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My Fair Lending! The Bottom Line on Fair Lending Laws

risk management regulations

Over the weekend, I happened across the old classic movie/musical, "My Fair Lady" (1964) starring Audrey Hepburn as Eliza Doolittle, where the male character makes her his "project" by teaching her to talk properly and look royal, I guess you could call it one of the original "pretty woman" stories, as we have all seen our share of these types of movies throughout the years.

Well, leave it up to me to look deeper to understand the "what and the why" and of course I couldn't help but get caught up in the underlying message.  Life is not easy and, we're all just trying to make our mark, but in the end, all that matters is that we are good people.

Of course, I had to put my spin on it with compliance, and Fair Lending came to mind…

The lyrics from one of the songs on the soundtrack "Wouldn't it be Loverly" (the "r" is not a typo) resonated with me and I couldn't get it out of my head.  The song speaks about the desire of "having a room somewhere away from the cold night air, lots of coal to make heat and lots of chocolate to eat"… In short, a place to call home, free of discrimination and judgment. Simple concept, right? I guess if it were simple it wouldn't need an act…(pun intended).

Well, in 1968 just four short years after the release of that movie, our friends in D.C. passed Title VIII of the Civil Rights Act aka, the Fair Housing Act (FHA).  The act (which has evolved a few times since then) prohibits discrimination in the sale, rental, and financing of residential dwellings and in other residential real estate-related transactions, based on a person's race, color, national origin, religion, sex, familial status and disability. Paired with the Equal Credit Opportunity Act (ECOA) Regulation B, you can add on marital status, applicant's receipt of income from a public assistance program, and applicant's exercise in good faith, of any right under the Consumer Credit Protection Act. In other words, this expands beyond a place to live, but to all credit-related transactions. On the surface, it almost seems like a no-brainer and almost unnecessary, right? Well, the reality “is” that laws such as this exist because the reality “was” that a problem existed. 

Fair Lending laws, if not watched closely, can easily be violated. Therefore, as with all laws in the financial services space, it is critically important that compliance stays close to any federal and state requirements to ensure that consumer rights are not being violated. Let’s face it, the word "unprecedented" didn't go away with 2020. In fact, it comes into play here ten-fold, because there are even more nuanced expectations on lenders to ensure that they are focused on protecting the civil rights of consumers that fall in these protected groups. You can almost bet your bottom dollar that there will be a lot more focus on supervision and enforcement as we continue to climb out of this pandemic and adjust to a new administration that is razor-focused on all things consumer protection. Ensuring that equality is being delivered to all consumers is not only critical, it is the right thing to do.

In the wake of the COVID-19 pandemic, the CARES Act has temporarily changed a lot of the rules around servicing loans, forcing lenders to demonstrate that they are acting in good faith to work with consumers by documenting how they are handling requests and providing the same treatment to all persons requesting forbearance. As it applies to mortgages, the goal of the CARES Act is to help consumers keep their housing, as we can all agree that we do not want a repeat of the 2008 mortgage crisis.  

The Bottom Line

If you have not already done so, button up your Fair Lending Compliance. As with all things compliance, educating, testing and monitoring is key. Make sure your lending and servicing standards are free from even the perception of discrimination. Work closely with all business areas including marketing and sales, to ensure that they understand the importance of Fair Lending and the potential pitfalls. It is also important that all consumer complaints are being monitored for any common patterns that may point towards an issue in the business and you should be sure that any complaints are being responded to and any findings should be documented and immediately addressed.

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