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BANKING REGULATORY AGENCIES ENFORCEMENT OF

THE EQUAL CREDIT OPPORTUNITY ACT AND

HEARINGS
BEFORE A

SUBCOMMITTEE OF THE

:

NINETY-FIFTH CONGRESS
SECOND SESSION

SEPTEMBER 12, 14, AND 15 , 1978

Printed for the use of the Committee on Government Operations

U.S. GOVERNMENT PRINTING OFFICE
37-415 0

COMMITTEE ON GOVERNMENT OPERATIONS
JACK BROOKS, Texas, Chairman
FRANK HORTON , New York

L. H. FOUNTAIN , North Carolina
JOHN E. MOSS, California

JOHN N. ERLENBORN , Illinois

DANTE B. FASCELL, Florida
WILLIAM S. MOORHEAD , Pennsylvania

JOHN W. WYDLER, New York

1

BENJAMIN S. ROSENTHAL, New York
FERNAND J. ST GERMAIN , Rhode Island

DON FUQUA, Florida

CLARENCE J. BROWN , Ohio
PAUL N. McCLOSKEY , JR. , California
GARRY BROWN , Michigan
CHARLES THONE, Nebraska

ROBERT W. KASTEN , JR., Wisconsin
THOMAS N. KINDNESS, Ohio
TOM CORCORAN , Illinois

JOHN CONYERS, JR. , Michigan

LEO J. RYAN , California
CARDISS COLLINS, Illinois
JOHN L. BURTON , California
RICHARDSON PREYER , North Carolina

DAN QUAYLE , Indiana

MICHAEL HARRINGTON , Massachusetts
ROBERT F. DRINAN , Massachusetts
BARBARA JORDAN, Texas

ROBERT S. WALKER , Pennsylvania
ARLAN STANGELAND , Minnesota

JOHN E. ( JACK) CUNNINGHAM ,

GLENN ENGLISH , Oklahoma
ELLIOTT H. LEVITAS, Georgia
DAVID W. EVANS, Indiana

ANTHONY MOFFETT, Connecticut
ANDREW MAGUIRE, New Jersey
LES ASPIN , Wisconsin

HENRY A. WAXMAN , California
JACK HIGHTOWER , Texas
JOHN W. JENRETTE , JR., South Carolina
FLOYD J. FITHIAN , Indiana

MICHAEL T. BLOUIN , Iowa
PETER H. KOSTMAYER , Pennsylvania
TED WEISS, New York

WILLIAM M. JONES, General Counsel

COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE
BENJAMIN S. ROSENTHAL, New York, Chairman
CARDISS COLLINS, Illinois

EX OFFICIO

FRANK HORTON , New York

JACK BROOKS, Texas

PETER S. BARASH , Staff Director
HERSCHEL F. CLESNER , Chief Counsel

( II)

Hearings held on

"

1387302

CONTENTS

......

( 111)

IV

APPENDIXES

-

976

V

Appendix 8. - Federal Reserve Board

BANKING REGULATORY AGENCIES' ENFORCE

MENT OF THE EQUAL CREDIT OPPORTUNITY
ACT AND THE FAIR HOUSING ACT
TUESDAY, SEPTEMBER 12, 1978

HOUSE OF REPRESENTATIVES,

( 1)

N

Federal Reserve Board, and the National Credit Union Administra
tion , have failed to issue similar antiredlining regulations.

3

Onmy right is Jim Harvey, executive director of the Metropoli
tan Washington Planning and Housing Association , and on my left

is Jennifer Douglas, who is a staff expert with the National Urban
League office here in Washington .
a

4

All of the surveys showed loan rejection rates among minorities

that were roughlydouble those among whites . The one survey that
collected economic data on applicants showed that the discrepan
cies persisted even when income levels and other credit-worthiness

indicators were kept constant. In other words, blacks at the same
income level as whites were rejected roughly twice as often . So the
explanation could not be that they had lower incomes. Yet, despite

these surveys, the agencies continued to persist in their refusal to
implement an effective examination program and they started
poking holes in the methodology of their ownsurveys.

