Keys to fair and responsible banking risk assessments

Clayton J. Mitchell, Kate Gutierrez-Wilson
Keys to fair and responsible banking risk

Effective fair and responsible banking practices can strengthen your organization in many ways.

When it comes to fair and responsible banking, a financial service organization’s culture, employee conduct, and third-party relationships should be closely monitored. This oversight requires focus and accountability across the organziation, which is a big responsibility – especially for smaller organizations with limited resources, for fintechs directly, and for bank-fintech relationship focused on rapid growth.

But fair and responsible banking isn’t just about what happens in-house. It also includes the products, services, and models used to select and price the third-party relationships that affect customers.

In light of recent regulatory headlines and fair lending- and overdraft-related consent orders issued by federal and state agencies, financial services organizations should expect scrutiny of their fair and responsible banking practices. The right practices can help prepare for that scrutiny and reduce risk as well as improve customer relationships, brand reputation, and risk management processes.

Your fair lending program should support fair and responsible banking efforts

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 efforts that aim to prevent discriminatory, unfair, deceptive, abusive, and predatory acts and practices such as redlining or charging unwarranted, excessive fees for overdrafting accounts. A thorough approach to fair and responsible banking should include monitoring risks related to potential discrimination and unethical lending practices as well as a review of outcomes and processes related to customer experience.

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

Fair and responsible banking is related to but distinct from fair lending. Fair lending programs have been in place for decades, and as the name suggests, these endeavors are often primarily focused on lending. On the other hand, fair and responsible banking practices are intended to identify unethical sales practices and hold everyone in an organization accountable for the treatment of customers.

Fair and responsible banking risk assessments can affect your entire organization

Fair and responsible banking risk assessments can affect your entire organization

In the past, three separate risk assessments took 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 evaluates how well financial services organizations rate as good community stewards and how they compare to their peers.

Fair and responsible banking risk assessments use data analytics to measure where organizations lend, to whom they lend, and how they treat the customers and communities with which they conduct business. 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.

Risk mitigation that meets fair and responsible banking requirements needs a proactive, cross-functional strategy. Organizations can help encourage risk awareness across the business through 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 compliance
  • Sales practices
  • Customer complaints
  • Business models

Banks and other financial services organizations that truly embrace fair and responsible banking have an opportunity to not only strengthen their organizations and their bonds with the communities they serve but also help advance the movement toward a more inclusive and equitable financial services industry.

Ready to include fair and responsible banking in your fair lending practices? 
Crowe can help.

Let’s get your organization prepared for fair and responsible banking

Wondering how your organization can make the connection between fair lending and fair and responsible banking? Get in touch – we’d be happy to talk about how we can help you improve.

Clayton J. Mitchell
Clayton J. Mitchell
Managing Principal, Fintech
Katie Gutierrez
Kate Gutierrez-Wilson
Financial Services Consulting