Fair Lending Update: Status of Examinations

by Pat Patrick, Banc One National Regulatory Compliance Division

The status of the new and improved joint agency fair lending examination procedures was a topic of interest to those attending the Consumer Bankers Association's annual Fair Lending Conference.

According to Larry Riedman of the OCC, the FFIEC will issue interagency fair lending exam procedures in the fourth quarter of 1998. Riedman, as a lead drafter of these and OCC's earlier procedures, explained that the sample size used in the OCC current procedures will remain, but the new exam procedures will include several new elements.

First, the examination procedures will be risk-based. This emphasis on risk is intended to give guidance to examiners on where they should spend their time.

A second addition will be an appendix on credit-scoring. An increasing number of institutions now use credit scoring. Credit scoring is also being used in a variety of ways, including using a comprehensive scoring system based on the lender's own experience with customers, using scores developed from the applicant's credit history, credit scoring for business loan applications, and other combinations of credit scoring and judgmental decision making.

The new procedures will include guidance for assessing possible steering and redlining by the lender. This remains a highly sensitive area of fair lending. It is also the focus of testing done by private groups - often funded by HUD.

Finally, the procedures will include guidance on disparate impact, although disparate treatment still will be the focus of the procedures. Watch for these procedures to appear later this fall.

Copyright © 1998 Compliance Action. Originally appeared in Compliance Action, Vol. 3, No. 13 & 14, 10/98