Why your fair lending risk arrow is probably pointing up

During his campaign, President Biden expressly stated that he would “ensure effective and rigorous enforcement of the Fair Housing Act and the Home Mortgage Disclosure Act.¹

Daniel H. Burd, a Washington, D.C.-based attorney who focuses on regulatory matters for financial institutions, authored an article in the National Law Review shortly after the November 2020 election in which he suggests that under President Biden, the Department of Justice likely will increase enforcement action in various bank-related areas, including consumer statutes and regulations that make up the fair lending body of law.

“It can be considered certain that a change to more aggressive fair-lending enforcement – and to regulation by enforcement – will follow quickly upon the Biden inauguration,” Burd wrote.²

More recently, in a further signal that the Biden administration intends to follow through on its campaign messaging, the Consumer Financial Protection Bureau (CFPB) assembled a new enforcement team and embarked on a hiring spree.³

This activity should motivate companies in the banking industry to reassess their fair lending compliance efforts and prepare for possible regulatory changes to follow.

The good news is that assessing your fair lending risk is a win-win proposition. Every potential disparate impact you identify is a source of fair lending risk and a step closer to better risk management. So, consider thinking of fair lending compliance as a business opportunity instead of a regulatory burden.

The most critical step toward getting a handle on your fair lending risk is to develop a strategy. And before you can create a strategy, you need a goal.

Your organization should ask questions such as:

• What are our business objectives?
• Based on our past, current, and future objectives, what is our organization’s appetite for fair lending risk?
• What outcomes do we want?
• What commitment are we willing to make?
• Do we have specific pricing structures or programs that create unintended risks?
• Are we overly accommodating to our current customer base?
• Do we make too many pricing or underwriting exceptions that create additional risks?
• Do our marketing practices take fair lending into account?
• Do we want to become an organization that leads the curve in corporate and social responsibility and sees that as a competitive advantage?

Whatever goals you set, you need to follow up with careful and strategic investments of time, money, and work to achieve your vision. Being a leader in inclusion, meeting the needs of impacted communities, and driving community development all require commitment and devotion of resources.