Navigating Fair Lending Challenges Through Collaboration and AI

0:04 Hello. This is Lynd Soderbiel and welcome to Leaders in Lending. I'm joining you here from CBA live in Orlando, and we have Lindsay Yusf and Nick Rustler from the Fair and Responsible Banking Committee. Lindsay and Nick, can you introduce yourself and tell us a little bit about your background. Sure, I'm Lindsay yus If. I'm the executive Compliance Director at ALI and also the fine or the Fair and Responsible Banking Officer. In addition, I am the vice chair of the Fair and Responsible Banking Committee for the CBA. So I have been in banking for about twenty four years now and have worked in all different areas, mostly with CIRE Fair Lending and formerly as a chief compliance officer.

0:45 Hi. Nick Raisler M and T Bank Fair and Responsible Banking Officer there and I've been in banking for a while as well, mostly in fair lending, UDAPT spaces as well as audit risk management. And I'm a former examiner with the Federal Reserve Bank as well as the chair of the CBA Fair Responsible Banking Committee. Awesome, well, great for joining Thank you for joining us again. We did this last year, so it's nice to have you back two years in a row, so I think interesting that being a former examiner as well, but both of you having extensive banking experience. The environment now, both the economic environment and kind of consumer regulatory environment is rapidly changing and uncertain in a lot of ways. What are some ways that you see banks and CBA members working with their external partners, like a fintech partner, to meet both regulatory expectations but also really drive innovation for their consumers.

1:42 Well, one way I think, just in general, I think like partnerships right now, with a lot of uncertainty with expectations, is that can be a fair amount of benchmarkting that could be really helpful for a provider to kind of come in and say, Okay, what's the view of the industry here, and what sort of technologies might be emerging use cases and things like that to kind of consider and then kind of anyone's guess. It's anyone's guest in terms of like will. This meet future regulatory expectations. I think there's a lot of a lot of you know, sort of question marks there. But I think one thing that you want to do as an institution is is not be an outlier, right so I think it while it's there's a little bit of a safety's number, safety in numbers, but while that's not really the goal is to be like Okay, we want to be like everyone else.

2:32 I think that's one kind of foundational area where I think, you know, a third party or you know, a fintech partner can come into play and. To adswer that. I think it also helps us with meeting the expectations of our consumers and customers they're looking. You know, with COVID, we really moved from more brick and mortar to being accessible through our technology and coming from a bank that is an online, all digital bank, we're always trying to find the ways to bring new products and services to our customers so that they can do the research beforehand at their desk to find out what are the differences in products or services or fees.

3:12 And then also the other thing is, you know, we shouldn't forget that we also want to look at consultants in the field too. Sorry. With consultants, they also bring another viewpoint. They can come into an institution and help to make sure that you are having that consistency with your compliance programs and oversight. Like Nick said, you don't want to be an outlier, and that's where sometimes you having that third party to come in and tell you what they're seeing across the industry is helpful as well. Yeah, do you think you know, I was coming a conversation with somebody yesterday that given a little bit of the you know, swirl with the regulatory agencies, and of course you know, the exams from the credential regulators are still happening, but there is some uncertainty about what's next across the board, and they mentioned that maybe a good opportunity to do just that, like to kind of take another second look at your book, look at your practices, go through your whole CMS program, and evaluate if there's anything you want to do proactively yourself and to kind of shore up what you're doing. Are you seeing member banks doing that sort of thing, kind of saying hey, we're going to you know, take the opportunity to spend a little time looking inwardly.

4:24 Yeah, And actually multiple sessions here at CBA Live discussed at very point. I think, you know the definition of proactive is basically doing something when there's not an urgent kind of requirement, right, So of being reactive and so in this time of a perceived lull, even if it's you know, whether it's real or not, I like, yeah, sort of taking a moment to breathe and go, okay, whether the things that I can do to strengthen my program or things that have been okay that I want to maybe spend a little bit more time. And that's one of the best parts about being part of CBA. We're having those conversations together to say, with what is all going on in the industry? And I like that you said swirl versus hurricane or SMORTNATO. We are able to talk about, you know, are we changing our programs now? Do we want to wait? When do we have that comfort level that the regulators are now settling on what the new CFPV is going to look like, what their expectations are, or are we going to have to again go back to really focusing in on what our crudential is expecting of us as institutions.

