Robert PolcynOffice of Consumer Protection

NCUA’s Fair Lending Examination Program

Management Association of Carolinas Credit Unions Conference

October 2014

For training purposes only.

Topics

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• Examination History• Monitoring and Selection Process• Examinations• Supervision Contacts• Common Findings• On the Horizon

Examination History

• 1994 – Agencies Issue Joint Policy Statement on Lending Discrimination

• 1996 – Government Accountability Office Recommends Agencies Adopt Uniform Fair Lending Examination Procedures

• 1999 – FFIEC Interagency Fair Lending Examination Procedures (updated in 2009)

• 2000 – NCUA Instruction Addressing Its Fair Lending Examination Program (Regionalized)

• 2010/2011 – Fair Lending Examinations Transfer to OCP (Centralized)

• 2013 – OCP Started Performing Supervision Contacts

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Monitoring and Selection Process

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• HMDA Outlier Reports• Recommendations and Information from Field

Examiners• Member Complaints• Whistleblower Complaints• Prior Regulatory Violations (primarily Regulations B,

C, and FHA)• Call Report Data (specific products, new loan

programs, high growth rates, etc.)

Examinations and Supervision Contacts – Laws/Regulations Covered

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• Equal Credit Opportunity Act (implemented by Regulation B)

• Fair Housing Act• Home Mortgage Disclosure Act (implemented

by Regulation C)• * Servicemembers Civil Relief Act

* Examinations only

Examinations (25)

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• On-site review of fair lending compliance management system– Board of directors and management oversight– Policies and procedures– Training– Monitoring and corrective action– Member complaint response– Compliance audit

Examinations (25)

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• Review HMDA Loan Application Register (LAR) for accuracy

• Review designated “focal points” (e.g., real estate denial disparities, lack of government monitoring information (GMI) data)

• Review compliance with the Servicemembers Civil Relief Act

• Involve transaction testing (review of loan files/applications)

Supervision Contacts (50)

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• Off-site review of fair lending compliance management system– Board of directors and management oversight– Policies and procedures– Training– Monitoring and corrective action– Member complaint response– Compliance audit

• Generally will not involve transaction testing (no review of loan files/applications)

• Analyst may recommend an examination after a supervision contact, if fair lending risks justify a more detailed review

Common Findings – Compliance Management System

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• Inadequate fair lending policies and procedures • No fair lending risk assessments• No analysis of HMDA data for potential disparities• Weak or nonexistent fair lending training program• Lack of internal fair lending reviews (e.g., second review of

denied loans, comparative/side-by-side file reviews)• Inadequate controls over loan underwriting and pricing

discretion/exceptions • Lack of third party (when applicable) oversight• No independent fair lending audits

Common Findings – HMDA

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• No written policies and procedures• Incorrect reporting of a preapproval program• Errors when reporting action taken codes ‘2’ (approved but

not accepted), ‘4’ (withdrawn), and ‘5’ (closed for incompleteness)

• Failure to collect and report GMI (e.g., ethnicity, race, sex) in accordance with regulatory requirements

• Insufficient training for staff with reporting responsibilities • Inadequate validation system for ensuring complete and

accurate LAR data (e.g., no transaction testing)

On the Horizon

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• CFPB HMDA Proposed Rule– http://

files.consumerfinance.gov/f/201407_cfpb_proposed-rule_home-mortgage-disclosure_regulation-c.pdf

– Coverage changes include: new loan volume threshold of 25 originated loans, in addition to current reporting conditions (for depository institutions)

– Data fields include: property value; term of loan; total points and fees; age; and credit score

– Comment period ends October 29, 2014

• Updated NCUA Fair Lending Guide• More frequent consideration of consumer lending

examination “focal points”

Resources

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• NCUA Fair Lending Resources– http://

www.ncua.gov/Resources/CUs/Pages/ConsumerCompliance/fair-lending-compliance.aspx

• Interagency Fair Lending Examination Procedures– http://www.ffiec.gov/PDF/fairlend.pdf– http://www.ffiec.gov/PDF/fairappx.pdf

• A Guide to HMDA Reporting: Getting It Right!– http://www.ffiec.gov/hmda/guide.htm

• CFPB HMDA Data Portal– http://www.consumerfinance.gov/hmda

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Office Contact Page

NCUA’s Fair Lending Examination Program

Feel free to contact our office with questions or comments.

Primary Staff: Robert PolcynCCPO Analystrpolcyn@ncua.gov

Office Phone: 703-664-3916

Questions

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