Fair Lending Compliance Training Webinar 4-7-20161 Fair Lending Compliance Training Introduction...

Fair Lending Compliance Training

1 Fair Lending Compliance Training

Introduction

Karen M. JanotaAssurance Manager

Today’s presenters:

Disclaimer: The contents of this presentation are intended toprovide you with a general understanding of the subjectmatter. However, it is not intended to provide legal,accounting, or other professional advice, and should not berelied on as such.

Introduction to Fair Lending

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Introduction to Fair Lending

Why is it important to discuss equal treatment and fair lending?

• Treating all members equally and fairly is veryimportant.

• As a credit union employee, it is illegal to treat members differently based on a prohibited bases factor.

What laws or regulations do we have?• Equal Credit Opportunity Act

(ECOA) – Regulation B• Fair Housing Act• Home Mortgage Disclosure Act

(HMDA) – Regulation C• Fair Credit Reporting Act


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Equal Credit Opportunity Act (ECOA)Regulation B

What is the purpose of ECOA?• To prevent discrimination and promote the availability

of credit to all creditworthy applicants without regard to any of the “prohibited bases”.

What are prohibited bases? Factors that we are forbidden to discriminate upon in

any aspect of a credit transaction. Group Activity - How many do you know?


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Prohibited Bases (under ECOA & Reg B)

1. Religion 8. Receipt of Public

2. Race Assistance

3. Color If all or part of an applicant’s

4. National Origin income is derived from any

5. Sex public assistance program

6. Marital Status 9. Consumer Credit Protection

7. Age Act

If the applicant has in good faith

exercised any right under the

Consumer Credit Protection Act


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Lender Buck’s Loan Applicant

Ed Needsit applies for an unsecured loan and he talks way too much. In his conversation with Lender Buck, he shares several pieces of information.

Determine whether or not Lender Buck can consider the information or if he is prohibited from considering it.

Hi! I’m Ed Needsit


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What is the scope of this law?• Discrimination is forbidden in ANY aspect of a credit

transaction.

Everyone is involved! Individual who greets customer Loan Originator Credit Underwriting Person setting up new loan

account on the computer system


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Lending Discrimination

The courts recognize three methods of proof of lending discrimination under the ECOA and theFair Housing Act (FHA).

• Overt discrimination

• Disparate treatment

• Disparate impact (effects test)


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Overt Discrimination

• When a lender openly discriminates on a prohibited basis

• “No loans to Methodists.”

When a lender expresses a discriminatory preference

• “I’m more comfortable with people who can speak English.”


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Disparate Treatment• When a lender treats a credit applicant differently

based on one of the prohibited bases.

• May not be motivated by prejudice or the conscious intention to discriminate against a person beyond the difference in treatment itself.


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Disparate Impact• When a lender applies a racially or otherwise neutral

policy or practice to all credit applicants, but the policy or practice disproportionately excludes certain persons on a prohibited basis.


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Technical Requirements

Notifying applicants of the credit decision within 30 days of receiving a completed application, with some exceptions.

• Collecting information about the applicant’s race and other personal characteristics in applications, for certain dwelling-related loans.

• Providing applicants with copies of appraisals and other valuations developed for first-lien, dwelling-secured credit transactions.

• Retaining records of credit applications after notifying the member of its credit decision, for 25 months for consumer credit and 12 months for business credit, with some exceptions.


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Nondiscriminatory Advertising

Prohibits discrimination on a prohibited basis in residential real estate-related transactions


Fair Housing Act

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Fair Housing Act

Overview

Works in conjunction with the Equal Credit Opportunity Act (ECOA).

Nondiscrimination in lending.


