The U.S. Census Bureau reports that more than 60 million Americans over age five – about 20% of the U.S. population – speak a language other than English at home. The bureau also reports that the most spoken non-English language in the country is Spanish, representing the largest share (just over 61%). Cantonese and Mandarin followed second, at just over 5%, but represent the fastest-growing language worldwide.
What’s more, Hispanics – already a prominent force in the U.S. housing market – are quickly becoming the nation’s dominant group of home buyers. In fact, a study by the Urban Institute forecasts that Latinos will represent 70% of new U.S. homeowners by 2040.
As the pool of home buyers becomes increasingly diverse, financial institutions are challenged with how they communicate. To help eliminate uncertainty and help institutions better manage risk, the Consumer Financial Protection Bureau (CFPB) released principles and guidelines to help comply with Dodd-Frank Unfair, Deceptive, and Abusive Acts and Practices (UDAAP) provisions, the Equal Opportunity Act (ECOA), and other laws when providing products and services to Limited English Proficiency (LEP) consumers.
While there has not been any new clarifying guidance or regulations, the CFPB’s principles and guidelines do offer valuable insights that can help institutions reduce compliance risk when serving and lending to LEP populations.
Among the guiding principles, there are three key areas financial institutions should prioritize.
Disclose That Language Services Are Available
First, financial institutions should provide LEP consumers clear and timely disclosures in their language communicating the degree of language support available and the channels available for communicating and asking questions.
Create a Special Purpose Credit Program (SPCP)
An SPCP is meant to benefit a class of people who would otherwise be denied credit or would receive it on less favorable terms. While it is not necessary to have an SPCP to serve LEP consumers, an SPCP would make it possible to consider a prohibited basis such as race or national origin to serve underserved communities. Regulation B, which implements the ECOA, sets forth compliance standards and general rules for SPCPs.
An SPCP must have a written plan detailing the class of persons the program is meant to benefit, procedures and standards, a specific timeframe for operating, an analysis justifying the need for the program, and a set time for re-evaluating the need for the program.
Have Appropriate Compliance Management Systems in Place
Another key element is a compliance management system (CMS). A CMS is important for every financial institution, but there are two ways to address compliance management when serving LEP consumers. The CFPB advises to develop an LEP-specific compliance management system (CMS) and to include LEP in the institution’s Fair Lending, UDAAP and/or consumer compliance CMS.
What Should be Included in a CMS for LEP Consumers?
Like all CMSs, an LEP-related CMS should be commensurate with the institution’s size, complexity and risk profile. It should include a compliance program, third-party oversight and Fair Lending compliance that reviews policies and procedures for features that may pose an increased Fair Lending risk. But what should be addressed?
The CFPB strongly encourages documenting the reasons behind language, product and service offerings. This includes everything from systems and infrastructure to cost estimates.
It’s also smart to document plans to expand or discontinue offerings and include information demonstrating consumer use (or lack of use).
Conducting a market study focused on competitors is a great way to understand what is being offered in your area—everything from products and services to hours of operation and even fees associated with offerings.
Services and changes should be monitored for Fair Lending and UDAAP risk. For example, an institution might benefit from assessing whether staff working with this market segment and staff in similar roles outside this market receive the same type and frequency of training, provide the same information and have the same level of authority.
Advertising, including promotional materials and scripts, as well as new or updated products should be reviewed for Fair Lending and UDAAP risk. Marketing materials and disclosures should be easy for LEP consumers to understand.
Fair Lending Testing
There should also be a regular statistical analysis of loan-level data for potential disparities on a prohibited basis in underwriting, pricing or other aspects of the credit transaction. Financial institutions should consider reviewing the data by market (branch) and loan officer. This will allow for better insights to manage any potential disparities, really allowing for program insight.
Third-Party Vendor Oversight
If an institution contracts for any element of its LEP program, the institution needs adequate vendor management and monitoring. This will ensure the vendor is not creating Fair Lending or UDAAP risk that the institution will be responsible for. This is especially true when it comes to underwriting and pricing decisions.
Mitigating Compliance Risk When Providing Non-English Service
When serving customers in languages other than English, financial institutions should consider additional measures to help mitigate ECOA, UDAAP, and other compliance risks.
Is this a national bank looking to serve Spanish speakers or a local institution that wants to serve a specific minority community? The reason should be documented using valid informational sources.
Product and Service Selection
Which programs are most used by LEP customers? Are these generally available to non-English speakers? How do you communicate with this audience? Are there features of a product or service (including policies, procedures and practices) that might pose a high-risk for unlawful discrimination, such as geography as a proxy for a prohibited base? Answers to these questions should be addressed and documented.
Language Preference and Collection Tracking
Financial institutions can ask consumers about their language preference and track this data, but it cannot be used to exclude consumers from offers sent to similarly situated consumers with different language preferences.
Furthermore, financial institutions must follow state and federal laws for translating documents. If translation is not required, a financial institution should have a policy for determining whether (and to what extent) it will translate documents, and who will do it.
Additionally, translated documents must be accurate. The CFPB recommends prioritizing documents that will most impact consumers. For support, the CFPB and other government agencies have libraries of translated documents and glossaries that may be helpful.
In an increasingly diverse market, financial institutions must be prepared to offer products and services in languages other than English, but it is just as imperative to ensure Fair Lending compliance risk is appropriately addressed. Otherwise, efforts to gain greater market share could be thwarted.
Kimberly Boatwright is VP, solutions architect for Ncontracts, a provider of integrated risk management solutions for the financial services industry.