5

their ordinary powers and sanctions whenever discrimination was
discovered. We think this new enforcement program will have a

broad preventive effect and that many lenderswill have cleaned up
their act even before the examiners arrive. That is what the em

phasis on the potential use of sanctions was designed to achieve.

measures .

6

Justice. So to that extent there was the tie with the executive
branch .

I thank you .

Mr. TAYLOR. Let me turn now to the progress that has been
made under the settlements and report briefly on that.

7

agreements. They are experimenting with the collection of not only
race and sex data on loan rejections, but also creditworthiness,
property age and location , and loan terms as well. What this will
do is permit the identification of discriminatory patterns in the
area in the terms of approved loans and discrimination based on
both borrower and property characteristics.

8

cooperation and assistance that they should have with the lending
institution .

1

9

review , but given the current situation, we do not expect very
much from that review .

10

of the three agencies that have made a commitment, and in turn
ing around the Federal Reserve, which has been so recalcitrant.
Thank you .

11

around in a number of limited areas , but it still is a major prob
lem .

a

!

37-415 O - 79 - 2

12

showing what the conditions are in those neighborhoods which we
have identified as being redlined. That is one possibility.

13

I think that is an area that needs to be looked at. It is also

hooked up with the displacement issue. In that area, no one really
knows what is causing it, the volume, or the magnitude.

14

now as it was 20 or 30 years ago , no credit, no mortgage credit
going into these areas of South and North Dorchester. I am more
and more persuaded, unless we begin to do in housing what we do
in education and employment, then the banks will continue to
justify quite properly their contention that these are risky loans
and we reallycannot go forward with them.

15

You may also need to review the employment patterns of the
lending institution and bring more minorities and women onto the
staff.

16
PREPARED STATEMENT OF WILLIAM L. TAYLOR , DIRECTOR , CENTER FOR NATIONAL

Mr. Chairman and Members of the Subcommittee :
I am William L. Taylor , Director of the Center for National
Policy Review .

The Center is a foundation - funded public interest

law organization located at the Catholic University Law School .

Our primary function is to monitor the performance of federal agen
cies in the area of civil rights enforcement , and to represent the

interests of civil rights organizations within the federal policy
making and administrative arena .

In this capacity , we have since

1971 acted as counsel to a coalition of organizations concerned with
fair housing in an effort to secure action by the financial regula

tory agencies to enforce fair lending practices among supervised
lenders .

The coalition has included the National Urban League ,

whose Washington housing specialist Jennifer Douglas is here this
morning , and the Metropolitan Washington Planning and Housing As

sociation , whose Executive Director James Harvey also is joining
in this panel .

Other coalition organizations include the NAACP ,

the League of Women Voters , the National Committee Against Discrim
ination in Housing and several others .

Discrimination in home finance has been a principal strand in
the web of private and public practices which have trapped minority
families in residential ghettos .

Residential segregation in turn

has deprived minority children of equal access to favored schools ,
and minority workers of equal access to better jobs , especially as
business , industry and government has abandoned downtown in favor
of the suburbs .

17

of course , discrimination in mortgage lending is only one
of the factors contributing to ' residential segregation and inferior

housing for minorities .

It happens , however , to be an element most

amenable to the exercise of federal responsibility .

The bulk of

home loans are made by financial institutions which are closely

supervised by federal agencies having vast regulatory resources :
large forces of bank examiners , plus a full array of enforcement
sanctions .

It was for this reason that civil rights organizations

turned their attention to the four federal financial regulatory a
gencies soon after the Fair Housing Act took effect .

with which we were

and still are

concerned .

In the textbooks and traditions of the real estate and home
finance industries , there have long been certain racial rules of
thumb .

For example , " homogenous " neighborhoods are said to be

desirable and stable ; the introduction of " inharmonious elements "
is the harbinger of decline .
be and remain segregated .

In other words , neighborhoods should

The Department of Justice recently sued

the two chief societies of professional real estate appraisers for
teaching and enforcing discriminatory appraisal standards among

their members .

Similar racial mythology permeated the lending

manuals of the Federal Housing Administration until 1949 .

The

18

federal government said that integrated and minority neighborhoods
were poor credit risks .