Fair Housing Act

Prohibited Practices

Failing or refusing to provide information about loan availability, application requirements, procedures or standards

• Providing information that is inaccurate or different from information provided to others

• Providing, failing to provide, or discouraging the receipt of loans

• Using different policies and procedures in evaluating creditworthiness

• Servicing loans in a discriminatory manner


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Fair Housing Act

Legal Interpretations:

Redlining

Excessively low appraisals in relation to purchase price

Discouraging applications

Excessively burdensome qualification standards

And more


Home Mortgage Disclosure Act –Regulation C

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Reporting Requirements

Requires financial institutions, including credit unions, to compile and disclose data about home purchase loans, home improvement loans, and refinancings that they originate or purchase, or for which they receive applications.


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Purpose of HMDA Reporting

Provide the public with data that can be used to:

Determine whether credit unions are serving the housing needs of their communities

Assist public officials in distributing public-sector investments

Assist in identifying possible discriminatory lending patterns


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Exempt Institutions

A credit union is exempt from the requirements of theregulation for a given calendar year if on the precedingDecember 31st:

• It had neither a home office nor a branch office in a metropolitan statistical area (MSA) or

• Total assets were at or below the threshold established by the Consumer Financial Protection Bureau (CFPB) or

• It made no first-lien home purchase loans (including refinancings of home purchase loans) on one-to-four family dwellings in the preceding calendar year.



HMDA Reporting Requirements What’s Not Reported

Loans made or purchased in a fiduciary capacity Loans on unimproved land Construction and temporary financing loans Purchase of interest in mortgage pool Purchase of servicing rights Loans acquired as part of a merger or acquisition or as

part of the acquisition of all assets and liabilities of a branch office

Participation loans acquired Prequalification requests (as opposed to preapproval

requests) Assumptions not involving a written agreement


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Home Mortgage Disclosure Act –Regulation CDisclosure and Reporting

Reporting to agency FFIEC disclosure statement

- Public disclosure: home office - Public disclosure: other

At least one branch office in each other MSA andMetropolitan Divisions with offices or

Post address for written requests in lobby of eachbranch office and mail within 15 calendar days ofwritten request

Modified LAR General notice Disclosure required even if the requester is not a

credit union member



Reportable Data

Data collected after January 1, 2018

New Data Points

Collection and Reporting of Applicant or Borrower Information

Data Submission Process

Disclosure Statements


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Recordkeeping

A copy of the Loan Application Register (LAR) must be retained for a period of at least three years.

The modified LAR must be available to the public for a period of three years.

The disclosure statement must be available to the public for a period of five years.


Penalties for Non-Compliance

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Fair Lending Compliance

Consequences of Lending Discrimination

• Lost opportunities • Complaints and lawsuits • Negative publicity • Public protests • Regulatory scrutiny • Negative impact on CRA ratings • Referral to the Department of Justice / Department of

Housing & Urban Development • Business constraints, restitution, and civil money penalties


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Penalties and LiabilitiesRegulation B provides for actual damages, as well as forpunitive damages of up to $10,000 in individual lawsuitsand up to the lesser of $500,000 or one percent of theinstitution’s net worth in class action suits. Court costs andreasonable attorney fees may also be awarded to anaggrieved applicant in a successful action.


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Fair Housing Act

Penalties and Liabilities

Administrative remedies available to HUD include permanent or temporary injunctions, restraining orders, or other relief including monetary damages and civil penalties. In civil court actions, the court may grant relief as it deems appropriate, including monetary damages, permanent or temporary injunctions, temporary restraining orders, or other similar remedy. Court-awarded monetary damages may include both punitive and actual damages.


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Penalties and Liabilities

Administrative sanctions, including civil money penalties, may result from violations of the regulation.


Fair Lending Compliance

Reference Materials

Interagency Fair Lending Examination Procedures

NCUA – Office of Consumer Protection Fair Lending Guide

FFIEC - HMDA Resources

U.S. Department of Housing and Urban Development – www.hud.gov


Thank You!

GBQ Partners LLC230 West Street, Suite 700Columbus, Ohio 43215

Karen M. Janota

[email protected]

614-947-5288

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Fair Lending Compliance Training Webinar 4-7-20161 Fair Lending Compliance Training Introduction...

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