Effective fair lending compliance programs identify and challenge models that have fair lending consequences.
An effective fair lending compliance program should require that a bank’s model risk management and legal and compliance departments meet to review the organization’s inventory of models and identify which have a fair lending impact. That review could include traditional pricing and underwriting models, prescreen marketing models, a third-party fintech partner model, or even the data regression and analysis model organizations use to identify fair lending and redlining risk.
Organizations need to designate a specific person or team to identify models and challenge them for fair lending purposes. If the model review process doesn’t incorporate a fair lending compliance component, it could have unintentional consequences on lending portfolios.
Timing is a critical aspect of this process as well. A fair lending review earlier in the model process can prevent late surprises and help optimize the overall schedule and resource use.