Why Fair and Responsible Banking Risk Assessments Are Important For Non-Mortgage Business Lines

by Benjamin P. Saul, Amanda M. Raines and Ann D. Wiles

In response to heightened regulatory and enforcement scrutiny of non-mortgage consumer credit, this Emerging Issues Analysis addresses important considerations for conducting fair and responsible banking risk assessments for non-mortgage lines of business. Although experience from mortgage risk assessments provides a useful framework, non-mortgage lines of business present special considerations, both in terms of substance and execution.

Excerpt:

Fair and responsible banking risk assessments - by which financial institutions identify, measure, control, and monitor their lending and, more recently, servicing activities to prevent discriminatory, unfair, deceptive, abusive, and predatory acts and practices - have long been part of the compliance function within financial institutions. To date, the literature on such assessments has focused largely on how to conduct them on mortgage business lines, but has not addressed non-mortgage operations, such as credit card, student, and automobile lending. The mortgage-centric focus of most articles results, in part, from historically greater regulatory, enforcement, and litigation scrutiny of the mortgage business. Moreover, Home Mortgage Disclosure Act ("HMDA") data, which identifies applicants in protected classes, simplifies the quantitative components of a fair and responsible banking risk assessment. Outside the mortgage context, the difficult questions of whether, and how, to conduct such risk assessments have received scant attention.

The current regulatory environment renders timely consideration of whether, and if so how, financial institutions can best assess fair and responsible banking risks in their non-mortgage business lines. This may be especially true for mono-line and non-bank institutions that historically may not have conducted such risk assessments, and for more diversified financial institutions that may have conducted these assessments with less emphasis on measuring non-mortgage risks.

Recently, regulators, the Department of Justice ("DOJ"), and state attorneys general have sharpened their focus in examinations and investigations of non-mortgage lines of business. In particular, the Consumer Financial Protection Bureau ("CFPB"), which has examination and enforcement authority under the Equal Credit Opportunity Act ("ECOA") and Regulation B has made clear that it will use this authority across the entire spectrum of consumer credit, especially credit card, student, and auto lending.

In response to the heightened regulatory and enforcement scrutiny of non-mortgage consumer credit, this Emerging Issues Analysis addresses several important considerations for conducting fair and responsible banking risk assessments for non-mortgage lines of business. Although experience from mortgage risk assessments provides a useful framework, non-mortgage lines of business present special considerations, both in terms of substance and execution. [footnotes omitted]

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Benjamin P. Saul has a nationwide practice representing corporate and individual clients in high-stakes administrative enforcement and criminal matters, private civil and class action litigation, and parallel proceedings involving private litigants and federal and state enforcement authorities. He also conducts corporate internal investigations and advises financial services and other clients on compliance issues and programs. He has represented clients in matters initiated by the Congress, DOJ, CFPB, HUD, FTC, SEC, federal and state banking authorities, and state attorneys general. Mr. Saul has extensive experience counseling troubled banks, bank holding companies, and their boards of directors and officers on complex regulatory, litigation, enforcement and personal liability issues. He is a member of the Board of Editors of the Review of Banking & Financial Services andthe Editor-in-Chief of the Banking Law Committee Journal.

Amanda M. Raines represents financial services industry clients in federal and state enforcement agency investigations and litigation, as well as in private civil and class action litigation. She has represented clients in investigations by the Department of Justice, the SEC, the FDIC, and state attorneys general, as well as in private class action litigation involving securities fraud, tax fraud, the Fair Housing Act, the Equal Credit Opportunity Act, the Civil Rights Act, and unfair and deceptive trade practices statutes. Ms. Raines received her J.D. from Case Western Reserve University School of Law, where she was the managing editor of the Case Western Law Review.

Ann D. Wiles represents corporate and individual clients in litigation and enforcement matters, including criminal and complex civil litigation, internal investigations, government enforcement actions, and appellate matters. She has represented clients in cases involving the Foreign Corrupt Practices Act, False Claims Act, securities fraud, privacy and data breaches, tax evasion, employee misconduct, gaming regulations, intellectual property disputes, and antitrust investigations. Ms. Wiles has assisted clients in foreign criminal proceedings, in actions before foreign securities regulatory agencies, and in internal investigations. She received her J.D. from Vanderbilt University Law School, where she was Associate Editor for the Vanderbilt Law Review.