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Industry Letters

Fair Lending Plan Requirement


June 11, 1999

To: The Institution Addressed

Re: Fair Lending Plan Requirement


The New York State Banking Department ("NYSBD") recently began an initiative to strengthen compliance with Section 296-a of the Executive Law in the application and underwriting processes of mortgage lenders in New York State. Section 296-a of the Executive Law is New York’s fair lending statute. As part of our effort to strengthen compliance with Section 296-a of the Executive Law, the NYSBD requires applicants seeking a mortgage banker license or applicants seeking approval for a change of control of a mortgage banker to submit a satisfactory Fair Lending Plan ("Plan") as part of their application. Please be advised that implementation of this requirement is not an attempt by the NYSBD to compel mortgage bankers to abandon the use of objective factors in evaluating the creditworthiness of a borrower when determining whether to underwrite a loan. Risk based pricing is and continues to be valid in New York, provided that it is not impermissibly tied to a protected class.

The NYSBD requires that the Plan address the manner in which an institution ensures that loans are made in conformance with fair lending laws. Although there is no standard formula that the Plan must follow, the NYSBD is providing the following list, which is not inclusive, to aid in the development of a Plan: 

  1. It is the responsibility of the Board of Directors and senior management to formulate the Plan and ensure that the institution’s lending practices comply with its provisions. If the Board of Directors does not have a Fair Lending Committee, then the Plan should designate which Committee of the Board is responsible for the institution’s compliance with Executive Law Section 296-a;
  2. The fair lending compliance program should monitor the implementation of and adherence to the Plan’s policies and procedures. Monitoring should be conducted for the institution as a whole, as well as sub-parts of the institution. Further, the Plan should provide for monitoring, on an ongoing basis, the institution’s mortgage application and underwriting processes as well as the institution’s pricing policies. In particular, the compliance program should ensure that the business personnel understand their duties and responsibilities under the Plan and that such duties are being carried out;
  3. The plan should implement a training program that provides adequate training to new hires and current employees, including management and other key personnel, and provides lending personnel with at least semi-annual updates on fair lending issues. Compliance personnel should administer and conduct the training program and participants should certify that they understand and commit to upholding the principles of Executive Law §296-a and the policies and procedures contained in the Plan;
  4. The Plan should provide for an automatic and timely review by a higher level supervisor of all applications that are rejected or withdrawn;
  5. The principles of the Plan should extend to the institution’s refinancing, collection and foreclosure practices;
  6. The Plan should address how the institution will disclose and document to an applicant that he meets underwriting standards that typically would qualify him for a conventional loan product and whether that applicant will be referred to an affiliated lender;
  7. The Plan should identify actions taken to demonstrate that the institution has taken the appropriate measures to extend the policies and procedures of the Plan to the solicitation, establishment and maintenance of the institution’s relationships with other mortgage bankers and mortgage brokers. The institution should obtain written agreements from the mortgage bankers with which it has relationships certifying that they acknowledge their responsibility to comply with Executive Law §296-a and the policies and procedures contained in the Plan to the extent such policies and procedures are applicable to them. Such agreements should be updated regularly;
  8. The Plan should contain a process by which complaints from applicants relating to alleged violations of Executive Law §296-a are resolved efficiently without being unduly burdensome to the applicant;
  9. The Plan should contain a process by which marketing strategies directed to any protected class applicants or minority communities are reviewed and approved and periodically evaluated by the designated Compliance Officer prior to distribution to ensure that those strategies comply with the provisions of Executive Law §296-a; and
  10. The Plan should be periodically reviewed by the Compliance Officer and senior management to ensure that it remains current.

 This letter and the above list should serve only as a general guideline for developing the institution’s Plan. Further, even though the institution’s Plan may address all of the areas outlined above, that is no guarantee that the institution’s lending activities are being conducted in compliance with the provisions of Executive Law §296-a. If you should have questions about fair lending issues not encompassed by the above, we would welcome the opportunity to meet with you to discuss your concerns.

Very truly yours,

Richard Ehli
Deputy Superintendent

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