NCUA institutes new fair lending exam

NCUA institutes new fair lending exam

Moss, Valerie

The National Credit Union Administration (NCUA) will begin employing uniform fair lending examination procedures developed by the Federal Financial Institutions Examination Council’s (FFIEC) Consumer Compliance Task Force. Compliance Matters recently spoke with Jodee Wuerker, NCUA’s compliance officer, to find out how these new procedures will affect credit unions. Wuerker has been with NCUA for 11 years in various capacities, including that of credit union examiner. She specializes in consumer protection regulations and is involved in the FFIEC’s Consumer Compliance Task Force.

First, some background. All FFIEC member agencies will use the uniform procedures in their examinations for compliance with the nondiscriminatory requirements of the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA). The ECOA prohibits discrimination in any aspect of a credit transaction, while the FHA prohibits discrimination in all aspects of residential real estate transactions. FFIEC member agencies include NCUA, the Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., Office of Thrift Supervision, and the Federal Reserve System.

The Interagency Fair Lending Examination Procedures are the culmination of two years of effort by FFIEC’s Consumer Compliance Task Force. The following are some questions we asked Wuerker in anticipation of the concerns credit unions might have about the impending exams.

What’s the purpose of the uniform fair lending examination? The uniform examination procedures are intended to strengthen federal banking agencies’ ability to detect lending discrimination in all its forms and to help ensure consistency in oversight and enforcement. There has been significant improvement in federal fair lending enforcement over the past several years. There’s still room for improvement, however, according to the U.S. General Accounting Office (GAO) report that recommended these procedures be developed. Specifically, it recommended that financial institution regulators develop and implement uniform examination procedures.

Who will be covered by the examination?

Federally chartered credit unions will be subject to the new examination. NCUA does not have enforcement authority over state charters for Regulation B (ECOA) compliance. NCUA does have authority, however, over all federally insured credit unions for compliance with the Home Mortgage Disclosure Act’s (HMDA) data collection and reporting requirements. The Department of Housing and Urban Development (HUD) has enforcement authority over credit unions for FHA compliance. If NCUA determines that a credit union has violated the FHA, it must refer the matter to HUD.

How will credit unions be chosen for the exam?

It will be up to regional directors to decide which credit unions to examine, striking a balance between small and large institutions. And contrary to what many credit unions might think, exams won’t be based only on derogatory HMDA data. NCUA can select credit unions that aren’t HMDA reporters.

When will exams begin?

Exams will begin during the second half of 1999, according to Wuerker. The first part of the year will be focused on year 2000 (Y2K) concerns. Once it successfully evaluates the Y2K testing phase, however, NCUA can confidently direct resources to other programs such as fair lending.

NCUA trained a select group of examiners in 1995 to conduct fair lending exams under NCUA’s current procedures. Such specialized examiners will receive training for the uniform fair lending exam by June 30. State examiners will have an opportunity to go through the specialized training as well. Only after training is completed will federal credit unions begin receiving the uniform exam. Until then, current examination procedures will remain in place.

What will the exam entail?

NCUA already uses a fair lending checklist to examine lending activity in federal credit unions. Every federal credit union is briefly examined for fair lending compliance when it’s examined for safety and soundness. The new exam, however, will provide for a more in-depth analysis of loan data, policies, and procedures. Examiners will evaluate advertising, review loan policies and procedures, interview staff, look at denial rates for various membership segments, and conduct a comparative file review. In most cases, the uniform fair lending exam will be conducted in conjunction with the safety and soundness exam.

Although this is a uniform exam, will certain aspects be tailored to credit unions?

Fair lending laws apply to all financial institutions across the board. There will, however, be some aspects that won’t apply to credit unions and will be excluded from the exam, such as Community Reinvestment Act requirements.

Agencies have been given the authority to augment the procedures to fit the institutions they regulate. Therefore, the exams will be appropriate for credit unions.

What happens if NCUA discovers a violation of fair lending laws?

NCUA will treat a fair lending violation as it would a breach of safety and soundness. In other words, the agency will work with management to correct the problem through a mutual agreement, called a “document of resolution” If there are victims of discrimination, NCUA will work with the credit unions to provide an appropriate resolution for such victims as provided by law. If the violations are severe or represent a pattern or practice, NCUA must refer the case to the Department of Justice. The agency hasn’t made such a referral to date.

The agency’s overall approach is to educate credit unions and work with them to correct loan policies and practices that could expose the institution to allegations of credit discrimination.

More information: The Interagency Fair Lending Exam Procedures are now posted on FFIEC’s Web site at www. ffiec.gov. Links to the document and appendices are available through the “Press release” section of the Web site. In addition, credit unions can access NCUA’s Web site at www.ncua.gov.

Copyright Credit Union National Association, Inc. Mar 1999

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