The Equal Credit Opportunity Act (ECOA), implemented under Regulation B, and the Fair Credit Reporting Act (FCRA) together officially dictate whether or not, how and when a consumer should receive notice of adverse action on applications that are wthdrawn, denied, or cancelled due to specific reasons that must be disclosed to the consumer. However, additional requirements fall under the Truth in Lending Act (TILA) and the Home Mortgage Disclosure Act (HMDA), both of which have recent amendments and rulings issued by the CFPB, as well as federal and state statutes that are tied to consumer and civil rights, and not to be overlooked, investor guidance and interpretation of these regulations.
So you know the rules, but are you successfully bridging the documentation gap that can be created as each investor requires your organization to sample and randomly audit adverse action files? Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA), Veterans Administration (VA) and the United States Department of Agriculture (USDA) Rural Housing Service (RHS) programs all require compliance with state and federal regulatory requirements, but also require you to have a written quality control plan that details your compliance with both regulatory and investor guidelines.In addition to adherence to disclosure and notification requirements, your QC plan must reflect audit sampling and documentation parameters.
An important consideration in meeting todays requirements is that auditing for adverse action can be subject to interpretation.With the numerous regulations and agencies dictating notification parameters, the real grey area, outside of the network of rules, can be documentation of denial reasons.Responses and documentation requirements can become diluted by systemic and checklist based processes that may or may not hold up in an audit scenario.Especially with increased focus on consumer rights and credit reporting, overlooking communication with customers and documentation could lead to unforeseen fines and or restitution costs.
Questioning compliance in this area can be helpful as updates and nuances to adverse action processes may fall by the wayside when your teams are focused on completed applications and/or resources become restricted. More specifically, securing documentation that substantiates your adverse action decisioning and related communications may be overlooked due to lack of time or resources to properly follow up. QMS has found a rise in issues called out by various investors in this area warranting the time to take a closer look at your adverse action file processes and corresponding audit practices.
A few notable process questions also worth considering in this area include:
Are your internal auditing and lender post-closing quality control review processes for adverse action files up to date and compliant?
Do you test for “accuracy and integrity” as a part of adverse action audit and quality control?
Beyond derogatory credit concerns, are you looking at possible predatory lending infractions by insuring compliance with tiered pricing, overages and premium pricing practices?
Are your adverse action reasons thoroughly articulated and documented from both a regulatory and investor compliance perspective?
Meeting the maze of quality control requirements during these complex financial times requires diligence, attention to detail, and the capacity to research requirements that don’t fit into a checklist format.When determining the correct approach to auditing your adverse action file selection set, you may easily come across conflicting requirements, or more importantly gaps in the practices as documented.QMS prides itself in going the extra mile in these instances.As a boutique provider of quality control and audit technology solutions, we’re on top of QC requirements and more importantly we look for the nuances that you and your team may not have the time to seek out.Contact QMS today to experience a true partnership with a knowledgeable QC vendor whose primary goal is to help you succeed.Offering post-closing and pre-funding audits as a core product solution for over 20 years, QMS is ready to meet your unique QC requirements in a compliant industry framework.