There can be no more noble a mission than to create a society where all people are afforded equal treatment, regardless of their background. And yet, more than 200 years after our nation’s founding and almost 50 years after the enactment of our nation’s key fair lending laws, we are still working to “get it right.” State and federal regulators have renewed their focus in the fair lending arena and are committed to enforcement of the fair lending laws. Improvements in technology and more detailed reporting requirements, such as Home Mortgage Disclosure Act (HMDA) reporting and Nationwide Mortgage Licensing System (NMLS) Call Reports make fair lending violations easier to detect.
There are three types of fair lending violations described in the law (the first two are generally easy to avoid):
►Overt Discrimination: This is where one or more groups of people are excluded from receiving financing.
►Disparate Treatment: This is where a particular group is singled out by imposing a different standard of treatment.
►Disparate Impact: This happens when there is a policy or procedure that ends up impacting members of a protected class in an adverse way and where there is no legitimate business reason to do so. An example of disparate impact is when customers are charged a higher fee for loans in one county over another and that county has a higher concentration of minority borrowers and there is no legitimate business reason for the higher costs. Disparate Impact Violations are usually unintentional which make them the hardest to avoid.
How do you protect your organization from the expensive process of defending claims of discrimination?
►Implement and maintain a Fair Lending Policy: Every organization should have a detailed Fair Lending Policy. The policy premise is simple: Do not discriminate. However, it is a carefully crafted fair lending plan describing the rules and procedures that are to be followed will help guide your employees in maintaining a discrimination free environment. The plan should be comprehensive and remain relevant. Procedures concerning advertising and marketing strategies should be addressed.
►Provide fair lending training for your employees: Without adequate training and education, a fair lending program cannot succeed. Fair lending compliance is fed by an educated staff. Employees can only carry out their duties and responsibilities if they understand what those are.
►Implement a non-discriminatory pricing policy: “Put your money where your mouth is” by ensuring that all persons have equal access to credit opportunities. Setting standards for loan price and fees helps ensure such equality.
►Test to ensure non-discriminatory practices or pricing: Implement a procedure to review loan files and loan data to detect patterns or trends which may indicate disparate results of lending activities. Self-testing and monitoring limits a company’s liability and encourages corrective action, when necessary. This review should include not only closed loans, but applications that are either withdrawn or denied.
►Put it in writing! Fair lending policies, like all policies, should be written documents.
Avoiding fair lending violations is inexpensive; violating fair lending laws is very expensive. Even the mere allegation of a violation can cost thousands of dollars in legal fees, fines and penalties. By incorporating a meaningful fair lending plan into day-to-day business operations, mortgage brokers and bankers can take a giant step towards preventing allegations of wrongful discrimination. There are several compliance companies including, First National Compliance Solutions, that can provide you with the necessary tools to remain compliant. Take a proactive approach to fair lending compliance and protect your reputation and your profit margins!
This article was co-authored by Bonnie Nachamie.
Jonathan Pinard is president and Bonnie Nachamie is chief executive officer of First National Compliance Solutions Inc. in Merrick, N.Y. Jonathan may be reached by phone at (800) 400-4134 or e-mail
[email protected]. Bonnie may be reached by phone at (800) 400-4134 or e-mail
[email protected].
