Lending Act, one of the most frequent topics we’ve addressed within the past few months is Fair Lending. Fair Lending rules have been around for decades, so why the increased concern this Fall?

Much of this emphasis is likely due to an increased focus by the NCUA in its examinations.

Another catalyst may be the reputational risk which may be involved. Did anyone notice the media attention Wells Fargo received for its recent scandal? That may be an extreme example, but you get the idea.

Most fair lending infractions are not intentional. They are often the result of applying an otherwise neutral policy or practice to all applicants, which unfortunately results in an exclusion or burden on members of a protected class. In other words, insufficient planning, or a lack of monitoring may allow a lender to miss the fact that its practice has a negative impact.

Well, if you think that Fair Lending scrutiny has increased already, just wait until the new HMDA rule goes into effect on January 1, 2018.

The purpose of HMDA is as follows:

  1. Helps show whether financial institutions are serving the housing needs of their communities;
  2. Assists public officials in distributing public-sector investment to attract private investment to areas where it is needed; and
  3. Assists with the identification of potentially discriminatory lending patterns and enforcement of antidiscrimination laws.

It’s right there in #3. The identification of potentially discriminatory lending patterns. And, the enforcement of antidiscrimination laws.

Combine that purpose with the additional data fields to be reported, and you’ll start to see the Fair Lending picture more clearly. Fields such as applicant age, credit score, points and fees, lender credits…the list goes on. Each of these data points provides enhanced ability for regulators to conduct an evaluation of Fair Lending risks without ever leaving their offices.

That’s the potentially bad news.

The good news, is that the regulators will be looking at the same information that you will. And, you’ll see it first. This may make a credit union’s internal analyses easier to complete as the data collection may be more streamlined within loan software. The key is what it does with that information.

This increased visibility is a great reason to make sure your credit union has a strong Fair Lending program in place now. If you’re not 100% confident in your Fair Lending program, it is best to address it before the information is more readily available to the regulators, your competitors, and the general public.

If there is anything I can do to help, you know where to reach me.

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