During the current COVID-19 crisis, many financial institutions have responded by tightening their lending standards while increasing allowable forbearance activity.
Financial institutions should be aware of potential increased fair lending risks resulting from these changes. Fair lending risks could be elevated because: (i) the predictive performance of pre-COVID credit models might be reduced during and after this period; (ii) different demographic groups have been affected differently by this crisis; (iii) the demand for hardship relief increased rapidly and unexpectedly; and (iv) the responses to the crisis required relatively fast implementation.
In this Insights, the authors discuss considerations for enhanced fair-lending monitoring during this period of uncertainty and economic volatility. Any time a financial institution implements new policies or updates existing policies, any potential unintended differential outcomes across protected classes must be considered.