Fair Lending: Data Limitations and the Fragmented U.S. Financial Regulatory Structure Challenge Federal Oversight and Enforcement Efforts
GAO-09-704
Published: Jul 15, 2009. Publicly Released: Jul 15, 2009.
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Highlights
The Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA)--the "fair lending laws"--prohibit discrimination in lending. Responsibility for their oversight is shared among three enforcement agencies--the Department of Housing and Urban Development (HUD), Federal Trade Commission (FTC), and Department of Justice (DOJ)--and five depository institution regulators--the Federal Deposit Insurance Corporation (FDIC), Board of Governors of the Federal Reserve System (Federal Reserve), National Credit Union Administration (NCUA), Office of the Comptroller of the Currency (OCC), and Office of Thrift Supervision (OTS). This report examines (1) data used by agencies and the public to detect potential violations and options to enhance the data, (2) federal oversight of lenders that are identified as at heightened risk of violating the fair lending laws, and (3) recent cases involving fair lending laws and associated enforcement challenges. GAO analyzed fair lending laws, relevant research, and interviewed agency officials, lenders, and consumer groups. GAO also reviewed 152 depository institution fair lending examination files. Depending upon file availability by regulator, GAO reviewed all relevant files or a random sample as appropriate.
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| To facilitate the capacity of federal enforcement agencies and depository institution regulators as well as independent researchers to identify lenders that may be engaged in discriminatory practices in violation of the fair lending laws, Congress may wish to consider the merits of additional data collection and reporting options. These varying options pertain to obtaining key underwriting data for mortgage loans, such as credit scores as well as LTV and DTI ratios, and personal characteristic (such as race, ethnicity and sex) and relevant underwriting data for nonmortgage loans. | Consistent with GAO's suggestions, Congress amended the Home Mortgage Disclosure Act (HMDA) in its Dodd-Frank Wall Street Reform and Consumer Protection Act, which became public law in July, 2010. Among other things the amendments require lenders to gather data on the credit score of mortgage loan applicants. As a result, the potential exists that the enforcement agencies and depository institution regulators will be better equipped to identify potential lending discrimination for mortgage lending. | |
| To help ensure that all potential risks for fair lending violations are thoroughly investigated and sufficient time is available to do so, Congress may wish to consider extending the statute of limitations on ECOA violations. | Consistent with GAO's recommendation, Congress extended the statute of limitations for Equal Credit Opportunity Act actions from two to five years pursuant to section 1085(7) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The act became public law in July 2010. | |
| As Congress debates the reform of the financial regulatory system, it may wish to take steps to help ensure that consumers are adequately protected, that laws such as the fair lending laws are comprehensive and consistently applied, and that oversight is efficient and effective. Any new structure should address gaps and inconsistencies in the oversight of independent mortgage brokers and nonbank subsidiaries, as well as address the potentially inconsistent oversight provided by depository institution regulators. | Consistent with GAO's suggestions, Congress included improvements in its supervision of holding company subsidiaries and examination and enforcement of mortgage brokers in its Dodd-Frank Wall Street Reform and Consumer Protection Act, which became public law in July 2010. Specifically, the Act requires the Federal Reserve to examine non-bank subsidiaries that are engaged in activities that the subsidiary bank can do (e.g. mortgage lending) on the same schedule and in the same manner as bank exams, and gives regulators the authority to examine and enforce regulators for all mortgage-related businesses, such as mortgage brokers and other non-bank financial companies. As a result, the potential exist that the enforcement agencies and banking regulators will be better equipped to comprehensively and consistently apply the fair lending laws. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Justice | To help strengthen fair lending oversight and enforcement, DOJ, FDIC, Federal Reserve, FTC, HUD, NCUA, OCC, and OTS should work collaboratively to identify approaches to better assess the potential risk for discrimination during the preapplication phase of mortgage lending. For example, the agencies and depository institution regulators could further consider the use of testers, perhaps on a pilot basis, as well as surveys of mortgage loan borrowers and applicants or alternative means to better assess the potential risk for discrimination during this critical phase of the mortgage lending process. |
In September 2009, the Joint Agency Task Force on Discrimination in Lending established a working group with representatives from each of the enforcement agencies and depository institution regulators to respond to our recommendation. The working group is to discuss the use of testers and surveys as a means to assess discrimination in the preapplication phase and share information on how each agency currently identifies potential preapplication discrimination. In addition, the working group has expanded its efforts to seek input from non-governmental agencies regarding additional information and suggestions on potential methods for identifying preapplication discrimination. As a result, the potential exist that the enforcement agencies and depository institution regulators will be better equipped to identify potential lending discrimination during the preapplication phase of mortgage lending.
