Your fair lending analytics can be shaped by context

Niall Twomey, Kate Gutierrez-Wilson

Financial services companies can’t afford to get blindsided by fair lending risk. A single regulatory violation or negative headline can erode the confidence of your customers, damage your reputation, and result in fines and penalties.

When it comes to fair lending compliance, though, your organization might not even know about its biggest threats. To try and quantify these unknowns, more banks are using data analytics to identify fair lending risk. Data analytics tools can provide quantitative data related to banking practices, highlighting the gaps and risks in lending patterns and fair lending compliance efforts.

However, it’s important to understand the limitations of data as well as its benefits. Data analytics software can provide data, but it can’t interpret that data and translate it to a practical, comprehensive fair lending compliance strategy. To turn data into effective action, you need human expertise, experience, and perspective.

Data analytics is a launching pad to help identify fair lending risk

Fair lending analytics related to methodologies like regression and proxies can help your organization become stronger and more resilient by:

Uncovering risk within your organization
Offering valuable insights about your customer base
Benchmarking against peer institutions

Data analytics isn’t going to provide the complete story of your fair lending services, though. A software platform allows you to collect, organize, and analyze a vast amount of information, but data analytics on its own won’t be able to fill in some potential gaps. For example:

Data analytics can’t provide loan policy information or underwriting inputs.
Data analytics can’t show in-person discouragement or steering performed by your sales team.
Data analytics can’t provide full visibility into each individual loan and why it was approved or declined.

While fair lending analytics can help proactively identify areas of risk, a subject-matter specialist can provide the necessary context to create a clearer picture of fair lending practices and surrounding geographies. With regulators ready to regularly scrutinize your data, you need to stay one step ahead.

As powerful as data analytics can be, the human element is critical

There’s more to fair lending compliance than just checking boxes and reporting. Software tools can apply useful fair lending analytics to data, but that data can’t recommend actions. If you don’t know what the data means or how to follow up on the signals you’re receiving, it will be difficult to adequately mitigate fair lending risk. In some instances, it even creates more risk, which can derail your fair lending strategy.

Organizations also need to account for proper context that affects their fair lending data analysis. For example, the customer demographics for a bank located in an urban environment might vary greatly from one based in a rural area. If you’re only looking at raw data, a potential violation might be misidentified since the banks are drawing from customer bases that differ greatly in terms of race, ethnicity, income, and geography.

Data analysis can also be segmented by product and service to compare similar risks and practices, and that analysis can take into consideration the underlying business decisions that need to be made for a risk-based approach.

Your organization might benefit from having someone who can translate fair lending analytics into practical business language that provides meaningful recommendations and activities to help manage potential risks before they arise. Consumer compliance consultants who know both the regulatory expectations of the banking industry and can uncover anomalies in your fair lending analytics may even be more valuable than a strong data analytics platform.

Crowe can help you take a holistic approach to fair lending compliance

The fair lending landscape changes fast, but Crowe fair lending risk specialists can help you keep pace by strengthening your reputation and implementing strategies for growth. We combine fair lending analytics tools with deep banking industry experience and regulatory knowledge to help you accurately assess fair lending risks and then develop the policies and procedures to address them.

Let's connect

Have questions about how data analytics can combine with deep expertise to improve the effectiveness of your fair lending compliance efforts? Get in touch – we’d love to have a conversation.

Niall Twomey

Principal, Financial Services Consulting

+1 630 574 1806

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Kate Gutierrez-Wilson

+1 404 495 7118

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