THE ATTORNEY GENERAL'S
2004 ANNUAL REPORT TO CONGRESS
PURSUANT TO THE
EQUAL CREDIT OPPORTUNITY ACT
AMENDMENTS OF 1976
SUBMITTED BY
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.
I. REFERRALS
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.
II. LITIGATION
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.
III. INVESTIGATIONS
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.
