Academic journal article ABA Banking Journal

Fair-Lending Pressure Builds

Academic journal article ABA Banking Journal

Fair-Lending Pressure Builds

Article excerpt

Any bankers hoping for the fair-lending controversy to simmer down so they can turn their attention to other things are in for a disappointment. Here's a rundown of recent developments:

* It is possible that before bankers even read this article, the Department of Justice will have settled or will have started litigating with Barnett Banks Inc. for alleged lending discrimination, adding the latest link in a chain of cases well-known to readers of this magazine. If litigation goes forward, this will be the first government fair-lending case that a bank will fight.

This case continues to proceed in spite of the Federal Reserve's decision earlier this year to approve a Barnett merger application over Justice's objections. (In a procedural nicety, the Comptroller's Office approved its portion of the application package, separating its deliberations from Justice's longer-term case by stating it found no evidence of discrimination during the one-year period selected for review.)

* The Savings and Community Bankers of America has formed a war-chest for fair-lending litigation. Meanwhile, ABA has engaged a leading law firm to look into fair-lending issues.

* Federal agencies continue to disagree on details of fairlending enforcement. An addendum to an early 1994 interagency policy on discrimination remains mired in disagreements and is running behind schedule.

* The Federal Reserve Board's final report on 1993 Home Mortgage Disclosure Act numbers found that disparities remain among denial rates for most minorities versus whites, although the disparities were tempered somewhat by year-to-year increases in loans granted to minorities.

This report recounts discussions at recent meetings.

"Best practices" stressed

Last January, on Martin Luther King Day, President Clinton signed an executive order creating a presidential Fair Housing CounCil under the direction of Housing and Urban Development Secretary Henry Cisneros. In response, Cisneros made a commitment to obtain voluntary agreements from 75 private lenders to better comply with federal fair-lending laws.

An early effort to strike such agreements with Washington, D.C., area lenders--many of whom had been tarred by a Washington Post series on alleged racial discrimination in lending-- fell apart. Bank lenders involved in the negotiations complained that HUD representatives were trying to ram the "voluntary" agreements down their throats. Since then, HUD has been trying to convince national lending organizations to strike such agreements with the department on behalf of their members.

ABA has resisted this effort in the belief that banks don't fall under HUD authority and already face a slew of such responsibilities under banking laws, including the Community Reinvestment Act. Yet HUD insists that its program is not duplicative of bank regulators' efforts, and Assistant Secretary for Fair Housing and Equal Opportunity Roberta Achtenberg has stated that she expects that eventually depository institutions will join the best-practices program.

A group of lenders not subject to CRA--and more directly under HUD's purview--are the nation's mortgage banks. In mid-September, the Mortgage Bankers Association of America-whose membership includes many bank-owned mortgage companies, signed a three-year master best-practices agreement with HUD. The agreement consisted of two parts: MBA's agreement to work on fair-lending issues in consultation with HUD and a model best-practices agreement that individual mortgage banks could use to devise their own agreements with HUD. …

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