On January 12, 2023, the Office of the Comptroller of the Currency (OCC) published a revised version of its “Fair Lending” booklet of the Comptroller’s Handbook (booklet), reiterating its priority from the 2023 bank supervision operating plan published in late 2022. The 2023 operating plan specifies that examiners should focus on fair lending risk and how banks provide fair access to products and services. The revised booklet establishes the guidelines for this assessment, among other factors.
The noted areas of addition include a prohibited conduct section that details types of prohibited actions and discrimination factors, a special purpose credit programs (SPCPs) section that includes references for the use of a SPCP, and a redlining section that explains the practice and provides regulatory references for violation. The handbook also now details types of fair lending risks and risk management, including for third parties, and details the OCC’s risk assessment process for determining examination focal points. The handbook includes a section for commercial lending and proxies as well.
The associated fair lending risks section includes the ways in which fair lending impacts compliance, credit, operational, strategic, and reputation risks. The risk management section details the components of an effective fair lending risk assessment and indicates third parties should be incorporated into a bank’s third-party risk management processes.
The OCC’s fair lending risk assessment process section details the six steps to the fair lending risk assessment process and references Appendix A of the handbook, which outlines more granular steps to follow. This process helps the examiner determine focal points for examination and includes the factors to consider when deciding which focal point to select.
The booklet includes a commercial lending section that indicates examiners should focus on small business credit unless bank-specific factors indicate other commercial products are the more appropriate focus.
The handbook details the considerations for evaluating a bank’s fair lending risk management process, which include the five areas of policies and procedures, understanding of fair lending responsibilities, the strength of compliance programs, statistical or manual comparative file review, and compliance program or system deficiencies.
The revised booklet is publicly available and bank management should consider the new and expanded sections of the examination guidelines as well as Appendix A of the booklet for risk assessment when preparing and amending annual risk assessments and fair lending policies. Reviewing the booklet in its entirety also will provide management with an expectation for upcoming examinations in the 2023 cycle.
If your bank is seeking additional assistance preparing for the 2023 examination cycle, FORVIS provides fair lending solutions from experienced professionals in consumer, mortgage, small business, and credit card analysis. For more information, reach out to a professional at FORVIS or use the Contact Us form.