1999 Annual Report to Congress Pursuant to the ECOA

THE ATTORNEY GENERAL'S 1999 ANNUAL REPORT TO CONGRESS
PURSUANT TO THE
EQUAL CREDIT OPPORTUNITY ACT
AMENDMENTS OF 1976
SUBMITTED MARCH 2000
BY BILL LANN LEE
ACTING ASSISTANT ATTORNEY GENERAL
CIVIL RIGHTS DIVISION

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 1999 calendar year.

There were a total of seven referrals from the federal regulatory agencies during the year. Four of the remaining five referrals have been returned to the agencies for administrative resolution. These referrals are described (by agency) below:

Federal Deposit Insurance Corporation

We received one referral from the FDIC during 1999. This matter involved remarks made to an older borrower indicating reluctance to lend to older borrowers. Since the incident had occurred more than three years prior to the referral and did not appear to be part of lender policy, we returned the matter to the FDIC.

Federal Reserve Board

The FRB made two referrals during the year. One concerned four sets of unmarried co-applicants who were treated less favorably than married co-applicants and was handled administratively. The other involved bank participation in discriminatory overages charged to female and minority borrowers on automobile loans originated by dealers. While the referral was pending, the FRB obtained restitution relief for individuals from the lender. While we potentially could have gotten broader relief for them, we have determined not to pursue this issue. We are continuing to investigate to determine whether there were violations by the participating auto dealers.

Office of the Comptroller of the Currency

The OCC made two referrals in 1999. In one, the OCC determined that a credit card bank had instituted a program designed to increase the success of Hispanic applicants for a store-specific credit card and in doing so had not considered the relative negative impact on all other groups of applicants. As requested by OCC, we returned the matter to the agency for administrative handling because OCC believed that the lender's action had been a good faith, though flawed, attempt to establish a special purpose program with the meaning of that term in regulation B.

The second OCC referral was of a bank that had a slightly lower interest rate on some loans for persons age 55 and over. Regulation B would allow qualifying special purpose programs for those who are 62 and over. The bank was not attempting to formulate such a program; it did not know any better and stopped the practice. For these reasons, we returned the referral.

Two of our lawsuits filed this year were based on OCC referrals from 1998. They are discussed below.

Office of Thrift Supervision

The OTS made no referrals in 1999.

Federal Trade Commission

Two cases were developed by the Federal Trade Commission; in both the FTC negotiated consent decrees that we filed along with the complaints. One of the cases, U.S. v. Ford Motor Acceptance Corporation, involved treating unmarried co-applicants for credit less favorably than married co-applicants, and the other, U.S. v. Franklin Acceptance Corporation, involved discounting or excluding from consideration the income of applicants who received payments of public assistance.

In addition to the two FTC referrals described above (which were referred "litigation ready" and as such required no more than our approval and filing), we filed the following two ECOA cases in 1999:

1. In March 1999, we filed suit against Associates National Bank, based on a referral from OCC. The suit alleges that ANB discriminated on the basis of national origin in some of its credit card programs. ANB disseminated application forms in Spanish as well as English. The United States asserts that for a period of more than a year, ANB (1) required higher credit scores for approval for individuals who applied on the Spanish-language form as compared to those who applied on English language forms; (2) offered lower credit limits to those Spanish-language applicants who were approved; and (3) failed to offer certain favorable credit promotions to Spanish-language account holders. The case was in the discovery stage at the end of the year.

2. In September 1999, we filed a complaint and simultaneous settlement agreement against Deposit Guaranty National Bank (DGNB), head-quartered in Jackson, Mississippi. The agreement resolved allegations that DGNB discriminated on the basis of race against African-Americans who applied for home improvement loans between January 1, 1995, and April 30, 1998. The complaint alleged that DGNB's discriminatory conduct arose from its misuse of a credit scoring system. The lender allowed individual branch loan officers to "override" automated underwriting decisions to reject applicants who had a "passing" score and to approve applicants who had a "failing" score. The criteria for making such decisions were inconsistently applied, and there was inadequate monitoring of those decisions. Under the Settlement Agreement, Deposit Guaranty National Bank, now a division of First American National Bank (FANB), agreed to pay $3 million to compensate the victims of its alleged discrimination and to implement FANB's objective underwriting system at all formerly DGNB branches. The suit was based on a referral from the OCC.

We have closed two of the three bank underwriting investigations that we began in 1997. The third remains open and involves credit scoring overrides similar to those described above in the Deposit Guaranty case. We have reviewed several hundred loans files and have provided the lender an opportunity to explain apparent disparities found.

We continued to pursue a bank investigation begun in 1998. Here, we are attempting to determine whether the bank's high rejection rate (both absolutely and in comparison to whites) of minority applicants for home improvement loans may involve unlawful discrimination.

We are continuing three major investigations of subprime lenders. [We closed a fourth such investigation after the lender filed for bankruptcy and sold off most of it lending operations.] Each operates on a national basis, making tens of thousands of loans per year, disproportionately to minority and elderly borrowers residing in the nation's central cities; none is under the supervision of a federal regulatory agency; and each is in the business of making loans at premium prices to borrowers with poor credit histories, yet each has a substantial proportion of borrowers whose credit is good enough to borrow from standard lenders.

Our central concern in these investigations is possible price discrimination based on race, ethnicity, sex, or age. However, each of these lenders may also be engaging in deceptive sales practices. We are seeking to determine whether such practices, if they exist, are being made to fall more heavily on borrowers who are protected by the fair lending laws. However, allowing for the possibility that these practices are unfair but evenly distributed, we are conducting one of the investigations jointly with the Federal Trade Commission. We have obtained voluminous documents, and, as of year's end, we were beginning to analyze pricing data through the use of an outside expert economist.

Members of the Housing Section continued to work with the fair lending task force, which is composed of representatives of the ten federal agencies with fair lending enforcement responsibilities. During the year the task force agencies jointly published and distributed a consumer brochure on shopping for the best mortgage price. The brochure has been well received in the consumer advocacy community. Also, the task force has set up a committee on "predatory lending," which is considering ways in which the enforcement agencies might address the problem in a joint manner.

Together with the Department of the Treasury, the Department of Housing and Urban Development, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Trade commission, the Small Business Administration, and the Office of Federal Housing Enterprise Oversight, we submitted comments to the Federal Reserve Board, supporting its proposal to amend Regulation B to allow lenders voluntarily to collect information about the race and gender of applicants for non-mortgage credit.

During the year Section and Division representatives continued our program of speaking to lenders and lending associations throughout the country on our enforcement policies and expectations. One U.S. Attorney's office is actively participating in one of our subprime investigations. We also continued to assist the bank regulatory agencies by providing assistance in training of field examiners on the investigative techniques we have been using.