Items of special scrutiny examiners will give to credit unions engaged in RBL

Due to the complexity and specialization associated with risk-based lending, examiners must carefully evaluate this activity during regular examinations and, if necessary, during supervision contacts. In reviewing risk-based lending programs, examiners will:

• evaluate the extent of risk-based lending activities;
• determine whether management adequately planned for this activity;
• assess whether the credit union has the financial capacity to conduct risk based lending safely without undue concentration of credit and without overextending capital resources;
• ascertain if management has committed the necessary resources in terms of technology and skilled personnel to manage the program;
• evaluate whether management has established adequate lending standards and is maintaining proper controls over the program;
• determine whether the credit union’s contingency plan adequately addresses issues that could arise during a period of an economic downturn or when financial markets become volatile;
• analyze the program’s performance, including profitability, delinquency, and losses;
• consider management’s response to adverse performance trends, such as higher than expected prepayments, delinquencies, charge-offs, and expenses; and
• determine if the credit union’s compliance program effectively manages the fair lending and  consumer protection compliance risks.