At PCi's 2005 CRA Colloquium, there was much discussion on pricing in the context of fairness and predatory lending. The regulators' position was clear. Fair and consistent pricing is a question of sound and active management. A good management program should have controls for how pricing decisions are made. It should also be able to evaluate pricing decisions after the fact and measure them for fairness and consistency. In short, it isn't enough to set a policy for pricing. The pricing strategy must be accompanied by active management and management tools to ensure fairness.
One regulator noted that most predatory lending is the result of a poisonous combination of loan officer compensation by incentive and lack of management oversight. A good management program should control how pricing decisions are made and have the capacity to determine that pricing decisions are fair. The examiners will ask "how" and "why." You must be prepared with the answers to those questions - preferably before the examiners ask them.
Copyright © 2006 Compliance Action. Originally appeared in Compliance Action, Vol. 10, No. 16, 1/06
First published on 01/01/2006