Fair Lending Compliance: 3 Regulations Financial Institutions Should Know
When it comes to fair lending compliance, three key regulations hold the utmost importance: Regulation B, Regulation C, and the Community Reinvestment Act (CRA). All three regulations are designed to promote fair access to credit and prevent discrimination in lending. With the compliance landscape ever changing, the need to ensure regulatory change management has been effectively implemented, compliance monitoring is occurring, as well as being formally documented is instrumental towards the mitigation of compliance risk.
Three Key Regulations
Regulation B implements the Equal Credit Opportunity Act (ECOA) and prohibits lenders from discriminating against credit applicants based on their race, color, religion, national origin, sex, marital status, age, or receipt of public assistance. Lenders must provide equal access to credit for all applicants and collect and maintain data on credit applications and loan approvals and denials to enable monitoring for compliance with fair lending laws.
Regulation C, also known as the Home Mortgage Disclosure Act (HMDA), requires lenders to report data on mortgage lending activity to the government. The report is referred to as the Loan Application Register (LAR) and the data includes information on the race, ethnicity, gender, and income of applicants, as well as the type and amount of the loan. This data is used to identify potential fair lending violations and monitor lenders for compliance with fair lending laws.
The CRA requires banks and other financial institutions to meet the credit needs of their local communities, including low- and moderate-income neighborhoods. Banks are evaluated on their performance in meeting these needs and can receive incentives for doing so.
Together, these three regulations provide a comprehensive approach to fair lending. This involves implementing policies and procedures that prevent discrimination, collecting and analyzing data on lending activity, and providing ongoing training to employees to ensure they understand and comply with fair lending laws and regulations.
How Clark Schaefer Consulting’s Internal Audit Team Can Help?
Our team has significant experience providing consulting services, including but not limited to internal audit design and testing, to mortgage lenders and financial institutions. We understand the unique needs and requirements of this industry and are subject matter experts in mortgage lending and servicing operations. If you would like to learn about the services we can provide your institution, please contact Andrew Sizemore or Daniel Lipe.