Last week the Office of the Comptroller of the Currency published a “Retail Lending” booklet, a new addition to the Safety and Soundness Asset Quality category of the Comptroller’s Handbook, which discusses the risks associated with retail lending and provides a framework for OCC examiners to evaluate retail credit risk management activities. Retail lending product types include consumer loans, credit cards, auto loans, student loans, and loans to individuals secured by their personal residences.

The “Retail Lending” booklet describes:

  • the elements of a sound retail lending risk management framework;
  • the criteria examiners should consider when evaluating retail credit originations, account management, collections, and portfolio management activities and processes; and
  • the objectives of control functions commonly used in a retail lending business to measure performance, make decisions about risk, and assess the effectiveness of processes and personnel.

Note that for OCC supervision purposes for both banks supervised by the CFPB and banks with less than $10B in assets, compliance risk from violations of federal consumer protection laws presents a safety and soundness risk to earnings or capital. The OCC notes that “[b]ecause of the number of consumer protection laws and regulations, banks engaged in retail lending are highly vulnerable to compliance risk.”

Banks supervised by the OCC should review and consider this booklet, particularly the examination procedures and Internal Control Questionnaire, to help evaluate the bank’s retail lending controls in advance of an OCC examiner’s use of these materials to evaluate your institution.