Compliance Matters

NCUA is Looking at Fair Lending Practices

NCUA will select a number of FCUs for fair lending exams this year.

May 13, 2013

NCUA will select a number of federal credit unions to undergo a fair lending examination this year, according to NCUA Letter to Federal Credit Unions 13-FCU-02.

Fair lending laws and regulations include the Equal Credit Opportunity Act (ECOA) [Regulation B]; Home Mortgage Disclosure Act (HMDA) [Regulation C]; and Fair Housing Act (FHA).
Federal credit unions selected for a fair lending exam or off-site supervision contact “will have demonstrated the potential for a higher fair lending risk” based on:
► HMDA data that indicates that the federal credit union’s lending practices fall outside the normal range for pricing, denials, withdrawals, or lending terms when compared with other financial institutions—referred to as “HMDA outliers.”
► Fair lending findings or violations noted in recent safety and soundness exams. This includes a review of the number of compliance exceptions for fair lending or other consumer lending regulations.
► Moderate- or high-risk ratings on compliance issues during their most recent safety and soundness exam may be selected.
► Other factors, such as whether a federal credit union demonstrates the potential for higher fair lending risk because of the volume, types(s), or complexity of the products and services offered, types of communities served, and whether the federal credit union has been the subject of lending discrimination complaints.
Selected federal credit unions will receive advance written notification of the exam or off-site supervision contact from NCUA’s Office of Consumer Protection (OCP).
Federal credit unions that demonstrate the potential for higher fair lending risk—but are not HMDA outliers—will be subject to an off- site fair lending supervision contact.
If an off-site supervision contact indicates the possibility of discriminatory practices or significant findings of noncompliance with fair lending laws or regulations, a credit union will be considered for a fair lending exam during the next cycle.
Along with the letter, NCUA released a new Fair Lending Guide to help credit unions develop or evaluate their credit union’s fair lending compliance program.
The guide includes an overview of fair lending law and regulations; credit union operational requirements; issues to consider when developing fair lending compliance policies; and checklists for testing compliance with laws and regulations, or developing a fair lending policy for compliance.
The Letter to Federal Credit Unions 13-FCU-02: 2013 Fair Lending Examination Program and Compliance Assistance, is available at
New ATM Fee-Notice Rules Are Now Effective
Congress amended the federal Electronic Fund Transfer Act (EFTA) in December 2012.
The change eliminates the requirement to post a fee notice on or at an ATM, leaving in place the requirement for a specific fee disclosure to appear on the ATM screen or on paper issued from the machine.
The Consumer Financial Protection Bureau (CFPB) issued a final rule in March to conform Section 1005.16 of Regulation E to the EFTA amendment. The effective date was March 26, 2013.
Under federal law, ATM operators will now have to provide only the on-screen or paper disclosure, which includes the amount of the fee to be charged, before the consumer is committed to the transaction.
But, credit unions should check with their leagues about any state law requirements for physical ATM notices.
More information is available in CUNA’s e-Guide to Federal Laws and Regulations at
Indirect Auto Lenders Reminded of Responsibilities
The CFPB reminded indirect auto lenders of their compliance responsibilities under the ECOA in a March bulletin.
The ECOA makes it illegal for a creditor to discriminate in any aspect of a credit transaction on prohibited bases including race, color, religion, national origin, sex, marital status, and age.
The CFPB has authority to examine large banks and credit unions— and their affiliates—with more than $10 billion in assets.
Indirect auto lenders oft en allow the dealer to charge the consumer an interest rate that’s costlier for the consumer than the rate the lender gave the dealer (“dealer markup”). The lender shares part of the revenue from that increased interest rate with the dealer.
As a result, markups generate compensation for dealers while frequently giving them the discretion to charge consumers different rates regardless of consumer creditworthiness.
Lender policies that provide dealers with this type of discretion increase the risk of pricing disparities among consumers based on race, national origin, and potentially other prohibited bases.
The CFPB recommends indirect auto lenders take steps to ensure they’re operating in compliance with fair lending laws as applied to dealer markup and compensation policies. These steps may include, but aren’t limited to:
► Imposing controls on dealer markup, or otherwise revising dealer markup policies;
► Monitoring and addressing the effects of markup policies as part of a robust fair lending compliance program; and
► Eliminating dealer discretion to markup buy rates and compensating dealers fairly using a different mechanism that doesn’t result in discrimination, such as flat fees per transaction.
Although the guidance focuses on lenders within CFPB’s jurisdiction, all credit unions that have indirect lending arrangements can benefit from reviewing the agency’s guidance on this issue.