5:30 Sure, well, you know, with that swirl, tsunami, hurricane, whichever natural disaster we want to call it, the you know, I think certainly the rules are changing. How do you, as going to CBA committee members think about helping your members or staying on top of what's happening in the news. I think the volume and velocity of news is almost impossible to stay on top of. But how do you how do you think about managing those risks and understanding them and helping kind of distill what's happening as it relates to fair and responsible making down to your members. CBA itself has a really strong team that keeps track of what's going on in DC and beyond, and so it really starts there, and I think they really provide a great backbone of updates that they can provide across committees.

6:20 And so depending on the committee kind of subject matter, then the lean in on certain updates and so that's that's really I think having that foundation. While I think you know, all the committee members get news bye and you know, get a bunch of stuff via email or monitoring the industry, having that consolidated view and in some cases like a little bit of a behind the scenes or things that you might not see in the public about certain meetings or certain happenings is really valuable to kind of go okay, this, this gives me an idea of what might be coming next or in the next week or month or who knows. So I think it starts there. Then that's really a platform to spur discussion about okay, well what does this mean at across the institutions, and maybe some have already thought about taking action or kind of preparing.

7:12 Absolutely, and then behind the scenes sometimes we do benchmarking. And so Nick knows for many years I've called him throughout the year and said, hey, what do you think about this? What are you doing? What have you seen or her from other colleagues, And so it's a good way for us to within the committee and also behind the scenes to really benchmark with each other. Yeah. Absolutely, So I think that like partnership is key, especially today, and you know, I think you both know, like you know, folks move around in the industry too, between different organizations, So that's great that you have that network out there. You know, as you think about like technology innovation AI, whether it's you know, the type of AI we use to do our underwriting and risk assessments or things like generative AI, the role of a fair lending officer or a fair responsible banking officer is getting more complex, you really, you know, it was already a very complex area, but now taking those rules and kind of applying them to rapidly changing new technology, Like how do you think about staying on top of technology developments and taking kind of the crux of the regulation which hasn't changed, and then measuring with new technologies like AI.

8:22 That's a big, light, lightweight question. I mean it really is, and especially coming from an online bank where we do everything digitally to start with you, really we are becoming more and more involved in the process of AI machine learning in our institutions than ever before. And it's really based on the expectation of the regulators. They want us to make sure we're aware of what are in our models, What are the variables in there? Is there any potential risk of discrimination and if so, how are you controlling for it? Are you changing the variables that are in there? Are you requiring different standards around it? So we're keeping in touch with our models across our our across our organization as well as across the industry. And that's where again having a platform like CBA where we can come together and talk about my regulators looking for this within examinations or how we're looking for oversight versus a different crudential regulator that might have a different focus. We know last year there was the CFPEB sent out a questionnaire to multiple organizations to gather more information on what are they doing for models and oversight internally. So as we're trying to figure it out, the regulators are trying to figure it out as well.

9:37 Yeah, and I would add that sort of the tools and techniques continue to evolve. I think the principles of the challenges with AI, with the black box nature and then now with jen ai sort of being very widespread, and I think, you know, I think everyone probably has a version of chat GPT or claud or something like that. On their phones, and so it's very accessible. And so I think having that discussion on you know, some some banks may be leaning in more historically to using AI models in more kind of high stakes scenarios like lending, and then others aren't. So I think having a committee to discuss those and sort of learn from the collective group is very valuable. And so then if you know, if your institution is like, Okay, we're kind of ramping up in this area, then what does that mean from a fair lending perspective, what sort of reviews might be conducted, and I think that's also a pretty big sliding scale.

10:39 I think you know, we've. We've heard some from regulatory feedback or some it's a limited public documents from prudentials and CFPB on the topic. But there's still a lot of different, I think, ways in which you could implement fair lending controls and risk management. So having again have that dialogue and committee to talk about those things is helpful. And then also to add to it, the CBA is great and other industry trades as well where they advocate for the banks on Capitol Hill to say the banks want more direction, they want to have that guidance of what your expectations are so they can implement it within their institutions.

