Morning! Does anyone have a template for a write-up of a Fair Lending side-by-side analysis? I recently completed one and found what I think are some issues and need to document the review and findings for management but this is a first for me so if anyone is willing to share, it would be greatly appreciated. Thanks!

Depending on the issues, you may want to consult your attorney at this point to ensure that you are able to maintain all the information under the privileges granted in 12 CFR 202.15.

IMHO - prior to anyone engaging in any type of fair lending testing, a thorough plan for handling the results should be addressed with management, the audit committee or board, and the bank's attorney prior to ever cracking a file.

This is not a area in which you want to load the gun and then just spin the chamber with the regulators or the public.

Not directed at you PQ, but I see way too many banks that think they are required to do fair lending analysis and just go out and start doing file comparisons without consideration of what comes next and many times do not use statistical samples, proper methodology in selection of prohibited factors, etc. I am really surprised that more banks don't shoot their feet off on this issue.

Good info Randy. But the FDIC put in our last complaince exam report that we should do one and since then, management has been after me to do so.

Randy's advice is good, so get your legal counsel involved!

Even though you're dealing with the FDIC, you might check out the OCC's handbook on this. There's some language and "steps" in there that aren't quite a template for reporting, but they're close! PM me if you want to discuss the reporting some more.

OCC Fair Lending Exam Procedures

So is a Fair Lending Self Assessment REQUIRED by law or is it voluntary?

I was under the impression that this was voluntary, but now am getting information that suggests that it is required. Are we required to have completed a Fair Lending Risk Assessment?

"Should" and "have to by law" are two very different things.

Should - I agree to see if there are any problems or issues that need to be addressed. Like Randy and Lestie mentioned, it should be done under the protection of attorney client relationship. This provides some shelter from the results being "discovered".

Required by law - not in any exam process I've read about. Sometimes, IMHO, (especially new) examiners may have a poor choice of wording recommendations so they come out as mandates.

So if an examiner asks to see your Fair Lending Risk Assessment and you respond with "we don't have one" and they respond with a concerned stare and slowly delivered "You don't have one?" response, you wouldn't be out of line to respond back with "Yes, we don't have one and we're NOT REQUIRED BY LAW to have completed a Fair Lending Risk Assessement."?

Am I understanding this correctly?

Yes, but of course the problem with that is that they will then do their own in conjunction with a full fair lending examination. If you do one and follow the guidelines as outlined in the FFIEC Fair Lending Examination guidelines, you can qualify for a streamed lined examination and they will review what you have done and they might not go any further. The question becomes, would you rather do this yourself or let them do it for you. I know the choice that I would make.....

S.Rivera - Yes, you are understanding correctly, and that's exactly what I tell our regulator everytime they ask. It's not required by law/regulation.

If you perform a fair lending analysis, using the sample size your regulator wants you to use, in my case, it would take me working on it full-time for 6 months, and chances are the regulator would find something wrong with my sample size and analysis. I'll let them do their own analysis.

We have other processes in place to review applications not granted, and in past years fair lending exams the regulators haven't found any problems.

Thanks for the responses rlcarey and poppy!

I just wanted to make sure that if a Fair Lending Risk Assessment/Self Evaluation/Self Test hasn't been completed by a Bank, the Bank has not violated any regulatory requirement that it should have done so. That's what I wanted confirmation on to ensure my limited understanding of Fair Lending was correct. Thanks for confirming this for me!

Again, you haven't violated any laws by NOT doing a formal self assessment, but the regulators are going to assume that you don't really know what's going on with your fair lending compliance if you don't do something.

Within the confines of the FFIEC's guidelines, and with your attorney's guidance - I think it's very beneficial to perform some level of analysis yourself. Depending on your bank's product mix and other factors, the analysis might not be some huge formal report (should be tailored to your risk appetite and analysis).

I am a firm believer that being proactive in this area can go a long ways toward making fair lending exams much, much less painful, and much shorter.

I did a fair lending review a few months ago, followed the FFIEC procedures (reduced sample size)and focuesed on underwriting and priciing. I told our management the risks before I did this so they were fully aware of the risks if I found something.

I sent the report to the audit committee and gave a copy to the examiners. It resulted in us not having a full-scope FL review this time, which sure was nice. Of course I didn't have any findings, but in our case they didn't ask for workpapers or anything to support my conclusion.

But I do agree this can be a loaded gun. My understanding is that only true self testing "where you basically request GMI info on the loans you select and give a disclosure" is protected. If you use the FFIEC procedures this in not protected (however, I'm sure your conversations with attorney's are).

Sorry folks, I was just poking around here in the year 2007 and this particular comment caught my attention. I know Rocky P is a Fair Lending rock-star, so I'm curious about doing a Fair Lending Analysis under the protection of attorney client relationship...

Do I make the right connection in that if I conduct an analysis in conjunction with my in-house counsel, that less than flattering results/specific records could somehow be shielded?

...

Not from your regulator, and for a time in a legal action....it would take legal steps to have to cough it up.

Yeah, I figured that it couldn't be shielded from a regulator.

So, in a legal action, what kind of information might be shielded? Are we talking the identification of specific protected classes being hidden?

How would one go about structuring the analysis in order to capture this protection.

I'm not getting too deep here, but the idea sounds cool if it did hit the fan.

Your results "could" be protected until a court said to provide it to the third party.

All data has to flow through counsel. Talk to counsel to establish a process. Counsel needs to request the data, then the data is produced and provided to and reviewed with counsel...with no reports to anyone internally until reviewed with counsel. Generally then counsel will provide reports to management, etc.

It must be set up properly.

NP, first thing to do is make sure executive management is on-board and aware of the risks. Determine your parameters, and plan how you are going to do the work based on potential outcome. If there is a problem, ensure upfront that there is a plan to fix (or ignore) it, and include accompanying restitution if applicable. The worst scenario is to start a review, find problems and not have a plan for resolution. There are also several types of FL reviews that could be done - decisions/outcome (approval/denial, time between application and decision) or rates and terms (more onerous terms, directed to certain products, higher rates/fees, etc). For OCC, you would also need to include servicing and loss mitigation.

Like KB mentioned, attorney/client can shield the work from snooping eyes. This would be best if your bank engaged external counsel, and you (or an external company) were engaged by the outside counsel to perform the review. In rare cases, the same privilege can be used against regulators, and that would be if counsel was engaged "in anticipation of litigation", but by that time the legal costs would probably outweigh any benefit.