Fair-Lending Compliance: Banks Hit Rule as Flawed for Protecting Data

By Seiberg, Jaret | American Banker, January 2, 1998 | Go to article overview

Fair-Lending Compliance: Banks Hit Rule as Flawed for Protecting Data


Seiberg, Jaret, American Banker


A rule that takes effect Jan. 31 will not protect the information a bank produces when it polices its fair-lending compliance, according to industry lawyers.

"This is a horrible rule," said Andrew L. Sandler, a partner in the Washington law firm of Skadden, Arps, Slate, Meagher & Flom. "It is hard to imagine a more disappointing result for lenders seeking to use self-testing to ensure compliance with fair-lending laws."

"This provides no protection," said James D. McLaughlin, director of regulatory and trust affairs at the American Bankers Association. "Bankers are not going to take advantage of it."

Adopted Dec. 18 by the Federal Reserve Board and the Department of Housing and Urban Development, the rule is supposed to shelter these test results from subpoenas.

But lawyers complained that the new rule only applies if the bank has taken "sufficient" steps to remedy problems uncovered in the review. The rule leaves it up to an administrative law judge to decide whether the bank's efforts had been "sufficient."

"This can be challenged," said Warren W. Traiger, a partner in the New York law firm of Butler, Fitzgerald & Potter. "The protection is not absolutely certain."

The rule also only protects quality control efforts such as "mystery shopping" and customer surveys. "This excludes from coverage most useful type of analyses, such as comparative file reviews and statistical pricing analysis," Mr. …

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