Another stereotype concerns the so-called neighborhood life
cycle .

Following a growth phase, neighborhoods are said inevitably

to age and decline .

Thus many lenders refuse loans on older homes ,

or on homes in older neighborhoods

the neighborhoods where ra

cial and ethnic minorities are most likely to live .

Sex stereo

types have affected both women and minority families seeking home
loans . The income of working wives has routinely been discounted
in calculating family income , affecting women in general , but also

minority families , which more often than whites rely on two incomes .
Excessively restrictive underwriting standards also work a hardship

on minority families , who are often accustomed to spending a higher
proportion of their income on housing and carrying a heavier burden
of debt .

Openly acknowledged m
mortgage lending practices such as these

have made home loans less readily available to women and minority
home - buyers , and have discriminated against minority and integrated
neighborhoods .

In addition , while overt policies of discrimination

have declined , unacknowledged racial stereotyping which still places
barriers in the way of minority homeseekers .

As a result of our efforts following the 1971 rule-making pe
titions , the financial regulatory agencies conducted three pilot
Fair Housing Information Surveys , in which racial data on home mort
gage applicants were collected in 18 metropolitan areas throughout
the country .

All of the surveys showed loan rejection rates among

19

minorities were roughly double those among whites .

The one survey

which collected economic data on applicants showed that the discrep
ancy persisted even when income levels and other creditworthiness
indicators were kept constant .

Despite the results of the surveys ,

the regulatory agencies persisted in their refusal to implement an

effective examination and enforcement program .

Finally , in April , 1976 , eleven members of the coalition filed
suit , seeking to compel the agencies to take the basic step

required

to detect discrimination through the examination process , and to use
their supervisory powers to eliminate discrimination where dis
covered . The steps we were seeking were essentially those recom
mended by the Assistant Attorney General in charge of the Civil
Rights Division in March , 1976 testimony before the Senate Committee
on Banking , Housing and Urban Affairs , and by the Committee itself
in its report of those hearings .

We found it ironic , to say the

least , when the Justice Department's Civil Division defended the
agencies against the suit , using technical arguments such as a

claimed lack of standing to try to have the suit dismissed .

collection and analysis of data concerning the race and sex of mort
gage applicants , so as to identify patterns of potential discrimina
tion for detailed investigation by examiners .

The Federal Reserve

Board remains the lone holdout.While its 1977 amendments to Regula

tion B required the notation of limited race and sex data on home

20

purchase loan applications , the Regulation was narrowly drawn and
was altogether silent concerning th
course is the critical matter .

use of the data

--

which of

In the settlement agreements , the

agencies agreed to centralized , computerized analysis to identify
individual institutions for in-depth study , and also to indicate
problem areas and trends over time so as to measure progress in
achieving nondiscriminatory lending .
Secondly , each of the agencies agreed to improve the training

and instructions given to examiners in techniques of fair lending
examination , including specifically the techniques for using race
and sex data in the detection of discriminatory patterns .

Each

agency also agreed to give careful consideration to the use of Home
Mortgage Disclosure Act data to detect possible redlining .

And

each agency undertook to review its procedures for investigating
fair lending complaints and to adopt time schedules for resolving
them .

At the time of the litigation , each of the agencies had a
consumer affairs office , with responsibilities for a wide range of
consumer protection laws and regulations

from Truth in Lending ,

through interest rate ceilings and national flood insurance , to
real estate settlement procedures .

None of them , however , had a

single staff member with background , expertise and specific respon
sibility for civil rights enforcement policies and procedures . In

deed , there was little understanding of the basic distinction between
consumer protection , which typically involves ensuring disclosure
and adherence to ceilings on charges , and nondiscrimination enforce
ment , which requires sensitivity to a range of hidden practices and

21

traditional stereotypes , as well as a distinct body of newly dev

eloping law .

The settlement agreements therefore provided that

each agency would appoint a full- time civil rights specialist at
a policy level in Washington , and part- time specialists in each
regional office , with responsibility for developing improved ex

aminer training and examination methods , reviewing examiner reports ,
recommending enforcement action and the like .

