Meeting the Challenge of Loan Bias Scrutiny

Stern, Warren R., Coates, John C., IV, Lang, Jeffrey I., American Banker

As has been widely reported, federal regulators are increasing their study of bank lending practices for possible racial discrimination.

Utilizing data released under the Home Disclosure Act, the regulators are targeting institutions for in-depth reviews of their compliance with the fair-lending and the Community Reinvestment Act.

A significant amount of attention was focused on bank lending practices last fall when the Federal Reserve released a length report on the 1990 filings under the disclosure act.

The report provided the first detailed information on relative rejection rates for mortgage applicants categorized by race and income.

Disclosure-act data show rejection rates substantially higher for black and Hispanic applicants than for white.

Prelude to Investigations

Regulators have acknowledged that this statistical information is not sufficient to demonstrate discriminatory lending practices. But they have indicated that they will use the information as a guide in conducting targeted investigations of lending practices.

Using computer-based systems, the regulators can target specific institutions or branches where lending patterns may suggest a discriminatory practice.

Examiners can then conduct an in-depth review of the individual application files underlying disclosure-act data.

The regulators have reportedly referred a small number of cases to the Justice Department for further investigation, and more referrals are possible.

A number of private lawsuits have also been filed against lending institutions charging racial discrimination and redlining. All such investigations and suits should be treated seriously, specially in the current political environment. …

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Publication information: Article title: Meeting the Challenge of Loan Bias Scrutiny. Contributors: Stern, Warren R. - Author, Coates, John C., IV - Author, Lang, Jeffrey I. - Author. Magazine title: American Banker. Volume: 157. Issue: 162 Publication date: August 21, 1992. Page number: 4+. © 2009 SourceMedia, Inc. COPYRIGHT 1992 Gale Group.

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