Agencies Take Risk-Based Approach to Racial Equity and Fair Lending Oversight

The financial system and banking sector performed solidly during the past unprecedented year, was the consensus of a panel of representatives from the FDIC, OCC, the Federal Reserve and the Consumer Financial Protection Bureau. Speaking this week on the final day of ABA’s Regulatory Compliance Conference, Grovetta Gardineer, senior deputy comptroller for bank supervision policy for the OCC, said that the “strength of the industry was on full display” in its response to the COVID-19 pandemic. Beyond the panel’s unified praise for the banking system’s pandemic performance, among the issues discussed was how the Biden administration’s focus on racial equity could alter agencies’ approach to governance and oversight.

Leonard Chanin, deputy to the chairman at the FDIC, said it most likely would be business as usual. “We continue to have a very robust fair lending exam process. It’s a risk-focused examination process that we do for fair lending and other laws that we supervise institutions for. We don’t pick a particular area to look at. We decide where the greatest risk is and the potential for harm to consumers, and the potential for noncompliance. If a bank is a HMDA reporter, we’ll look and see if the data suggests there are anomalies or things we should pursue further in terms of potential disparities. Maybe a bank has a popular new product or has expanded growth in a particular product area [and we need]to see if they present a fair-lending risk.”

Eric Belsky, director of the Fed’s Division of Consumer and Community Affairs, agreed with the broader focus on risk, saying that the Fed would have the same focus it always has. “The depth of our review depends on a broad assessment of the strength of each bank’s compliance management system, including as they cover any new program that was stood up under the CARES Act,” Belsky said. “We appreciate the unique circumstances that were impacting both ours and institutions as a result of COVID -19 and how we’re approaching supervision. We’ll take into account an institution’s good-faith efforts as they try to support consumers and comply with consumer protection laws during this period.” He said if this process reveals a pattern or practice of discrimination, they’ll be referred to the Department of Justice.

Bryan Schneider, associate director of Supervision, Enforcement and Fair Lending at CFPB said that based on priorities outlined by the bureau’s acting director, they would be increasing supervisory resources and targeted fair-lending reviews in the coming year.