Lending Compliance and Consumers with Limited English Proficiency: What Lenders Need to Know
The US Census Bureau reports that more than 60 million Americans over the age of five – or about 20% of the US population – speak a language other than English at home. The bureau also reports that the most widely spoken non-English language in the country is Spanish, accounting for the largest share at just over 61%. Cantonese and Mandarin followed with just over 5%, but are the fastest growing language in the world.
Additionally, Hispanics – already a significant force in the US real estate market – are rapidly becoming the dominant group of home buyers in the country. In fact, a study by the Urban Institute projects that Latinos will make up 70% of new American homeowners by 2040.
As the pool of home buyers becomes increasingly diverse, financial institutions are faced with the challenge of communicating. To help eliminate uncertainty and help institutions better manage risk, the Consumer Financial Protection Bureau (CFPB) has published principles and guidelines to help comply with the Dodd-Frank Acts and Practices Provisions. (UDAAP), Equal Opportunity Act (ECOA), and other laws when providing products and services to Limited English Proficiency (LEP) consumers.
While there have been no new clarifying guidelines or regulations, the CFPB Principles and Guidelines offer valuable information that can help institutions reduce compliance risk when serving and lending to LEP populations.
Among the guiding principles, there are three key areas that financial institutions should prioritize.
Disclose that language services are available
First, financial institutions should provide LEP consumers with clear and timely information in their language, indicating the degree of language support available and the channels available to communicate and ask questions.
Create a Special Purpose Credit Program (SPCP)
An SPCP is intended to benefit a category of people who would otherwise be refused credit or would receive it on less favorable terms. While it is not necessary to have an SPCP to serve LEP consumers, an SPCP would allow consideration of a prohibited basis such as race or national origin to serve underserved communities. Regulation B, which implements the ECOA, sets out compliance standards and general rules for SPCPs.
A SPCP must have a written plan detailing the class of people for whom the program is intended, procedures and standards, a specific schedule of operation, an analysis justifying the need for the program and a set time frame to reassess the need for the program. program.
Implement appropriate compliance management systems
Another key component is a compliance management system (CMS). A CMS is important for every financial institution, but there are two ways to approach compliance management in serving LEP consumers. The CFPB advises developing a compliance management system (CMS) specific to LEP and including LEP in the institution’s Fair Lending, UDAAP and/or consumer compliance CMS.
What should a CMS for LEP consumers contain?
Like all CMSs, a LEP-related CMS must be commensurate with the size, complexity and risk profile of the institution. It should include a compliance program, third-party monitoring, and loan equity compliance that reviews policies and procedures for features that may pose increased loan equity risk. But what should you turn to?
The CFPB strongly encourages documenting the rationale behind language, product and service offerings. This includes everything from systems and infrastructure to cost estimates.
It’s also a good idea to document plans to expand or discontinue offerings and include information that demonstrates consumer usage (or lack of usage).
Conducting competitor-focused market research is a great way to understand what’s available in your area, from products and services to hours of operation and even fees associated with offerings.
Services and changes should be monitored for Fair Lending Risk and UDAAP. For example, an institution might benefit from assessing whether staff working with this market segment and staff performing similar functions outside this market receive the same type and frequency of training, provide the same information and have the same level of authority.
Advertising, including promotional materials and scripts, and new or updated products must be reviewed for Fair Lending Risk and UDAAP. Marketing materials and disclosures should be easy to understand for LEP consumers.
Fair loan tests
There should also be regular statistical analysis of loan-level data for potential mismatches on a prohibited basis in underwriting, pricing, or other aspects of the credit transaction. Financial institutions should consider reviewing data by market (branch) and loan officer. This will provide better information to manage potential discrepancies, which will really provide insight into the program.
Monitoring of third-party providers
If an institution contracts for any element of its LEP program, the institution needs proper vendor management and oversight. This will ensure that the provider does not create any Fair Lending or UDAAP risk for which the institution will be liable. This is especially true when it comes to underwriting and pricing decisions.
Mitigating compliance risks when providing non-English services
When serving customers in languages other than English, financial institutions should consider additional measures to help mitigate ECOA, UDAAP, and other compliance risks.
Is it a national bank looking to serve Spanish speakers or a local institution that wants to serve a specific minority community? The reason should be documented using valid sources of information.
Selection of products and services
Which programs are most used by LEP customers? Are they generally available to non-English speakers? How do you communicate with this audience? Are there features of a product or service (including policies, procedures and practices) that could present a high risk of unlawful discrimination, such as geography as an indicator of a prohibited basis? The answers to these questions must be answered and documented.
Language preference and collection tracking
Financial institutions may ask consumers about their language preference and track this data, but it cannot be used to exclude consumers from offers sent to similarly situated consumers with different language preferences.
In addition, financial institutions must follow state and federal laws for document translation. If translation is not required, a financial institution should have a policy as to whether (and to what extent) it will translate documents, and by whom.
In addition, the translated documents must be accurate. The CFPB recommends prioritizing the documents that will have the greatest impact on consumers. To help you, the CFPB and other government agencies have libraries of translated documents and glossaries that may be useful.
In an increasingly diverse market, financial institutions must be prepared to offer products and services in languages other than English, but it is equally imperative to ensure that the risk of compliance with Fair Lending is correctly taken into account. Otherwise, efforts to gain more market share could be thwarted.
Kimberly Boatwright is Vice President, Solutions Architect for Ncontractsa provider of integrated risk management solutions for the financial services industry.