Fair lending continues to be a major enforcement priority of federal agencies, and the financial implications have increased considerably in recent settlements. The US Department of Justice (DOJ) has filed or resolved a record number of lending matters under the Fair Housing Act and the Equal Credit Opportunity Act within the past two years, and the Consumer Financial Protection Bureau (CFPB) has made fair lending examination and enforcement a top priority.
Allegations of discriminatory pricing, steering, and redlining on the basis of race and national origin have been major focus areas in recent DOJ settlements, but some recent cases have also alleged discrimination on the basis of marital status, age, receipt of public assistance, sex, or familial status. Furthermore, recent DOJ fair lending cases have relied heavily on the disparate impact legal theory under which unintentional differences in lending outcomes among demographic groups are considered to be violations just as serious as intentional discrimination.
The recent mortgage pricing settlements all relate to lending that occurred before new loan originator compensation rules under Regulation Z were implemented in April 2011. While those new rules have helped reduce fair lending risk in pricing, they have not eliminated it or the need to monitor it. Regulators expect lenders to identify and understand the fair lending risk in their operations and to take appropriate corrective action when necessary. Because regulatory enforcement is being driven primarily or exclusively by statistics in many cases, it is of paramount importance that consumer lenders perform statistical analysis to assess and regularly monitor their fair lending risk.
The terms of the recent fair lending settlements provide a useful roadmap to regulatory expectations regarding fair lending risk management. In “Fair Lending Risk Management: Lessons from Recent Settlements,” we distill the key lessons from these settlements that lenders can use to shape and enhance their own fair lending risk assessment and monitoring programs.
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