Keys to fair and responsible banking risk assessments

Clayton J. Mitchell, Kate Gutierrez-Wilson

As financial services organizations evolve their fair lending programs to include fair and responsible banking principles, risk and compliance professionals need to make sure their customers, communities, and employees are treated fairly and ethically according to fair lending laws and regulations.

When it comes to fair and responsible banking, a financial service organization’s culture and the conduct of its employees should be closely monitored. This oversight requires organizationwide focus and accountability, which is a big responsibility – especially at smaller organizations with limited resources or for fintechs focused on rapid growth.

Still, effective fair and responsible banking practices should be prioritized. They can help your organization prepare to meet regulatory scrutiny and reduce risk, and they can improve customer relationships, strengthen your brand reputation, and improve risk management processes.

Your fair lending program should support fair and responsible banking efforts

Fair and responsible banking is the intersection of corporate governance, compliance, and social responsibility practices that aim to prevent discriminatory, unfair, deceptive, abusive, and predatory acts and practices, such as being charged unwarranted, excessive fees for overdrafting accounts. Fair and responsible banking monitors risks related to potential discrimination and unethical lending practices, and it includes a review of outcomes and processes related to customer experience.

Additionally, the Community Reinvestment Act  (CRA) encourages financial services organizations to help meet the needs of the communities in which they do business, including making investments in low- and moderate-income neighborhoods.

Fair lending programs have been in place for decades, and as the name suggests, they often are largely lending-focused endeavors. Fair and responsible banking practices, on the other hand, are intended to hold everyone in an organization responsible for the treatment of customers and identify unethical sales practices.

Fair and responsible banking risk assessments can affect your entire organization

In the past, three separate risk assessments would take place: one for fair lending; one for unfair, deceptive, or abusive acts and practices (UDAAP); and one for CRA. The new approach incorporates the results of those three assessments into a more comprehensive fair and responsible banking risk assessment that measures how well financial services organizations rate as good community stewards. Fair and responsible banking risk assessments use data analytics to measure to whom organizations lend, where they lend, and how they treat the customers and communities with which they conduct business.

Further, if financial services organizations have the resources available to establish a fair and responsible banking department, they can incorporate data-driven practices that support a more inclusive fair lending program.

Mitigation that meets fair and responsible banking requirements requires a proactive and cross-functional road map. Organizations can help encourage risk awareness across the business with fair and responsible banking risk assessments that evaluate an array of key processes and departments, including:

New products and services development
Advertising
Current and future third-party partnerships
Regulatory and compliance
Sales practices
Customer complaints
Business models

Assessments can help you stay ahead of fair lending risk and get ready for the future

Changes in the fair lending landscape move fast, but so do we. At Crowe, we’ve spent decades gathering expertise in the financial services industry and closely watching the evolution of fair lending laws and how they apply to fair and responsible banking practices. We can help you use data analytics to perform risk assessments and uncover insights that form the foundation of an adaptive, forward-looking fair lending compliance program.

Test your organization’s fair lending efforts

Download this self-assessment tool to see how your organization is doing.

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Let’s connect

Wondering how your organization can make the connection between fair lending and fair and responsible banking? Download our self-assessment tool and see how your organization is doing. Then, get in touch – we’d be happy to talk about how we can help you improve.

Clayton J. Mitchell

Managing Principal, Fintech

+1 317 208 2438

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Kate Gutierrez-Wilson

+1 404 495 7118

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