ECOA Baseline: Don’t Assume Anything About Your Fair Lending Compliance Management System
You already know what happens when you assume. (Or at least I’m assuming you do—so what does that make me?) In terms of fair lending compliance, however, there’s a much greater price to assumption: a Consumer Financial Protection Bureau enforcement action.
To put it bluntly: what you think you know probably won’t help you during an examination.
That’s the crux of a recent article published by international risk management firm Wolters Kluwer Financial Services. In “ECOA Baseline Basics…Getting to Know Your Fair Lending Program,” Wolters Kluwer Senior Regulatory Consultant Thomas W. Grundy charmingly connects Equal Credit Opportunity Act compliance to the words of the late astronomer and popular science personality Carl Sagan:
“‘For me, it is far better to grasp the Universe as it really is than to persist in delusion.’ [Sagan’s] statement is an excerpt from his 1995 book, The Demon-Haunted World: Science as a Candle in the Dark, in which he attempts to encourage critical and skeptical thinking. Astrophysics—and banking and finance—are, to say the very least, worlds apart. However, it is safe to say that critical and skeptical thinking follow closely where fair lending and compliance come into view when it comes to the Equal Credit Opportunity Act (ECOA). And, to Dr. Sagan’s point about ‘grasping the Universe,’ it seems appropriate that knowing the status of your fair lending program and compliance with ECOA is far better than ‘to persist in delusion’ any day of the week!”
Despite the rigorous regulations on consumer lending activity, many financial institutions continue to “persist in delusion.” We’ve seen it ourselves. A lender either believes that their compliance management system is “good enough,” or that the chances of an examination are so low that a little risk is acceptable.
And once again, we’re in assumptive territory.
Grundy understands that it can be a “challenge” to maintain “full, fresh knowledge with respect to the current status of an entity’s compliance with the ECOA and the current state of its FLCMS”—that’s Fair Lending Compliance Management System—but he asserts that the benefits and perspective gained from a thorough review are well worth the time and effort. When your board members’ well-being and your relationship with your capital partner are on the line, it pays to know how an examiner thinks—before you ever come into contact with one.
Writes Grundy: “The Baseline modules covered by this article provide a view to the thought process examiners will follow. How prepared will you be should that day arrive and your program is put to the test? Give yourself an advantage by conducting a review so you can know where you stand.”
