THE ATTORNEY GENERAL'S
2004 ANNUAL REPORT TO CONGRESS
PURSUANT TO THE
EQUAL CREDIT OPPORTUNITY ACT
AMENDMENTS OF 1976
R. ALEXANDER ACOSTA
ASSISTANT ATTORNEY GENERAL
MARCH 10, 2005
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 2004 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 47 fair lending referrals from the federal regulatory agencies during the year 2004. As of January 2005, 45 of these referrals had been returned to the agencies for administrative resolution. We continue to investigate the allegations in two referrals, one from the FDIC and one from HUD. The referrals are described (by agency) below:
Federal Deposit Insurance Corporation
The FDIC made 42 referrals in 2004. As described below, 41 of these referrals were returned for administrative resolution. Two referrals involved allegations of discrimination on the basis of public assistance income. Fifteen of the referrals involved allegations of age discrimination where a lender provided preferential treatment to persons in age groups not entitled to preferential treatment. Twenty-four 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 in the same manner as 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 41 referrals was returned to the agency for administrative resolution. (1)
At the end of the calendar year 2004, we continued to review the one remaining referral which involves allegations that the lender discriminated on the basis of age. (2)
Federal Reserve Board
The FRB made three referrals in 2004. The three referrals involved allegations of marital status discrimination, where the lender either failed to consider the joint qualifications of unmarried applicants applying jointly in the same manner as 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 three referrals were returned to the agency for administrative resolution.
Office of Thrift Supervision
The OTS made one referral in 2004. The referral involved allegations of marital status discrimination, where the lender improperly required spousal signatures to guarantee the loan when the individual spouse would have independently qualified for the loan. The referral was returned to the agency for resolution.
The Department of Housing and Urban Development
HUD made one referral in 2004. It involves allegations that the lender discriminated against African Americans by targeting them for "predatory loans" with high fees and interest rates. We continue to review the referral.
Office of the Comptroller of the Currency
The OCC made no referrals during the year.
1. On May 19, 2004, we filed a complaint and a settlement agreement in the Eastern District of Michigan against Old Kent Financial Corporation and Old Kent Bank, through their Successors in Interest, alleging that the Old Kent Financial Corporation and Old Kent Bank violated the Fair Housing Act and the Equal Credit Opportunity Act by unlawfully avoiding and refusing to provide its business and residential lending products and services to Detroit's predominantly African-American neighborhoods. This is the Department's first small business lending lawsuit. Specifically, the complaint alleges that Old Kent Bank never opened a branch in the City of Detroit until six months after the Division notified the Bank of its investigation, despite opening or acquiring 35 new branch offices in predominantly white suburbs between 1996 and 2000, and defined its Community Reinvestment Act service area to exclude most majority African-American areas in the Detroit area, as well as all of the City of Detroit. The complaint also alleges that Old Kent Bank told African-American businesses owners in the City of Detroit that it would not make business loans in that area and it denied applications for credit from African-American-owned businesses in the City of Detroit and in African-American areas in the Detroit metropolitan area without explanation. The complaint also alleges that of the 15,473 small business and residential loans Old Kent Bank made between 1996-2000, only 335, or 2.2%, were made in African-American census tracts in the Detroit area.
Under the terms of the agreement, which was entered as an order by the court, Fifth Third and Fifth Third Bank (Michigan), the successors to Old Kent, agreed to open three new full-service branch offices in the City of Detroit; relocate the offices of the Detroit Business Group Team to the City of Detroit by the end of 2004; invest $3 million over three years in a special financing program for businesses and residents of the City of Detroit, of which two-thirds will be directed to small business loans; and invest at least $200,000 for consumer education programs for small business planning and a home-buyer education program.
2. On July 19, 2004, we filed a complaint and consent order in the Northern District of Illinois against First American Bank of Carpentersville, Illinois, alleging that First American Bank violated the Fair Housing Act and the Equal Credit Opportunity Act by unlawfully avoiding and refusing to provide its business and residential lending products and services to majority minority areas of the Chicago and Kankakee metropolitan areas while making loans and services available in white areas. The matter was referred to us by the Federal Reserve Board in 2002. Specifically, the complaint alleges that none of First American's 34 branches was located in a majority minority area, and that First American defined its Community Reinvestment Act service area over time to exclude most majority-minority areas. The complaint also alleges that in 1999-2000, First American Bank made only 3.8% of its home equity loans, 2.4% of its auto loans and 4.7% of its small business loans in minority census tracts. The complaint further alleges that of the nearly $288 million in single family residential real-estate related loans funded by the Bank between 1999 and 2001, only 4.5% went to properties located in minority census tracts. The complaint also alleges that First American officials made statements to explain the Bank's business practices which were based on racial and ethnic stereotypes.
Under the terms of the consent order, First American Bank will open four new full-service branch offices, three located in majority African-American census tracts in the Chicago area and one in a majority Hispanic census tract; invest $5 million in a special financing program for residents and small businesses in the minority communities of the Chicago/Kankakee areas; invest at least $300,000 for consumer education programs; and spend at least $400,000 to advertise its products in media targeted to minority communities.
During 2004, the Department continued to concentrate much of its resources on redlining cases and investigations. In a redlining case, a lender chooses not to do business in a neighborhood because of the race, color, or national origin of the people who live in the neighborhood, thereby denying residents of minority communities equal access to residential, consumer, and small business credit. When communities are abandoned by prime lenders through redlining, they become targets for less scrupulous lenders who may target minority neighborhoods for abusive products or loans. Lawsuits challenging redlining practices thus are an effective means to combat predatory lending. During the year 2004, in addition to the Old Kent Bank and First American Bank lawsuits, we initiated a redlining investigation involving allegations that a lender discriminated on the basis of race and national origin by avoiding or refusing to do business in majority African American and/or Hispanic neighborhoods because of the race, color, or national origin of those neighborhoods.
We are continuing 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, or by extending credit to minority customers on less favorable terms and conditions than similarly situated white customers. We also 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.
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.
During the year, Division representatives participated in a variety of conferences and meetings involving lenders, enforcement agencies, advocacy and consumer groups, and others interested in fair lending throughout the country, in order to disseminate information on our enforcement policies and activities.
1. One of these 2004 referrals from the FDIC was received in December 2004 and returned in January 2005.
2. During 2004, we continued to review two referrals received from the FDIC during 2003. One referral involved allegations that a lender discriminated against American Indians by charging American Indians higher interest rates than non-American Indian borrowers for consumer loans. 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. The second referral involved allegations that a lender discriminated against American Indians 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 white customers. After reviewing the evidence, including additional information received in the fall of 2004 from a subsequent FDIC compliance examination, and the Bank's altered lending policies and practices, we returned the referral to the agency for administrative resolution in early 2005.
During 2004, we also returned to the FDIC for administrative resolution a referral from 2001, which involved allegations that a Bank was charging Hispanic borrowers higher interest rates than it charged non-Hispanic borrowers for consumer loans secured by vehicles. We returned the referral after reviewing the evidence, including additional information from a fall 2003 FDIC compliance examination, and the Bank's altered lending policies and practices.