In the ever-changing world of financial regulation, staying ahead of compliance requirements isn't just a best practice: it's essential for avoiding costly pitfalls. At Premier Insights, we've been at the forefront of compliance consulting for over 30 years, helping community and regional banks build resilient programs that withstand scrutiny from evolving regulatory bodies.
As we move into a new phase of oversight, it's crucial for institutions to reassess their Fair Lending and Community Reinvestment Act (CRA) strategies to ensure they're aligned with emerging priorities.
The Recent Regulatory Shift
Over the last few years, the regulatory environment has been marked by aggressive enforcement from agencies like the Department of Justice (DOJ) and the Consumer Financial Protection Bureau (CFPB). However, we're now seeing a transition back to a more traditional model, where core regulators such as the FDIC, OCC, and Federal Reserve are reclaiming primary control. This change could dial back some of the intense activity from the DOJ and CFPB, but there are no indications that this signals relaxation in scrutiny. Instead, it points to a resetting of priorities that may introduce fresh emphasis and expectations for banks.
This fluidity creates significant uncertainty, which is the chief driver of risk for financial institutions. Priorities can shift dramatically across administrations and agencies, sometimes even conflicting. For example, while the current administration has deprioritized initiatives around diversity, equity, and inclusion (DEI) and certain anti-discrimination efforts, enforcement in other areas remains active. The Civil Rights Division of the DOJ recently filed a lawsuit against a company for discrimination under the Americans with Disabilities Act (ADA), highlighting how unpredictable these actions can be.
Adding to the complexity is Section 1071 of the Dodd-Frank Act, which mandates data collection on small business lending. This provision is still in limbo, with no clear timeline or final implementation details, leaving banks in a holding pattern.
Why Vigilance Matters Now More Than Ever
The bottom line? This isn't a time for complacency. We're in an era of ongoing regulatory pressure amid uncertainty, where compliance gaps could invite unwanted scrutiny or penalties. Banks must stay proactive to protect their operations, reputations, and avoid regulatory issues. To address these challenges, institutions should maintain a program of regular and ongoing monitoring of lending practices, ensure staff are trained on bank policy, understand the regulatory risks of their activities, and update policies as new rules emerge. Additionally, maintaining open communication with regulators and leveraging technology to monitor compliance metrics can further strengthen a bank's compliance posture.
Checklist
Now is the perfect moment to re-evaluate your Fair Lending and CRA programs. An objective assessment can uncover vulnerabilities and provide actionable recommendations to strengthen your framework.
Below is a list of (10) questions you can apply that will help get you started on the right path:
- Does your institution create a compliance culture, with priorities set and enforced by Executive Management and the Board?
- Is there regular monitoring in place to recognize and include the distinct elements of both fair lending and CRA?
- What is the remediation plan in the event monitoring efforts uncover discrepancies or potential issues?
- Is there thorough understanding of the regulatory risks the bank faces, and proactive strategies in place to mitigate that risk?
- How is communication assured throughout the organization with regard to regulatory matters?
- What level of discretion is present in the lending process, how does it vary by product, and does this discretion present an acceptable or unacceptable level of risk?
- Does the CMS contain all the central pillars that are required as suggested by compliance examination procedures?
- Are you aware of what the findings were from the last CRA and compliance examination, and what the status of any recommendations or other directives issued in concert with the exam?
- Do CRA and fair lending programs reach all pertinent staff, including lenders, lender assistants as well as the Board and Executive Management?
- Data integrity – is data managed or just stored, and what is the level of confidence it can be relied on in an examination?
Thoughtfully considering and answering these questions will prepare you to navigate these fluid times and position your institution for success.
