Two Must Read Documents For Your Compliance Officer

Maybe it’s because I’m suffering from football withdrawal, but today’s topic has me thinking about points of emphasis when it comes to officiating football games. Every year the NFL tells its referees what rules it wants them to be doubly sure to enforce; presto you see penalties called throughout the season up until the Super Bowl at which point the teams magically do not commit any fouls.

Similarly, when the NCUA joins with other regulators in emphasizing the need to follow specific laws and regulations, some of which have been around for decades, it is a not to-subtle hint to your compliance department that it should double check how your Credit Union is compliant with the rules and laws in question.  In the last few days NCUA has put us all on notice that the erstwhile Equal Credit Opportunity Act is going to be a point of emphasis for examiners and regulators who view the ECOA as both a sword and shield when it comes to discouraging discriminatory conduct and encouraging lending activity targeted to assist   disadvantaged groups.

First let’s talk about the sword. Earlier this week the NCUA released this guidance about the ECOA with the reminder that the “ECOA requires the NCUA to refer certain violations to the U.S. Department of Justice”.  It provides a concise list of areas where Credit Unions may be at particular risk of violating the ECOA and it includes examples of the type of compliance issues of which Credit Unions should be aware. The categories highlighted by the NCUA include: Age, marital status, income consideration, redlining, and indirect lending.

Those Credit Unions that utilize indirect lending programs which allow car dealer ships broad discretion in marking up loans should make sure that they have appropriate oversight of dealership practices. According to the NCUA “Credit unions that permit discretionary markups should ensure their fair lending compliance management systems are sufficiently robust to enable the credit union to measure and address prohibited basis pricing disparities.”

Now for the shield. Also this week the NCUA joined with other financial regulators in reminding financial institutions that regulation B and the ECOA do not prohibit the creation of so called Special Purpose Credit Programs. Whereas regulation B prohibits discrimination on the basis of protected characteristics it does not prohibit the use of such characteristics as requirements for specific financial products aimed at increasing economic access for disadvantaged groups. As the CPFPB explained in a 2021 guidance “If participants in a special purpose credit program are required to possess one or more common characteristics and if the program otherwise satisfies the applicable requirements of Regulation B, a creditor may request and consider information regarding the common characteristic(s) in determining the applicant’s eligibility for the program”.

As not -for- profit institutions with a statutory obligation to help individuals of modest means, many Credit Unions already offer these programs without labeling them as such. Still the second guidance is both a reminder and a nudge: Federal law permits programs targeted specifically to assist historically disadvantaged groups.