Academic journal article ABA Banking Journal

Fair Lending, Fair Rules

Academic journal article ABA Banking Journal

Fair Lending, Fair Rules

Article excerpt

This past summer Eugene Ludwig, Comptroller of the Currency, admitted that even he might not know precisely what equal opportunity in lending means. In remarks at a Federal Financial Institutions Examination Council Fair Lending Seminar in Washington, D.C., he said:

"We have begun a national debate over the meaning of equal opportunity in lending. Those who say they know what it means--be they lenders or borrowers, be they civil rights advocates, industry consultants, or members of the regulatory community--are simply wrong. Nobody has all the answers. The law is sketchy. The policy is evolving."

The law may be sketchy and the policy evolving, but that hasn't slowed the resolve of the U.S. Justice Department in vigorously pursuing enforcement of what it believes constitutes fair lending. In August the agency announced an eye-opening settlement with the $5 billion-assets Chevy Chase Federal Savings Bank, the biggest thrift institution in the Washington, D.C. area.

The case got lots of news coverage and caught the attention of a great many lenders. As an editorial in the New York Times concluded, the agreement "sends a clear message to banks across the nation that racial bias, whether artful or naive, is intolerable and that the Justice Department will crack down hard."

Rather than litigate against Uncle Sam's 800 pound (make that ton) gorilla-lawyer, Chevy Chase agreed to a settlement. The thrift would open a new branch and several mortgage offices in Washington's low-income neighborhoods, hire more African Americans as mortgage lenders, make discounted loans to people in formerly neglected areas and expand its marketing in these areas. Chevy Chase denied the allegations of the Justice Department, saying it agreed to the settlement only to save expensive court costs. The price tag for the settlement has been estimated at $11 million.

What got the attention of lenders was that the Chevy Chase case covered new ground. For the first time, a lender was accused not of denying loans to minorities but of failing to market its services in minority neighborhoods.

Did Justice go too far in the Chevy Chase decision? Some, like Cornell law professor Jonathan Macey, say yes. Writing in the Wall Street Journal, he said: "This remedy goes far beyond any existing legal requirement, or any remedy ever implemented in the past."

Where does this leave bankers? …

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