Housing Section Documents
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:
- 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.
- 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.