Magazine article American Banker

Industry Sees Dangerous Extension of Basis for Discrimination Complaints

Magazine article American Banker

Industry Sees Dangerous Extension of Basis for Discrimination Complaints

Article excerpt

WASHINGTON -- The banking industry reacted with anger and resignation to Monday's announcement by the Justice Department that it had reached a fair-lending settlement with Chevy Chase Federal Savings' Bank.

The government charged the suburban Maryland bank with violating fair-lending laws by not operating enough branches in minority metropolitan Washington, areas. This is the first time Justice has brought a fair-lending suit that was not based on whether an institution unfairly rejected minority loan applicants. "Justice is still seeking people to hang and to make an example of to spread fear throughout the banking industry," said one particularly irate banking-industry observer who requested anonymity.

Michael F. Crotty, the deputy general counsel for the American Bankers Association, said the government has required other banks-to open additional branches as part of previous settlements. But, the government has never based a claim on branch locations before, he said. The decision represents a challenge to the industry, Mr. Crotty said, adding that next the government might tell banks where they must loan money.

"They certainly appear. to be heading in the direction of credit allocation, which appears to be an anathema to our industry," Mr. Crotty said.

Paul Hancock, who heads the housing and civil enforcement section of JuStice's civil rights division, said bankers should not be surprised by the department's actions. He said he's been outlining for months in speeches to bankers the theory that branch locations could violate fair-lending laws.

An even greater concern, Mr. Crotty said, was how banks should react to the decision. "Fair lending is something to worry about," Mr. Crotty said. "What you do about it is anybody's guess,"

Mr. Crotty and ,others said they are unsatisfied with the development of the fair-lending law, which to date is not yet based on any court decisions because all of the targeted banks have settled. …

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