CFPB Examination - Module 2: Application and Originations Explained

Last week I covered Module 1, Marketing, of the Consumer Financial Protection Bureau’s Examination guidelines and so this week I like to move ahead to Module 2 of the examination.  Application and Originations.  Applications are an integral part of the short term lending process, and it is essential to keep these procedures legal and ethical. In fact, the application process is so important, it is one of the areas an auditor from the Consumer Financial Protection Bureau reviews. In order to avoid fines or issues associated with unfair lending practices, it is important to comply with federal and state regulations. By doing so, you can ace a CFPB examination. Equal Credit Opportunities You should conduct a review of your application and lending decision procedures to ensure they are non-discriminatory. You should also train staff to make fact-based decisions without regard to age, race, nationality or other personal attributes of a borrower. The CFPB will look for instances where loans were not authorized in one case, but where allowed in a similar case. This might be a sign of discrimination. Fair Credit Report Use If you use a credit reporting agency or information regarding the borrower's credit history to make loan decisions, you must provide necessary information regarding that decision to the borrower. The CFPB will look for instances where borrowers were not informed regarding higher interest rates or that their loan was declined due to credit history. Truth-in-Lending The CFPB examiner will review all loan paperwork and applications used by a company. The intent of this review by the CFPB is to ensure loans conform to information represented by a company. You cannot advertise or give the impression of one type of loan and then provide another. This is especially true with closed versus open-ended loans, which are governed by different rules.

By maintaining accurate and consistent loan policies and avoiding the appearance of discrimination, you can ensure you do not have costly issues during your next CFPB review.