Fair and responsible banking risk assessments – by which financial institutions identify, measure, control, and monitor their lending and, more recently, servicing activities to prevent discriminatory, unfair, deceptive, abusive, and predatory acts and practices – have long been part of the compliance function within financial institutions. To date, the literature on such assessments has focused largely on how to conduct them on mortgage business lines, but has not addressed non-mortgage operations, such as credit card, student, and automobile lending. The mortgage-centric focus of most articles results, in part, from historically greater regulatory, enforcement, and litigation scrutiny of the mortgage business. Moreover, Home Mortgage Disclosure Act (“HMDA”) data, which identifies applicants in protected classes, simplifies the quantitative components of a fair and responsible banking risk assessment. Outside the mortgage context, the difficult questions of whether, and how, to conduct such risk assessments have received scant attention.
The current regulatory environment renders timely consideration of whether, and if so how, financial institutions can best assess fair and responsible banking risks in their non-mortgage business lines. This may be especially true for mono-line and non-bank institutions that historically may not have conducted such risk assessments, and for more diversified financial institutions that may have conducted these assessments with less emphasis on measuring non-mortgage risks.
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