Elevating fairness – to ensure that the federal banking system provides fair access and treatment, including through enforcement of anti-redlining laws – is a commitment of the national bank regulator, the agency’s top supervisory official said Monday at a gathering of academics, officials, and others focused on the Community Reinvestment Act (CRA), fair lending, and similar issues.
Office of the Comptroller of the Currency’s (OCC) Senior Deputy Comptroller for Bank Supervision Policy Grovetta Gardineer highlighted several OCC priorities, which she said emphasized the OCC’s ongoing efforts to “ensure the financial institutions we regulate provide fair and equitable financial services.”
She was speaking to the CRA & Fair Lending Colloquium in Las Vegas, Nevada. She told the group she was there in place of Acting Comptroller Michael Hsu, who she said was called to testify before Congress, making it impossible for him to attend the meeting.
Gardineer said that enforcement of the Fair Housing Act and Equal Credit Opportunity Act (ECOA) is critical to address discriminatory lending practices which create and exacerbate racial inequity in the financial system.
Regarding the multi-agency effort to revamp rules that enforce the anti-redlining Community Reinvestment Act (CRA), Gardineer said and other agencies continue to review the “hundreds” of comments received on the proposal, issued last May. The comment period closed in early August. (Earlier this month, Federal Deposit Insurance Corp. (FDIC) Acting Chairman Martin Gruenberg said 1,000 “unique” comments were received.)
“Our shared goal remains to strengthen and modernize the CRA,” Gardineer said. “We know the CRA has been a critical motivator for bank lending and investment to help meet the credit needs of low- and moderate-income individuals, families, and communities. The proposal seeks to build on and expand that historical effectiveness and integrate changes in the banking industry, including internet and mobile banking.”
Gardineer also noted the increasing roles of analytics such as artificial intelligence (AI) and machine learning in banking and the impact on fair lending. She cited both the benefits, such as opportunities to expand access to banking services that could help to reduce inequality and increase trust in the banking system, but also the risks – which she linked to failed or inadequate management of model risk.
She said even when individual variables used in the analytics are not inherently biased, she asserted that the complex interactions typical of some advanced analytics can lead to unintended effects or outcomes. “Negative unintended outcomes can erode credibility, trust, and transparency,” she said. To control for this model risk, she said lenders should devote adequate and integrated technical and compliance expertise to develop and implement risk management, such as: suitable processes to make complex models understandable; change management and model governance that appropriately prioritizes fairness; sufficient third-party risk management, and; independent validation of processes and controls when warranted.