Independent Banker - July 2018 - 35

Next: Jim Reber on funding loan demand
Automobile Finance Examination Procedures.
The modules of the procedures cover the regulatory
requirements for the indirect lending life
cycle, and they include a description of various
types of indirect lending and applicable laws
and regulations.
employees whose training and experience may
vary greatly from banking industry regimens.
To minimize the gap between regulatory and
bank policy expectations and a dealer's actual
practices, robust oversight is required. Key elements
include:
Q maintaining ongoing communication with
dealerships and informing them of expectations
concerning the dealer's compliance with
all requirements, including Regulation B and
the Equal Credit Opportunity Act (ECOA)
Q conducting periodic reviews to confirm compliance
and identify issues early
Q ensuring prompt corrective action and restitution
to any borrower who has been harmed
by the dealership's lending practices
Q evaluating all dealership partners and prescribing
actions to take on any form of
disparate impact or treatment, including termination
of the relationship.
The oversight should include initial and periodic
reviews of the dealer's fair lending compliance
program. The contract between the bank and
the dealer should include consumer compliance
expectations, outline the bank's ability to
perform on-site reviews of the dealer and define
requirements for the dealer to provide information
as needed.
One tool community banks might use as
a roadmap to guide indirect lending risk
assessments and reviews is the interagency
In March 2013, the Consumer Financial
Protection Bureau (CFPB) issued guidance
to indirect auto lenders (including nonbank
dealers) for ECOA and federal Regulation B
compliance. The guidance emphasizes the
importance of developing a robust fair lending
compliance management program to limit fair
lending risk in indirect auto lending.
The CFPB guidance describes features of a
strong fair lending compliance program that
create a framework (as applicable for the size
and model of the company) upon which a community
bank might base its review, including:
Q an up-to-date fair lending policy statement
Q conducting regular fair lending training for
employees involved with any aspect of the
company's credit transactions
Q a process to monitor for compliance with fair
lending policies and procedures
Q a process to monitor for compliance with other
policies and procedures that are intended to
reduce fair lending risk (such as controls on
pricing discretion)
Q reviewing lending policies for consistency
with fair lending and established
pricing/fee structure
Q conducting regular analysis of loan data
(depending on the size and complexity of the
company) for potential or actual violations
Q assessing the marketing practices
Q oversight by management.
Quick stat
17.25
million
U.S. vehicle
sales in
2017
Source: Automotive News
Indirect lending programs can boost a
community bank's portfolio, but concerns
about discriminatory lending practices,
discretionary lending standards and effective
third-party oversight continue to draw regulators'
attention. Community banks involved in
indirect lending must understand consumer
compliance risks and establish controls to manage
them effectively.
Mary Thorson Wright, a former Federal Reserve
examiner, is a financial writer in Virginia.
independentbanker.org Q 35
http://www.independentbanker.org
Independent Banker - July 2018

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