Treliant Takeaway…OCC Updates Fair Lending Booklet of Comptroller’s Handbook

Fair Lending: Revised Comptroller’s Handbook Booklet and Rescissions

• Source: occ.gov

Treliant Takeaway:

Treliant has experts in fair lending and responsible banking that help institutions develop, evaluate, and implement robust compliance programs to address fair and responsible banking risks.  Rather than simply identifying gaps or making recommendations, Treliant’s experts will help banks put into practice the tools and processes necessary for an effective program.  Our clients rely on our regulatory knowledge and industry experience to meet current mandates and achieve compliance and business objectives.  From fair lending risk assessments to staff augmentation, Treliant can help transform your bank’s fair lending and responsible banking culture and program from reactive to proactive in the identification and management of risks.

Highlights:

The OCC’s revised “Fair Lending” booklet of the Comptroller’s handbook, issued January 12, 2023, contains a comprehensive update of the fair lending examination process.  The revised booklet incorporates changes to laws and regulations since the last booklet was published in 2010.  It contains new and clarified details and risk factors for a variety of examination scenarios.  In addition, updates to supervisory guidance, sound risk management practices, as well as the OCC’s current approach to fair lending examinations are addressed.

Key Updates Include:

• Expanded description of risks and risk management expectations, for fair lending.
  • Introduction contains a dedicated section advising examiners to be alert to a concentration of bank supervision risks that are associated with fair lending risks.
    • Supervision risks associated with fair lending include compliance, credit, operational, strategic, and reputation.
    • Examples of risk factors in each category include new product processes; vague underwriting standards; operational issues such as high volumes and automation; adverse business decisions; and inadequate policies and procedures.
  • Fair lending risk management programs are expected to effectively identify, measure, monitor, and control risk exposure. For example:
    • Fair lending risk assessments should consider use of modeling methods or alternative data, statistical analysis, analyses of redlining indicators, corrective actions, and verification by an independent third party as appropriate.
  • Third-Party Risk Management programs should incorporate fair lending risks.
    • Fair lending risks associated with third parties may include relationships involving marketing, processing of loan applications, loan servicing, and loss mitigation.
  • OCC’s fair lending review scope for banks with $10 billion or less in total assets may include commercial lending.
    • Small business credit (commercial loan applicants with gross revenues of $1 million or less) as well as other commercial products may be subject to a fair lending review.
    • Examiners may utilize the US Small Business Administration (SBA) loan data and Community Reinvestment Act (CRA) reporting to identify potential patterns of underwriting or redlining risk.
  • The OCC’s Fair Lending Risk Assessment Process is covered in greater detail.
    • OCC’s fair lending risk assessment will consider the associated risks of credit products offered through each stage of the loan’s life cycle.
    • Describes the process for identifying and determining the focal points for review in an examination.
    • A new appendix (Appendix A: OCC’s Fair Lending Risk Assessment Process) provides a comprehensive description of the fair lending risk assessment process and the assignment of the overall fair lending risk ratings.
    • The new Appendix B: Fair Lending Risk Factors consolidates the lists of risk factors to be considered in the fair lending risk assessment.
      • Risk factors include compliance program deficiencies; overt discrimination; underwriting discrimination; pricing discrimination; discriminatory steering; redlining; and discriminatory marketing; among other factors.
    • Describes how examiners may use proxies in exams in which nonmortgage lending and mortgage loss mitigation are focal points.
      • The examination manual describes the appropriate use of proxies to conduct reviews where protected basis characteristics cannot be collected or are not available (e.g., nonmortgage lending, commercial lending).
      • Proxy analysis may be used to assign race, ethnicity, or other protected basis group characteristics to applicants and borrowers when direct evidence is not available.