|
| Office of the Comptroller of the Currency | To help strengthen fair lending oversight and enforcement, DOJ, FDIC, Federal Reserve, FTC, HUD, NCUA, OCC, and OTS should work collaboratively to identify approaches to better assess the potential risk for discrimination during the preapplication phase of mortgage lending. For example, the agencies and depository institution regulators could further consider the use of testers, perhaps on a pilot basis, as well as surveys of mortgage loan borrowers and applicants or alternative means to better assess the potential risk for discrimination during this critical phase of the mortgage lending process. |
In September 2009, the Joint Agency Task Force on Discrimination in Lending established a working group with representatives from each of the enforcement agencies and depository institution regulators to respond to our recommendation. The working group is to discuss the use of testers and surveys as a means to assess discrimination in the preapplication phase and share information on how each agency currently identifies potential preapplication discrimination. In addition, the working group has expanded its efforts to seek input from non-governmental agencies regarding additional information and suggestions on potential methods for identifying preapplication discrimination. As a result, the potential exist that the enforcement agencies and depository institution regulators will be better equipped to identify potential lending discrimination during the preapplication phase of mortgage lending.
|
| Federal Reserve System | To help strengthen fair lending oversight and enforcement, DOJ, FDIC, Federal Reserve, FTC, HUD, NCUA, OCC, and OTS should work collaboratively to identify approaches to better assess the potential risk for discrimination during the preapplication phase of mortgage lending. For example, the agencies and depository institution regulators could further consider the use of testers, perhaps on a pilot basis, as well as surveys of mortgage loan borrowers and applicants or alternative means to better assess the potential risk for discrimination during this critical phase of the mortgage lending process. |
In September 2009, the Joint Agency Task Force on Discrimination in Lending established a working group with representatives from each of the enforcement agencies and depository institution regulators to respond to our recommendation. The working group is to discuss the use of testers and surveys as a means to assess discrimination in the preapplication phase and share information on how each agency currently identifies potential preapplication discrimination. In addition, the working group has expanded its efforts to seek input from non-governmental agencies regarding additional information and suggestions on potential methods for identifying preapplication discrimination. As a result, the potential exist that the enforcement agencies and depository institution regulators will be better equipped to identify potential lending discrimination during the preapplication phase of mortgage lending.
|
| Federal Deposit Insurance Corporation | To help strengthen fair lending oversight and enforcement, DOJ, FDIC, Federal Reserve, FTC, HUD, NCUA, OCC, and OTS should work collaboratively to identify approaches to better assess the potential risk for discrimination during the preapplication phase of mortgage lending. For example, the agencies and depository institution regulators could further consider the use of testers, perhaps on a pilot basis, as well as surveys of mortgage loan borrowers and applicants or alternative means to better assess the potential risk for discrimination during this critical phase of the mortgage lending process. |
In September 2009, the Joint Agency Task Force on Discrimination in Lending established a working group with representatives from each of the enforcement agencies and depository institution regulators to respond to our recommendation. The working group is to discuss the use of testers and surveys as a means to assess discrimination in the preapplication phase and share information on how each agency currently identifies potential preapplication discrimination. In addition, the working group has expanded its efforts to seek input from non-governmental agencies regarding additional information and suggestions on potential methods for identifying preapplication discrimination. As a result, the potential exist that the enforcement agencies and depository institution regulators will be better equipped to identify potential lending discrimination during the preapplication phase of mortgage lending.
