Fair Lending Guidance Update - The Office Of The Comptroller Of The Currency

Published Date: January 13, 2023

Jurisdiction - United States

OCC Bulletin - Fair Lending: Revised Comptroller’s Handbook Booklet and Recissions

Effective date - January 12, 2023

Primary Audience - National Banks, Federal Savings Associations, US Consumer Lender, US Commercial Lender, Banking-as-a-Service Providers, Compliance Officers. 

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Summary: The Office of the Comptroller of the Currency (“OCC”) has issued an updated Fair Lending booklet. The Fair Lending booklet sheds light on how the federal agency examines the fair lending risk of financial institutions under their jurisdiction. Acting Comptroller of the Currency Michael J. Hsu is quoted as stating:  “The OCC’s revised ‘Fair Lending’ booklet is an important tool to promote equal access to credit for all consumers. It frames our supervisory approach applicable to each OCC-supervised bank that engages in lending, and provides additional guidance for examiners in this critically important area.”

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Key Takeaways: 

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1. Vague Underwriting Policies increase risk: With the explosion of niche credit products and increasingly creative ways to underwrite said products, it is important that non-traditional underwriting and pricing policies are examined at least annually. Ensuring fair lending risks aren’t being forgotten amid the innovative whirlwind should be a constant focus for all compliance officers and the leadership of fintechs and BaaS banks.  

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2. Extensive Automation can exacerbate risk:  In the digital age, lightning-speed transactions have become the norm. Systematic problems can quickly spiral out of control in environments too heavily dependent on automated solutions with limited to no human oversight. Monitoring and testing of decision engine rules, data tables, and front- end documents should be built into every system and process.

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3. Reliance on third-parties multiplies risk: Decentralization of key processes such as underwriting, marketing, customer service (to name a few), creates more opportunities for compliance failures. The OCC makes it clear that having a tight handle on third-party risk management is paramount to ensuring fair lending compliance standards are maintained throughout the supply chain of financial product delivery. 

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When operating within the BaaS space, it is always important to keep an eye on what the regulatory and enforcement agencies are focusing on. Changes in focus usually lead to changes in oversight responsibilities that cascade from the partner banks down to their fintech partners and supporting third-party service providers. If you are engaged in activities impacted by fair lending and would like to talk about your compliance strategy, in this area or elsewhere, please feel free to book a call with us today. 

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