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 2001 calendar year.
I. REFERRALS
There were a total of ten fair lending referrals from the federal regulatory agencies during the year. The number of
referrals received from the regulatory agencies has varied
considerably over the past several years, ranging from 25 in 1997
to 5 in 2000. During 2001, five referrals were received from the
Federal Deposit Insurance Corporation (FDIC); three from the
Office of the Comptroller of the Currency (OCC); one from the
Federal Reserve Board (FRB); and one from the Office of Thrift
Supervision (OTS). Eight of these referrals have been returned
to the agencies for administrative resolution. We are currently
engaged in pre-suit negotiations in the OTS referral, and are
investigating the allegations in one of the FDIC referrals.
These referrals are described (by agency) below:
Federal Deposit Insurance Corporation
The FDIC made five referrals in 2001. We are conducting
further investigation in one matter and have returned the other
four for administrative handling.
We are investigating the 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.
Two of the other referrals involved allegations that banks
had policies which required spousal signatures before a loan
application would be considered from an individual married
applicant. Such a 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 spouses who were aggrieved by the
spousal signature policy. Accordingly, we returned both of these
referrals for administrative resolution.
The fourth referral concerned a small bank which had a loan
policy which required the consideration of an applicant's age in
establishing the "equity-position" criterion for underwriting farm loan applications. The bank asserted that this was an archaic policy that had never been implemented and that present
management did not even know what was intended by the term
"equity-position." The FDIC's review of all denied farm loan applications for the statutory period revealed no loans denied
for any conceivable definition of "equity-position." The bank has eliminated this policy and we have returned this referral for administrative resolution.
The final FDIC referral involved allegations that a small
bank impermissibly considered borrowers' national origin in
pricing loans. During a fair lending exam, a loan officer stated
to the FDIC examiner that he charged Hispanic borrowers more
because, in his opinion, Hispanics "are a greater credit risk
because they might return to Mexico at any time." The FDIC's
pricing analysis, however, revealed no bank-wide disparities
based on national origin, but it did identify a total of eight
Hispanic borrowers whose rates may have been influenced by the
loan officer's apparent bias. In light of the small number of
potential aggrieved persons, the bank's willingness to make
restitution for these eight borrowers, and the fact that the loan
officer is no longer employed by the bank, we returned the
referral for administrative resolution.
Office of the Comptroller of the Currency
The OCC made three referrals during 2001. All three were
returned for administrative resolution. One referral concerned a
bank which offered a checking account product for persons of age
60 and above that included an overdraft feature at no additional
cost. Under the ECOA, such a special-purpose credit program is
restricted to persons 62 and over. The bank corrected the age
requirement on this product. Another age discrimination referral
involved a bank which applied different credit card underwriting
standards based on age. Upon notification that such standards
violate the ECOA, the bank immediately ceased to apply its age-specific underwriting standards, identified all potential
aggrieved persons, and offered compensation for its
discriminatory underwriting of their applications. The third
referral involved allegations of marital status discrimination in
conjunction with a bank's credit card program. The credit card
application asked for the name of "spouse" rather than name of "joint applicant" for joint applications, and preapproved credit card solicitations could only be accepted by the addressee or the addressee's spouse. The bank expressed a willingness to adopt appropriate corrective measures.
Federal Reserve Board
The FRB made one referral during the year. It concerned a
bank with a history of fair lending violations stemming from a
lack of formal underwriting guidelines. Subsequent to the
referral, this single-branch bank was purchased by a bank holding
company with an outstanding fair lending compliance record over
the past decade. All of the managers and directors of the
referred entity were removed and the bank will be operated in
accordance with the procedures of the acquiring entity. In light
of these developments, we returned the referral for
administrative resolution.
Office of Thrift Supervision
The OTS made one referral in 2001. It involved allegations
that a bank discriminated in its subprime credit card programs on
the basis of national origin (Hispanic), sex, marital status,
age, and receipt of public assistance. Suit has been authorized
in this matter and we are engaged in presuit negotiations against
the bank and one of its third party affiliates. (This case is
described in section II below).
II. LITIGATION
In January 2001, we filed a settlement agreement in our suit
against Associates National Bank (ANB), a case that had been
filed in 1999, based on a referral from the OCC. Our suit
alleged that ANB discriminated on the basis of national origin in
one of its credit card programs by: (1) requiring higher credit
scores for those applicants who applied on a Spanish-language
application form; (2) offering lower credit limits to those
Spanish-language applicants who were approved; and (3) failing to
offer certain favorable credit promotions to Spanish-language
account holders. After ANB was acquired by Citigroup, we reached
a settlement whereby ANB agreed to pay $1.5 million to several
hundred individuals the United States identified as having been
disadvantaged by the challenged practices.
We are currently engaged in pre-suit negotiations in a case
referred by the OTS involving allegations of discrimination. The
complaint alleges that the bank failed to issue credit cards in
compliance with the ECOA. The bank contracted with service
provider companies to market and service its credit accounts.
The more egregious ECOA violations occurred in the two programs
that marketed the bank's credit card in conjunction with door-to-door sales of consumer goods. For example, the bank approved a
discriminatory underwriting criteria in one program that provided
less advantageous credit terms to persons who received public
assistance and made it more difficult for younger applicants
living at home to establish individual credit. Also, two
programs discriminated on the basis of national origin - one
denied credit to applicants who did not read and understand
English, and another employed abusive collection practices on the
basis of national origin.
We are assisting the Federal Trade Commission in its
litigation against Capital City Mortgage Co. alleging violations
of ECOA's reporting requirements, as well as the Federal Trade
Commission Act (FTCA), the Truth In Lending Act (TILA), and the
Fair Debt Collection Practices Act (FDCPA). A lawyer from our
staff is assisting the FTC and will participate in this trial
this spring. The Defendants have allegedly been engaged in a
predatory lending scheme targeted specifically at African
American neighborhoods and designed to facilitate default or
foreclosure rather than repayment of the loans in violation of
the Fair Housing Act and ECOA.
III. INVESTIGATIONS
Although the Division did not file any new enforcement
actions in 2001, we were developing a number of significant
investigations. We continued to develop investigations of
subprime lenders that disproportionately target high priced loan
products to minority and elderly borrowers residing in the
nation's central cities. 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 unlawfully
being made to fall more heavily on borrowers who are protected by
the fair lending laws. We are concerned that a number of
borrowers obtaining higher priced, and sometimes predatory loans,
may qualify for lower priced prime loans.
In addition to subprime lending investigations, we continue
to pursue investigations in several other lending areas. One is
the Department's first business lending discrimination
investigation. We are also pursuing an investigation of a lender
that may involve redlining minority neighborhoods in one of the
most residentially segregated cities in the country. Finally, we
have continued our investigations into automobile lending
practices to determine whether lenders discriminate by allowing
dealers discretion to charge higher finance charges unrelated to
non-discriminatory factors.
IV. OTHER ACTIVITIES
We continue to participate in an interagency taskforce
convened by the Federal Reserve Board, with HUD, the Office of
the Comptroller of the Currency (OCC), the Office of Thrift
Supervision (OTS), the Federal Trade Commission (FTC), and the
National Credit Union Association, to discuss predatory lending
issues and make recommendations to the respective regulatory
agencies as to the actions, whether joint or individual, that can
be take to address abuses under existing law.
During the year, Division representatives continued an
active program of speaking to lenders and industry associations,
as well as advocacy groups and consumer organizations throughout
the country, on our enforcement policies and expectations. We
also continued to assist the bank regulatory agencies by
providing assistance in training of field examiners on
investigative techniques.
Document Posted: 3/3/03