11:21 Yeah, and I think that's definitely something you know, and you think you both are aware that you know, we work with more than one hundred banking institutions, whether it's a bank or a credit union or more of a banking as a service type bank provider, and so we see and help support them through many exams with all of their prudential regulators. And I think that that inconsistency with what the different field examiners may know and what they're comfortable with and you know they are really trying to learn and you know, we've done a lot of work, you know, going into the different agencies and kind of trying to open up our doors as much as possible, to be very transparent and to help educate and to drive forward the understanding of AI. And we spend a lot of time I think, as you've been thinking about fair lending and have a deep team that's that's working on fairness across you know, I think with the you know, one of the themes that I've heard this week is with a lot of the kind of political uncertainty and the regulatory swirl, experienced examiners potentially leaving and the risk that that can can bring. You know, can you talk to me about maybe what what you're thinking, particularly in an area like fair and responsible banking, where I think the subject matter expertise has to be very deep to be very effective at it and not just and really sort out the signal from the noise of data. What what do you see that having an impact on the examinations If there's a kind of mass departures from the agencies.

12:52 Yeah, I even think just. Even mass departure aside sort of filtering in and out of examiners, patients, things like that, sometimes you may lose institutional knowledge, you know, regardless of kind of fair lending expertise. And then I think too, you think about like the scope of fair learning exam, so it's not just an underwriting mortgage underwriting fair learning exam every single time across the country. It's it could be many different focal points. So even even sort of like current state, there's a bit of a sometimes a learning curve. And but yeah, I do think that's important. I think relationships with examiners, I of course, being being one in.

13:32 The past, I have a soft spot there. And and it really is a situation where when everyone's working together, no one likes surprises. It's really going to yield the best result. And and so I think I think telling, you know, sort of being a being proactive with with regulators, telling your story about your program, telling about what you've already thought about and how you're controlling for things connectually be a way to sort of go, hey, if I've got my program really well laid out, that's going to be easy for someone who's maybe you know, new or green, to say, okay, now I kind of understand how to take the regulation and how it's actually being done, and I can kind of use that as a springboard.

14:19 I agree. I think the relationship part is so important with our regulators, and part of that is going to be having to reteach them what your organization does, why you do things a certain way, and also a little bit of that history so that they understand. But I think it will be it will be hard. We also to remember it's a lot on the examiner to walk into institutions and have to relearn completely different focuses, sizes, and complexity, So we have to also remember that it's going to take a little bit of time for our regulators to get caught up. It does concern me a little bit though, with the large influx of those that are leaving at this time. As you say, fair lenning is very complex, and so even internally in institutions, a lot of times I'll have, if I have an open position, someone who's very new to compliance wants to start unfair lending.

15:08 And I always think this is kind of where you end or where you're in your mid at least your midpoint of your journey for your career, because it is very complex and you need to understand a lot of other regulations in order to be able to apply fair lending accurately. Sure, And I remember actually last year, I think we talked about a little bit the challenges of hiring and bringing in new employees into the fair lending space. This could be an opportunity to hire some ex examiners, and so there may be some senior people that landed at many of the banks I think particularly we've seen, you know, we work with a lot of more kind of regional and community banks as well and smaller credit unions, and I think that may be a good hiring opportunity for them to snatch up some of those ex examiners.

15:53 Yeah, absolutely, thinking that, I think that's sort of the flip side and a positive because yeah, there's a lot of really good talent across agencies and and you know, and even just folks kind of looking for a different opportunity to be like, hey, I've been kind of in examination supervision for twenty years and kind of what's next. Okay, well get on the bank side, you know. And Nick is a great example of how we can transition into working in a bank and having a really great career. Absolutely and there's so many as you mentioned, like consulting agencies. There's a ton of firms that are out there as consultants, particularly in the fairness space, to bring that expertise into organizations that maybe can't build and hire a full team internally.

