Has anyone seen any particular issues the regualtors are looking for on compliance exams?

I was forwarded this:

American Banker, 3/23/2010 -- A number of banks have been caught by surprise in recent compliance exams by the Federal Deposit Insurance Corp. with respect to an alleged violation of the Equal Credit Opportunity Act involving marital status.

It began when an FDIC representative spoke at a Massachusetts Bankers Association event in October and informed the attending banks of the agency's view of the potential ECOA violation. Obviously, this event was directed at Massachusetts banks, but not all were there. Since then, there has been no official guidance from FDIC to other banks, whether located in or out of that state, about this issue. However, FDIC examiners are now citing it as a "significant violation" in compliance exams in Massachusetts and other states, advising that the violation may be referred to the Department of Justice for action and required to be disclosed in a bank's CRA Exam Report (which is available to the public). Although it began in Massachusetts, it appears that the examiners may be looking for this violation nationwide.

The violation focuses on credit reports. Each person has his/her own credit record and credit score. When one person applies for credit, a credit report is pulled, and the customer may be charged for the report (e.g., $15).However, if two people apply together for credit, credit reports for two people can either be pulled as two single reports (i.e., 2 x $15 = $30) or as one joint report on two people (e.g., $18). The FDIC believes that charging two married joint applicants for a single joint credit report, and charging two unmarried joint applicants for two separate single reports, constitutes a marital-status discrimination violation because FDIC has confirmed that the credit bureaus can and will provide joint credit reports on unmarried joint applicants for the same price as married applicants.

The violation relates to the fee that is charged to joint applicants. If unmarried joint applicants are charged more for credit report(s) than married joint applicants are, the FDIC thinks that should be deemed a violation of Regulation B, 12 CFR 202.6(b)(8).

The extent of the violation appears to be small at some recently examined banks - e.g., less than 1 violation per 300 loans or 0.33%.And the discrepancy in fees is only a minor amount ($12 in the example. Yet the FDIC is treating this as very important and threatening downgrades in CRA and compliance ratings.

If banks have committed this alleged violation in the past, they should consider conducting a review of their records, identifying the customers who have overpaid, refunding the overpayment and documenting the corrective action to demonstrate to the FDIC that they have been proactive in addressing the issue. Banks must also ensure that going forward, for loan products where the customers are charged for credit reports, all two-person joint applicants (regardless of marital status) are charged the same fee for credit reports. If a bank's vendor indicates that this is not possible, the FDIC has advised banks to find a new provider that will comply with this requirement.

This has been discussed before in the threads.

While you can say wow - I see no defense.

Randy,
I guess I missed this in prior threads - I do see that it is treating joint applicants differently based on Marital Status & therefore ECOA trouble.
My WOW is just putting this in the context of all that is going on in the Financial world since the Subprime crisis & the need to stop TooBig to Fail etc. . . and ECOA has been around for 35 years & this is now a Hot Topic ?!?!?

Here's a link to a prior thread from November 2009. http://www.bankersonline.com/forum/ubbthreads.php?ubb=showflat&Number=1285205

See the post made by Sox in 07.

I heard this a few months ago at a seminar. Apparently, the FDIC was citing banks in northern CA. I thought it was interesting that it took them this long to identify this as a problem.

"Everything must be OK because the examiners were just here and didn't cite any violations." If I had a dime for each time I've heard that, I'd be wealthy. It's always been a dangerous valuation of compliance exams. A lack of findings does NOT equate to being in compliance, and should NOT be the basis for allocating your time and resources. Risk-based planning is the only way to go. Known ECOA problems will land on your "A" list either way, but it's important not to lower your guard while working on exam hot-button items. The risks posed by other regs with severe penalties do not go away while examiners are witch-hunting a new hot-button.

While I whole-heartedly agree with Richard's statement, it's difficult to get senior management and/or lenders to understand this when your exams go well.

Favorable exams can create a false sense of security. Compounding the problem, regulators "reward" highly-rated banks with teams of examiner trainees and (sometimes) extended exam intervals.

OK, so I understand the issue for co-habitating unmarried couples, but where does this stop? Brother and sister co-borrowing? Two "couples" or four individuals buying a rental house? Mom and Dad co-borrowing with their son/daughter to buy a kid house for college? In those cases are we supposed to charge one credit report fee (married couple fee) for four or more people because they are jointly borrowing? Joint can mean more than 2 people! Where is the instruction manual? Should the industry now be moving to a flat credit report fee, regardless of the number of people on the loan?

This is focused on two people applying jointly for a loan which brings in the prohibition of discriminating based on marital status. Your example of four people applying is moot to the situation.

I understand there is an issue with say an "overcharge" on unmarried applicants. Is there any issue if we just eat the "excess" charge and actually "undercharge" in order to get to the fee for the joint married applicants? The reason for question is that our credit report vendor is not up to speed on this.

thanks - beegee

I don't see any other solution than to charge everyone the same fee and eat the difference for unmarried applicants.

Richard, I like your comment about being rewarded with examiner trainees. However, we have been rewarded for a number of years under that scenario - and its no reward! The trainees want to distinguish themselves and this has translated into non-stop questions and their own form of witch-hunting.I'll take the seasoned examiner anyday....as long ashe/she is also reasonalbe. Now there is an oxymoron, reasonable examiner!