Improve Customer Service to Lower Fair Lending Risk

Fair Lending  »  Improve Customer Service to Lower Fair Lending Risk

A formal complaint filed against a financial institution with a regulatory agency often results in some type of inquiry or investigation of the institution in order to resolve the issue. If the nature of the complaint involves a potential violation of fair lending laws, it can often cause a formal fair lending review of the institution. 

Although there are a number of forms such a complaint can take, many tend to center around the denial of credit or discouraging of an applicant.

However, it is many times the interaction itself with the customer and their perception of treatment that is the catalyst for the complaint.Although denial of credit is just a reality–a bank simply cannot make loans to every applicant–how the situation is handled is within the institution’s control. And, this often determines if a complaint is filed or not.

Customer service has become somewhat of a lost art across all industries. Adages such as “the customer is always right” are often deemed old fashioned. Even if companies try to promote such a culture from within, it is not always conveyed to the customer.

And, with regard to the service, the customer’s perception is all that matters.

So how can service be shaped to minimize complaints related to loan transactions and reduce fair lending risks? Below we address some of the key pressure points and offer some practical guidance.

Bear in mind, however, consistency is key. The point of having a service culture is that it is universally applied. Doing so intermittently will only create or magnify problems.

With this caveat, below are a few things that can be done to help minimize fair lending risk:

1. Have a service culture rather than a sales culture

Although there is nothing inherently wrong with having a sales culture, it should not be at the expense of service. Often we see when a loan officer or mortgage originator realizes a loan will be denied that the attention to the customer and service begins to wane.

If the staff member is compensated based on volume, the problem is only magnified as they are ready to move on to the next deal. (Note to compliance and fair lending officers: This can be detected by reviewing loans that are denied. If the files are thin, this is likely an issue that should be examined.)

Neglecting service is reflective in a staff attitude and creates conditions conducive for complaints. And, if protected classes face more financial  challenges than non-protected groups suggesting they are more likely to be denied, it is just the law of averages that a fair lending related complaint will be likely to occur.

2. Manage customer expectations

Many bank customers, especially those unfamiliar with the loan application process, don’t understand what is required to get a loan and what their credit profile is or how it will be evaluated. It is incumbent on the lender to help educate them so they will know what to expect.

The caution here obviously is not to pre-screen or discourage an applicant, but the requirements for approval should be clearly defined. It should also be conveyed to the customer what documents and verifications will be required.

3. Have a well organized origination process

This may seem inconsequential, but one thing that annoys customers is to be asked repeatedly for documents or answers to questions which they have already provided. This can not only slow down the process but cause the applicant to become frustrated and withdraw the application.

4. Communicate

Not returning calls or being slow to do so or not keeping the customer informed of the status of their loan application can be interpreted negatively by the customer. Many complaints can be avoided simply by maintaining good communication.

5. Offer alternatives

If a loan cannot be approved based on the terms applied for, be sure that alternatives that may meet the customer’s need are explored. Even if no such alternative exists, let the customer know that you are doing everything possible to help them and earn their business. This can produce customer satisfaction even if they do not receive what they want. 

Having consistently good customer service can reduce fair lending risk.

If you would like more insight into what types of things influence a bank customer’s perceptions of service, you can download a study we conducted that was published in the International Journal of Bank Marketing.

This can be downloaded here by clicking here:


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