THE ATTORNEY GENERAL'S
2003 ANNUAL REPORT TO CONGRESS
PURSUANT TO THE
EQUAL CREDIT OPPORTUNITY ACT
AMENDMENTS OF 1976
R. ALEXANDER ACOSTA
ASSISTANT ATTORNEY GENERAL
This report is submitted pursuant to Section 1691f of the Equal Credit Opportunity Act, as amended, regarding the activities of the Department of Justice under the statute. This report covers the 2003 calendar year.
In 1996, upon the recommendation of the General Accounting Office, the Department of Justice provided guidance to the bank regulatory agencies on the characteristics of a referable pattern or practice of discrimination. In this guidance memorandum, we described the distinction between referrals that we would return to the agency for administrative resolution and those we would pursue upon referral. Referrals that would likely be returned have the followings characteristics: (1) the practice has ceased and there is little chance that it will be repeated; and (2) the violation may have been accidental or arose from ignorance of the law's more technical requirements, such as spousal signature violations and minor price breaks for certain age groups not entitled to preferential treatment. The overwhelming majority of referrals received this year fall into this category.
There were a total of 29 fair lending referrals from the federal regulatory agencies during the year 2003. Twenty-nine referrals were received from the Federal Deposit Insurance Corporation (FDIC), of which 27 were returned for administrative resolution. No referrals were received during 2003 from: the Department of Housing and Urban Development (HUD); the Federal Reserve Board (FRB); the Office of the Comptroller of the Currency (OCC); and the Office of Thrift Supervision (OTS). As of January 2004, 27 of these referrals had been returned to the agencies for administrative resolution. We continued to investigate the allegations in 2 FDIC referrals. These referrals are described (by agency) below:
Federal Deposit Insurance Corporation
The FDIC made 29 referrals in 2003. As described below, 27 of these referrals were returned for administrative resolution. One referral involved allegations of discrimination on the basis of age, marital status, public assistance income, familial status and handicap. Seven of the referrals involved allegations of age discrimination where a lender provided preferential treatment to persons in age groups not entitled to preferential treatment. Nineteen of the FDIC's referrals involved allegations of marital status discrimination, where the lender either failed to consider the joint qualifications of unmarried applicants applying jointly, while doing so for married applicants applying jointly, or it improperly required spousal signatures to guarantee the loan when the individual spouse would have independently qualified for the loan. The latter requirement violates the ECOA's prohibition against marital status discrimination where the individual applicant qualifies for a loan under the creditor's standards of creditworthiness. In each case, the bank revised its lending policy and has expressed willingness to take appropriate corrective action for any persons who were aggrieved by the discriminatory policy. Each of these 27 referrals were easily corrected by agency action so we returned them for administrative resolution.
At the end of calendar year 2003, we continued to review the remaining two referrals. One involves allegations that a lender discriminated against American Indians by charging American Indian borrowers higher interest rates than non-American Indian borrowers for consumer loans. (1) The second matter involves allegations that a lender discriminated against American Indian customers by requiring employees of an American Indian tribe to participate in a payroll deduction program in order to receive unsecured consumer loans, and charging American Indian customers higher interest rates than to white borrowers.
The Department of Housing and Urban Development
HUD made no referrals during the year. (2)
Federal Reserve Board
The FRB made no referrals during the year.
Office of the Comptroller of the Currency
The OCC made no referrals during the year.
Office of Thrift Supervision
The OTS made no referrals during the year.
1. In 2003, we initiated pre-suit negotiations in a case alleging that a lender has engaged in a pattern or practice of discrimination, over a period of years, against predominantly minority neighborhoods in a major metropolitan area because of the race, color, or national origin of the majority of the residents of those neighborhoods, a practice commonly known as redlining. The alleged discrimination includes the Bank's conduct of its residential, consumer, and small business lending operations.
2. In 2003, we continued pre-suit negotiations in the Department's first fair lending case to allege discrimination in business lending as well as home refinance and improvement lending. It involves allegations that a major lender has engaged in a pattern or practice of denying equal credit opportunity to persons and businesses in predominantly African-American geographic areas in another major metropolitan area, primarily by avoiding and refusing to do business in minority neighborhoods, while continually expanding its banking business in surrounding white areas. (3)
During 2003, the Department concentrated much of its resources on redlining investigations and cases. Redlining, credit discrimination based on the characteristics of the neighborhood surrounding the would-be borrower's dwelling or business, denies residents of minority communities equal access to residential, consumer, and small business credit. Redlining and reverse redlining - the extension of credit on unfair terms to particular geographic areas because of the race or national origin of their residents - are opposite sides of the same coin. The absence of mainstream banking institutions and their services in minority neighborhoods helps create market conditions in which reverse redlining thrives. Lawsuits challenging redlining practices of prime lenders are thus critical to the effort to end predatory lending.
In addition to redlining investigations, we continue to pursue investigations in several other lending areas. We initiated a joint investigation with a United States Attorney's Office into automobile financing practices to determine if the lender discriminates by denying credit to minority loan applicants that would otherwise be extended to non-minority applicants, and by extending credit to minority customers on less favorable terms and conditions than similarly situated white customers. We are continuing our joint investigation with a State Attorney General's Office into automobile financing practices to determine whether certain dealerships discriminate in imposing higher finance charges for minority borrowers. We also continue to investigate a 2001 referral in which FDIC concluded that a bank was charging Hispanic borrowers higher interest rates than it charged non-Hispanic borrowers for consumer loans secured by vehicles.
IV. OTHER ACTIVITIES
We continue to participate in an interagency task force convened by the Federal Reserve Board, with HUD, the OCC, the OTS, the Federal Trade Commission (FTC), and the National Credit Union Association (NCUA) to discuss fair lending issues and the activities of the various agencies. In October 2003, the task force published a new brochure for consumers, Putting Your Home on the Loan Line is Risky Business. The brochure alerts consumers to potential borrowing pitfalls, including high-cost home loans, and provides tips for getting the best financing deal possible. (4)
During the year, Division representatives participated in a variety of conferences and meetings involving lenders, enforcement agencies, advocacy and consumer groups, and others interesting in fair lending throughout the country, in order to disseminate information on our enforcement policies and activities.
1. After reviewing the evidence of the alleged violation and the Bank's altered lending policies and practices, the matter was returned to the agency for administrative resolution in the spring of 2004.
2. A referral that was received from HUD in late 2002 was reviewed and returned during 2003. That referral involved allegations of discrimination against Hispanics in manufactured home financing. After additional investigation, we found that the company that had allegedly engaged in the discrimination had gone into bankruptcy, was no longer conducting business and had no remaining assets. Under those circumstances, there was insufficient evidence to warrant an enforcement action. We then returned the referral to HUD.
3. This matter is United States v. Old Kent Financial Corp and Old Kent Bank through their Successors in Interest (E.D. Mich.). On May 19, 2004, we filed a Complaint and a Settlement Agreement resolving those claims in the United States District Court for the Eastern District of Michigan.
4. A Spanish-language version was published in Spring 2004.