Industry Letters

Fair Lending Plan Guidelines

February 18, 2000

To the President of the Institution Addressed:

Re: Fair Lending Plan Guidelines

The New York State Banking Department ("NYSBD"), as part of its ongoing effort to strengthen compliance with Section 296-a of the Executive Law, New York States fair lending statute, has set forth guidelines below to assist supervised institutions, their subsidiaries and affiliates in the formulation of a Fair Lending Plan ("Plan"). Although there is no standard formula that a Plan should follow, the NYSBD is providing the following list, which is not inclusive, to aid in the development of such a Plan:

  • The Board of Directors and senior management should formulate the Plan to 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;
  • 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 consumer, small business and mortgage application and underwriting process 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;
  • 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 Section 296-a and the policies and procedures contained in the Plan;
  • The Plan should provide for an automatic and timely review by a higher level supervisor of all applications that are rejected or withdrawn;
  • The principles of the Plan should extend to the institution's refinancing, collection and foreclosure practices;
  • The Plan should address how the institution will disclose and document to an applicant that he or she meets underwriting standards that typically would qualify him or her for a conventional loan product and whether that applicant will be referred to an affiliated lender;
  • 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 third party loan originators (i.e. mortgage bankers, mortgage brokers, automobile dealerships, home improvement contractors, etc.). The institution should obtain written agreements from all such third party loan originators with which it has relationships certifying that they acknowledge their responsibility to comply with Executive Law Section 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;
  • The Plan should contain a process by which complaints from applicants relating to alleged violations of Executive Law Section 296-a are resolved efficiently without being unduly burdensome to the applicant;
  • 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 Section 296-a; and
  • 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 Section 296-a. If you should have any 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,

Barbara Kent
Director Consumer Affairs and Financial Products