ABA Bank Compliance - March/April 2013

Data integrity challenges continue to plague many institutions. Understanding the genesis of the data and who is responsible for it is critical to resolve data integrity issues.

As data collection processes will likely be different for every aspect of the examination, consider mapping out your data flow from start to finish. Go field by field, system by system, product by product, as appropriate. Prepare a source documentation matrix to understand where you can find the information to validate each data element. Establish quality control testing and/or audit procedures to ensure data accuracy. Be certain that your quality control procedures include some sort of physical file reviews. You might find that loan data that passes electronic “scrub” procedures do not match the loan file. Determine accountability and make sure that all parties are trained on the proper procedures for data collection. If data integrity remains an issue, work with senior management and/or human resources to incorporate it into responsible parties’ performance evaluations.

Additional Data Integrity Challenges Consider the impact of a merger or acquisition on your institution’s data integrity. Make sure that newly absorbed employees are trained (or re-trained) on the appropriate data collection processes for your institution. Don’t forget to test changes in your loan systems (e.g., new systems, system upgrades, etc.) for possible data integrity issues.

CHALLENGE #2: Large Bank Transition Issues—
New Reporting Requirements

Common errors for institutions transitioning to large bank status and reporting for the first time include:

■ ■ Insufficient documentation to support community development activities, including loans, investments, and services.

■ ■ Including loans to non-profits in the small business file: Consider including them as “other loans” during the examination itself because they are not CRA small business or farm reportable unless secured by commercial real estate.

■ ■ Including business loans secured by residential real estate in the small business file: Consider including them as “other loans” during the examination itself because they are not CRA small business or farm reportable unless the real estate was taken in an “abundance of caution” situation.

■ ■ Incorrect reporting of small business revenues: This is particularly challenging in light of an increasing number of credit-scored small business products. Consider capturing gross annual sales on the small business application, or have the borrower sign a business certification that would include gross annual sales.

CHALLENGE #3: Lending Test—Limited or Poor HMDA Lending Performance As mentioned previously, HMDA loans are analyzed for distribution in LMI geographies and to LMI borrowers. In addition, loans are analyzed separately by loan category—home purchase loans,

Map Out Your Data Flow

■ ■ Who/what department gets the information first?

■ ■ Where does it go from there?

■ ■ At what point does it come to you for reporting?

■ ■ Is it stored electronically, or is it handled in hard copy?

■ ■ Is there a quality control process that helps ensure data accuracy?

■ ■ Does that process include hard copy file review, or just an electronic “scrub?”

■ ■ Who is accountable for it being correct—have they been trained on the right way to handle/process the information?

refinance transactions, and home improvement loans. Multifamily lending might also be analyzed if there has been enough activity for an analysis to be meaningful.

Here are some possible solutions to address poor HMDA lending performance:

■ ■ If lending volumes are on the decline, verify that you are capturing everything. Verify with the lending group to determine if something is missing, and, if the answer is no, document the reasons for the decline in activity.

■ ■ Evaluate conspicuous “gaps” to confirm that you are lending throughout your assessment areas, particularly in LMI geographies, and to confirm that no illegal discrimination is taking place. Work with your compliance counterparts to ensure that you evaluate lending gaps from a minority lending perspective in your fair lending analyses.

■ ■ Review high-priced loans to confirm that they are not concentrated in certain geographies (e.g., LMI neighborhoods) or to certain customer groups.

■ ■ Once you’ve verified that you are capturing all reportable activities, consult with front-line lenders to see if you can identify overlooked opportunities and/or to brainstorm new lending programs to help with originations.

■ ■ Educate lenders about the importance of lending in LMI geographies and/or to LMI persons. Consider creating an incentive for lenders who originate such loans; consider providing additional training and maps identifying the LMI geographies within your assessment areas to assist account officers in their efforts to increase LMI originations.