The American Association of Bank Directors (AABD) recently published the second edition of its Practical Handbook on Fair Lending for Bank Directors and Executive Officers (the Handbook), updating the first edition of the Handbook issued in 2016. David Baris, President of AABD, and Troutman Pepper partner Lori Sommerfield (two of the original authors) are again co-authors of the Handbook, together with Troutman Pepper partner Chris Willis and associate Sarah Pruett.

The Handbook is intended to raise awareness and provide education to bank directors and executive officers about the federal fair lending laws (the Equal Credit Opportunity Act and the Fair Housing Act) and related laws, as well as offer guidance to directors and executive management on their roles in providing meaningful oversight for fair lending risk management. The Handbook also describes best practices to enhance banks’ fair lending compliance programs to meet regulatory expectations. For this reason, the Handbook serves as a helpful resource for others, including chief risk officers, chief compliance officers, and fair lending officers.

As those in the banking industry are well aware, the past decade has witnessed a dramatic shift in the regulatory landscape for enforcement of the federal fair lending laws. Non-compliance with fair lending laws — as well as allegations that a bank’s lending practices are discriminatory — can damage a bank’s reputation, lead to regulatory and litigation risks, and be costly to defend. Accordingly, bank directors and executive officers must be actively engaged in providing effective oversight of their bank’s fair lending risk management efforts.

Highlights of the Handbook include:

• A description of the types of lending discrimination that violate the fair lending laws.
• An overview of where fair lending risk lies across the loan life cycle.
• Examples of fair lending red flags.
• A guide to using statistical analyses to assess your bank’s fair lending performance.
• An overview of HMDA data and its uses.
• Tips for effectively preparing for and managing a fair lending examination.
• Tips for what to do if your bank becomes the target of a fair lending investigation or enforcement action.