|
| Federal Trade Commission | To help strengthen fair lending oversight and enforcement, DOJ, FDIC, Federal Reserve, FTC, HUD, NCUA, OCC, and OTS should work collaboratively to identify approaches to better assess the potential risk for discrimination during the preapplication phase of mortgage lending. For example, the agencies and depository institution regulators could further consider the use of testers, perhaps on a pilot basis, as well as surveys of mortgage loan borrowers and applicants or alternative means to better assess the potential risk for discrimination during this critical phase of the mortgage lending process. |
In September 2009, the Joint Agency Task Force on Discrimination in Lending established a working group with representatives from each of the enforcement agencies and depository institution regulators to respond to our recommendation. The working group is to discuss the use of testers and surveys as a means to assess discrimination in the preapplication phase and share information on how each agency currently identifies potential preapplication discrimination. In addition, the working group has expanded its efforts to seek input from non-governmental agencies regarding additional information and suggestions on potential methods for identifying preapplication discrimination. As a result, the potential exist that the enforcement agencies and depository institution regulators will be better equipped to identify potential lending discrimination during the preapplication phase of mortgage lending.
|
| Department of Housing and Urban Development | To help strengthen fair lending oversight and enforcement, DOJ, FDIC, Federal Reserve, FTC, HUD, NCUA, OCC, and OTS should work collaboratively to identify approaches to better assess the potential risk for discrimination during the preapplication phase of mortgage lending. For example, the agencies and depository institution regulators could further consider the use of testers, perhaps on a pilot basis, as well as surveys of mortgage loan borrowers and applicants or alternative means to better assess the potential risk for discrimination during this critical phase of the mortgage lending process. |
In September 2009, the Joint Agency Task Force on Discrimination in Lending established a working group with representatives from each of the enforcement agencies and depository institution regulators to respond to our recommendation. The working group is to discuss the use of testers and surveys as a means to assess discrimination in the preapplication phase and share information on how each agency currently identifies potential reapplication discrimination. In addition, the working group has expanded its efforts to seek input from non-governmental agencies regarding additional information and suggestions on potential methods for identifying preapplication discrimination. As a result, the potential exist that the enforcement agencies and depository institution regulators will be better equipped to identify potential lending discrimination during the preapplication phase of mortgage lending.
|
| National Credit Union Administration | To help strengthen fair lending oversight and enforcement, DOJ, FDIC, Federal Reserve, FTC, HUD, NCUA, OCC, and OTS should work collaboratively to identify approaches to better assess the potential risk for discrimination during the preapplication phase of mortgage lending. For example, the agencies and depository institution regulators could further consider the use of testers, perhaps on a pilot basis, as well as surveys of mortgage loan borrowers and applicants or alternative means to better assess the potential risk for discrimination during this critical phase of the mortgage lending process. |
In September 2009, the Joint Agency Task Force on Discrimination in Lending established a working group with representatives from each of the enforcement agencies and depository institution regulators to respond to our recommendation. The working group is to discuss the use of testers and surveys as a means to assess discrimination in the preapplication phase and share information on how each agency currently identifies potential preapplication discrimination. In addition, the working group has expanded its efforts to seek input from non-governmental agencies regarding additional information and suggestions on potential methods for identifying preapplication discrimination. As a result, the potential exist that the enforcement agencies and depository institution regulators will be better equipped to identify potential lending discrimination during the preapplication phase of mortgage lending.
|
| Office of Thrift Supervision | To help strengthen fair lending oversight and enforcement, DOJ, FDIC, Federal Reserve, FTC, HUD, NCUA, OCC, and OTS should work collaboratively to identify approaches to better assess the potential risk for discrimination during the preapplication phase of mortgage lending. For example, the agencies and depository institution regulators could further consider the use of testers, perhaps on a pilot basis, as well as surveys of mortgage loan borrowers and applicants or alternative means to better assess the potential risk for discrimination during this critical phase of the mortgage lending process. |
In September 2009, the Joint Agency Task Force on Discrimination in Lending established a working group with representatives from each of the enforcement agencies and depository institution regulators to respond to our recommendation. The working group is to discuss the use of testers and surveys as a means to assess discrimination in the preapplication phase and share information on how each agency currently identifies potential preapplication discrimination. In addition, the working group has expanded its efforts to seek input from non-governmental agencies regarding additional information and suggestions on potential methods for identifying preapplication discrimination. As a result, the potential exist that the enforcement agencies and depository institution regulators will be better equipped to identify potential lending discrimination during the preapplication phase of mortgage lending.
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