The Smart Compliance Blog

Faring Well in Your Fair Lending Exam

  

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It’s no secret that fair lending is an ethical imperative as well as a regulatory mandate. And passing your fair lending exam isn’t optional! A negative outcome can compromise your institution’s reputation and impede its growth. Given all that is at stake, your institution must deploy a smart strategy to ensure positive results.

Articulate Your Risk
Before any exam ever begins, your institution should conduct its own fair lending risk assessment. Understand you numbers by running or having statistical analysis run of current and past lending activity. Taking an objective look at your underwriting processes and outcomes can also provide valuable insights. Seeing the types of fair lending risk to which your institution is most exposed, and evaluating the effectiveness of the controls you use to reduce those risks, is the first step to being prepared for an exam. Examiners will ask whether you have done an assessment. If so, and it’s deemed reliable, examiners may skip developing their own.

Know The Rules
By knowing how the exam process works and how you will be evaluated, you can better prepare your team for the examination experience. The publicly available Interagency Fair Lending Examination Procedures http://www.ffiec.gov/pdf/fairlend.pdf provide precise, step-by-step instructions that examiners follow in conducting exams. Knowing how things will be done, from scoping and deciding focal points, to running statistical analysis, all the way through reviewing files and drawing conclusions, helps you assess how the examination is progressing from start to finish.

See What They See
The best approach to knowing how your exam will turn out is to conduct one of your own. Using the Exam Procedures as your guide, replicate the work steps and conduct your own mock exam. Caution is advised in undertaking this process, because it may be considered a “self-test” that produces new data. A “self-test” must be handled in a particular way in order to preserve its confidentiality and prevent its disclosure to examiners. Since results aren’t known until the review ends, protecting results is a prudent step. If you lack expertise or qualified resources in this area, a third party can help you identify best practices for such reviews.

Knowledge is Power
Employing these strategies can help you know what to expect in your fair lending exam. By arming yourself before the examiner comes calling, you can respond efficiently and effectively throughout the exam cycle. Proper preparation can lead your institution to more positive outcomes and favorable exam results