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Weathering a Perfect Fair Lending Storm in 3 Ways

January 8, 2021

By Carrie Helmle, Manager Audit Services and Jovilyn Herrick, Director Compliance Consulting Services

Everyone’s ready to put COVID-19 behind us. But for governance, risk and compliance (GRC) pros, it won’t be that easy, especially for those in financial services. That’s because examiners have already made it clear they will be analyzing 2020 lending decisions with as much scrutiny as the industry has come to expect.  

COVID-19 created something of a perfect fair lending storm. The crushing and often disparate economic impacts of the pandemic heightened awareness of inequality across all kinds of lines – from gender and race to age and income class. Regulators know the new landscape carved out by 2020 presents significant risks for financial institutions, and they are committed to mitigating them by all necessary means, including strict enforcement of the rules and/or new and expanded regulation.

Credit union GRC pros can help their credit unions comply with the letters of fair lending laws in many ways. However, we see the following as three must-dos for 2021 and beyond.

Accelerate a Fair Lending Audit

This is an audit your credit union can perform at any time of the year. However, given the charged atmosphere around financial inclusion and equity, there is no better time than the present. In fact, that’s exactly what an NCUA examiner recently suggested for one of our largest credit union clients. Acting on that examiner’s advice, the credit union rescheduled its fair lending audit from September 2021 to March 2021.  

It’s the rare credit union that is actively preventing a protected class from achieving financial success. Yet, there are myriad unintentional disparate-impact traps into which lending staff can fall into– and likely did in 2020. It’s best to identify those missteps now, early in the year, so they can be corrected.

High volumes, hurried decisions and unprecedented exceptions characterized most credit union lending departments in 2020. Perfect compliance under these circumstances is highly unlikely. Your audit partner will have findings, but it’s better to have someone on your side to find them today than to have them discovered by an examiner down the road.

Dust off Those Policies

Calls to our hotline about fair lending policies and procedures have reached a fever pitch. More credit unions than ever before are pulling out their documents and making sure they are up-to-snuff, not only with current regulations but also with their day-to-day procedures.

They are looking at guidance around exceptions for certain borrowers or certain loan modifications. They are looking at incentive plans to see how staff are motivated to capture the loan business of community members. They are looking at marketing policies to ensure promotional campaigns are properly governed and executed.

Ahead of a fair lending audit, GRC leaders will want to consider all the above and more. You’ll want to pay close attention to how various policies impact procedures and whether staff are aware of and adhering to the processes and methods outlined within.

Although it’s a best practice for such policies to be reviewed on an annual basis, no one would fault a credit union, nor its board of directors, for succumbing to the massive distractions of the past year and failing to perform that usual check-in. This is where policy management technology, specifically compliance automation and cloud-based collaboration, can help. ViClarity's GRC Management platform is well-suited to address these growing needs. We’d be happy to introduce your team to the possibilities of integrating the technology into your credit union’s GRC strategy. Get in touch today!

Set Staff Up for Success with Members

Credit union staff, by and large, are shining beacons of financial inclusion. That does not mean they can’t make mistakes. GRC pros are in an outstanding position to elevate their credit union’s diversity, equity and inclusion initiatives, and much of that begins with consistent and comprehensive training to lessen those mistakes.

Fair lending is not judged solely on underwriting. It starts from the time a new member walks in the door (or opens an account online). Do staff know how to take an application, including which questions are okay to ask and which are not? Will they be prepared to handle a complaint appropriately? Are they exposed to training simulations that allow them to practice unusual circumstances or uncomfortable incidents?

More pragmatically, do lending team members know how or if they can make an exception for a borrower who does not meet certain criteria? Will they be able to document that decision appropriately, including all the necessary details in their reports? Is there a policy and procedures document to walk them through these often-complex decisions, or a formal framework with defined guidelines around which members are eligible for exceptions and which staff can authorize them?

In addition to policies, procedures, documents and data, examiners are paying close attention to training records. Increasingly, they are asking about fair lending training for all levels, from chief lending officer to frontline teller. Training to satisfy an examiner is one thing; credit unions should really view it as an opportunity to elevate their competitive differentiation – to empower staff to deliver the sound, compassionate and member-centric experiences their communities deserve.


Services performed by ViClarity are compliance and not legal in nature, and do not form an attorney-client relationship or any of the protections attendant to the attorney-client relationship.


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