The Federal Reserve recently provided its top consumer violations in 2022 for State Member Banks, with HMDA violations topping the table with 239 (59.4%). As HMDA data is relied upon in fair lending examinations, community banks need to ensure the number of violations decreases.
Common HMDA violations included improperly reporting the loan purpose, improper reporting of the income the institutions relied on for the credit decision, and improper reporting of the scoring model used by the credit reporting agency. Given the high count of violations in 2022, a community bank’s HMDA process should be one that is reviewed and refined.
Here are some ways your financial institution can refine their HMDA process:
Standardize the HMDA Process
The implementation of detailed policies and procedures can help standardize certain processes such as application date and action taken date, credit score, as well as points/fees. Community banks should conduct an annual review of the common violations provided by the Federal Reserve with the purposes of identifying any weaknesses within their HMDA process. Updates to the bank’s HMDA policies and procedures based on these weaknesses will help lower repeat offenses going into future filings.
Training
Ensuring that employees involved in the HMDA process are well-trained and knowledgeable about HMDA requirements and regulations is crucial to lowering the number of offenses. Conducting trainings when regulatory changes or procedural weaknesses are identified is also an important aspect of implementing a successful training program.
Community banks should note the common violations referenced by the Federal Reserve and curate new trainings to bolster the employee’s understanding of the HMDA process.
Internal Controls
Establishing internal controls to monitor HMDA data collection can ensure that the data being collected is accurate and complies with HMDA guidelines.
Additionally, community banks can implement controls related to self-identified weaknesses or those published by the Federal Reserve. These internal controls can help ensure that any changes made based on these weaknesses are being properly applied to the bank’s HMDA procedures.
A combination of the three efficiencies above can ensure that your financial institution takes the necessary steps to lower HMDA violations for the 2023 filing. Reviewing your bank’s policies and procedures in line with the common 2022 HMDA violations will help identify weaknesses with what is currently in place.
Establishing training based on these weaknesses will help refine the knowledge and expertise of employees involved in the HMDA process.
Finally, the implementation of internal controls will ensure that changes made to your bank’s HMDA process are applied properly. By doing these steps, community banks can do their part in reducing the number of HMDA violations in 2023.
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