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Washington, DC - Rep. Melvin Watt (D-NC), Chairman of the Subcommittee on Oversight and Investigations, along with Rep. Carolyn Maloney (D-NY), Chairwoman of the Subcommittee on Financial Institutions and Consumer Credit, and Rep. Barney Frank (D-MA), Chairman of the House Financial Services Committee released a letter sent yesterday to Comptroller General David M. Walker, requesting that the Government Accountability Office (GAO) conduct a review of Regulation B of the Equal Credit Opportunity Act (ECOA). The members expressed concern with the Federal Reserve’s decision not to amend Regulation B, which prohibits lenders from collecting information on the racial and gender characteristics of non-mortgage loan applicants, and called for the GAO to conduct a review analyzing the advantages and disadvantages of amending the ECOA.
The full text of the letter follows:
July 16, 2007
The Honorable David M. Walker
Comptroller General of the United States
Government Accountability Office
441 G St., NW
Washington, DC 20548
Dear Mr. Walker:
We are writing to request that the Government Accountability Office (GAO) review the impact of removing the prohibition under Regulation B, which implements the Equal Credit Opportunity Act (ECOA), on collecting and publicly reporting of race and gender data for non-mortgage credit.
As the GAO found in a June 2006 report, Financial Services Industry: Overall Trends in Management-Level Diversity and Diversity Initiatives, 1993-2004 (GAO Report), women and minority-owned businesses often face challenges in obtaining loans and other types of financing. While several factors may explain some of the disparities, the GAO Report found that discrimination in the financial industry is at least partly to blame.
Unfortunately, there is a lack of available data revealing patterns of discrimination in business lending. The Federal Reserve’s Regulation B, which implements provisions ECOA, prohibits lenders from collecting and publicly reporting data on the race and gender of non-mortgage loan applicants, such as businesses. The Federal Reserve maintains that requiring lenders to collect and publicly report such information could actually increase the potential for discrimination among financial institutions.
As stated in a February 2007 letter signed by the Chairman of the House Financial Services Committee Chairman Barney Frank, and Reps. Watt, Waters, Gutierrez and Lee, the Federal Reserve’s decision not to amend Regulation B to eliminate the prohibition is based on a “flawed premise.” It is difficult to understand how requiring lenders to collect information on the racial and gender characteristics of business loan applicants and making such information available to regulators, academics, Congress and others would increase discrimination. Indeed, mortgage lending to minorities increased after the passage of the Home Mortgage Disclosure Act (HMDA).
To assist the Subcommittee in its oversight capacity, we request that the GAO conduct a review of issues related to Regulation B including:
- A review of the legislative history of relevant sections of ECOA and the Federal Reserve’s development and implementation of Regulation B as well as amendments to the regulation over the years;
- An assessment of the Federal Reserve’s factual and analytical basis for concluding that revising Regulation B would likely increase discrimination against women and minority-owned businesses;
- Advantages and disadvantages to lenders and small businesses of amending Regulation B;
- An analysis of the potential costs associated with requiring lenders to collect and publicly report information on the racial and gender characteristics of non-mortgage loan applicants as well as options to mitigate such costs, including restricting the data requirements to loans for small women and minority-owned businesses, and the implications of using various definitions of “small businesses”, including those used by other federal agencies such as the Small Business Administration (SBA); and
- An analysis of relevant HMDA issues, such as the impact that HMDA has had on the ability of regulators, academics, and the public to detect potential discrimination in mortgage lending, as well as a comparison of such analysis to the current state of knowledge regarding potential discrimination against business borrowers.
We request that GAO be prepared to report on its findings by spring 2008.
Sincerely,
BARNEY FRANK MELVIN L. WATT
CAROLYN B. MALONEY
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