16:39 And we certainly see more of those and are engaging with them too. In our work. All Right, So, I know you've both talked a lot about the benefits of the CBA and the benefits have done just relationships across the industry too. But you know, what would you if you had to say what's the biggest challenge in the past year and how being a member of CBI and on the committee at the CBI has helped navigate that? Like where do you know? What would you say is the biggest benefit that you've seen in helping over the past year. I'm going to go with my two regulations, and I'll say CIRA and ten seventy one. Even though CIRI is outside of our scope, it's still very close with what we do in fair and Responsible banking. That regulation in ten seventy one we have final rules and then organizations are starting to implement those rig change management and then it's on pause because of lawsuits or other changes right now with the administration, when do we start, when do we stop? And working with CBA, they've really been able to bring us together. There are forums for ten seventy one where anyone can pop in each week ask questions about I'm trying to implement this field. It does not make sense. How do I train my commercial lenders on what this field means, when to collect data, when not to collect data. So it's really been great because they keep us all aligned better and give us that forum to really work together and find out what concerns our other banks having so we can try to prevent it within our own institution.

18:08 Yeah, that's a great one ten seventy one. And not only just like implementation, but just the dates, like so what is the compliance state? So that's moved many times and with court cases and whatnot. So that's again a strength of the CBA in keeping really. Finger on the pulse of all of those court cases and kind of current current statuses. And so I think there's a number of rules too that go beyond fair and multiple banking, but the same kind of thing of like okay, well this rule survive or will it permutate in something else, And so that's that's really good and really good source of information. I think every bank probably talks about that in their own institutions as well, but to have you know, more perspectives on that. And then I think most recently with a bunch of executive orders, and I think the question is like, okay, even though maybe most of these do not apply to banking directly, what's the indirect impact? And I think there's the reputation risk that comes into play of like okay, well, what are people doing? How are we interpreting this as an industry?

19:14 So that's you know, very front and center these days. It's a great example. I think of DEI as one of it. It works, it aligns very closely to what we do in very responsible banking, who we protect, which customers as prohibited basis groups, and so it does have also that reputational risk. How are organizations going to adjust based on what we're seeing from executive orders? That's interesting, So that's maybe a good one to kind of end on. Then, like you know, any I guess bold predictions of what may change in your space throughout twenty twenty five. I think there's going to be a change with ten seventy one. I could see some of the I guess so called.

19:56 Non mandatory fields maybe getting pulled back, some of the requirements within for monitoring of kind of no responses for collecting information for demographics or I don't want to provide that, so that that's kind of a new thing. And then I think too, I think, you know, date's already been pushed back. I think there's I don't even know what the official they would be, so I think it's always been odd with ten seventy one, like a mid year implementation. I'm not a fan of that personally, but so I could see that, you know, kind of getting delayed and being changed a bit, some of it rolled back, so that that will cause you know.

20:39 A lot of I don't know, I don't know the right word is, but in some. Maybe expense and resourcing that may not actually be implemented. Then yeah, I think banks will have a choice of like, hey, we've already coded all this stuff, so then like well, if it's if it's optional and we can still do it, fine, maybe that's that Maybe that's cheaper and better to kind of have those but maybe not report them. Or if it's even permissible, right, because so for a test everyone maybe the fields it would be legal to collect them now, so there's a lot of complexity there. So maybe that's not really a bold prediction. I think it's maybe somewhat logical, but I think in this environment, I think logic might be out the window, you know, So, so i'd say sort of be prepared to be surprised.

21:26 I love the movie Dan in real life, so that's one of my favorite quotes. I agree. I think we as compliance officers are used to a lot of change, and so we're just going to have to be prepared for even more change over the next couple of years. But again we're here to serve our customers to do the right thing by them, and also serve our institutions, so with it, we will make sure that we do work with the ebbs and flows and make sure everything goes well. I think the biggest predictions I have is again going to Siri, because it works so closely with us, I think is going to be vastly different once it goes through the lawsuit and it's looked at again. And I believe you DApp will probably have I don't know if it'll be better to find, but I think it's going to be slightly less regulated over the next couple years, and I expect to see through our midterm election that it could change then instead of waiting until the next four years for a new administration. So we'll see what happens with you, DAP, CIRA, and I think we're going to have a slightly different, much smaller CFPB. I keep saying it's going to have a facelift. It's going to be here somehow, but it's going to look slightly different.

22:40 Great, well, thank you. Definitely appreciate Lindsay Nick both of you rejoining us on the podcast. Thank you for having us