Finally , the agencies agreed to advise lenders that they in
tended to employ their full range of powers and sanctions whenever
discrimination was discovered .

It was and is our belief that the

combination of data collection and analysis , improved examination
methods , and the announced intention to apply sanctions for viola

tions will cause lenders to take a fresh look at their lending pol
icies and the practices of their employees .

We think that the new

enforcement programs will have a broad prophylactic effect and that
many lenders will have cleaned up their act before the examiners
arrive .

That is of course the very purpose of law enforcement .

As you know , the Federal Reserve Board declined to the measures
agreed to by the other three agencies , and ultimately the Department

of Justice secured dismissal of the suit against the Board on the
ground that the plaintiffs remaining after settlement with the other

agencies .

Interestingly , within days of the dismissal , the Board

was handed a detailed report by its own consultant , which made the
very same criticisms of its examination and enforcement program that
the plaintiffs had been making for years , and recommended essentially
the same series of remedial measure as those agreed to by the other
three agencies .

That was the Warren Dennis Report of which the

22

Subcommittee has a copy .
Progress under the Settlements
Let me now report to you briefly on the status of the other
agencies ' compliance with the terms of the settlement agreements and ,

more generally , the status of their fair lending enforcement programs .
The first settlement was reached in March , 1977 , with the

Federal Home Loan Bank Board , the most important agency in terms
of the volume of home loans made by its member institutions . Since

settling , the Board's most noteworthy action has been the issuance
last May of improved nondiscrimination regulations . These regula

tions , I should say , go beyond the requirements of the settlement
agreement and represent a stepped-up commitment to deal with red
lining and other unfair and unlawful practices .
The Board's regulations have several significant features .
First of all , they attack redlining by barring discrimination on
the basis of the location of the security property , the age of the
property , or the racial composition of the neighborhoods . Secondly ,
the regulations contain a straightforward statement of the so-called

" effects test " a fundamental legal principle applicable to lending
discrimination . They require that loan decisions be based on in
dividualized judgments and not rules of thumb based upon presumed
characteristics of groups . And they warn against such practices

as giving preference to prior home owners or old customers , because
of the discriminatory impact of such rules . Finally , the regulations

23

for the first time require lenders to review their business and
marketing practices to make sure that they are not discriminatory
--for example , by dealing exclusively with brokers or developers
who serve a restricted clientele or a limited geographic area .

that they lack authority to issue substantive regulations or
guidelines on fair lending . We think this narrow construction is
wrong. The agencies have a responsibility for enforcing the Fair
Housing Act , as they now recognize . Discrimination , they should also
recognize , is an unsafe , unsound and uneconomic banking practice ,

one which exposes lenders to financial liability in the form of
damages . These considerations form an ample basis for issuing regu
lations to advise lenders on how to conform to law . We understand

that the FDIC's staff is now reviewing its legal authority in this
area , and we hope that the other agencies will follow suit .
Turning to collection and analysis of monitoring data , the Bank

Board , the FDIC and the Comptroller are in various stages of develop
ing and testing alternative forms of data collection and analysis ,

and all three seem prepared now to act in accord with the spirit
as well as the letter of the settlement agreements . First of all ,

they are experimenting with the collection and analysis not only
of race/sex data on loan rejections , but data on creditworthiness ,
property age and location , and loan terms as well . This will permit

24

identification of discriminatory patterns in the terms of approved
loans , and discrimination based on both borrower and property
characteristics .

Our concern has been the slow pace of progress of

the Home Loan Bank Board . But we believe the Board is finally mov

ing and by mutual consent the settlement agreement has been ex
tended by eighteen months to allow time for a full evaluation of
the data analysis system which the Board ultimately adopts .
Another area of progress is examiner training , on which the
agencies had made a good start even before the settlement agree

ments were reached . The impact of examiner training has been strik
ingly demonstrated by the Home Loan Bank Board's experience in

the year following the introduction of its new training program .
Prior to 1977 , few fair housing violations were reported by examiners .
But in 1977 , as examiners were retrained , 2,804 actual or possible
violations were found , 1,949 supervisory letters were sent , 52
special examinations were conducted , and more serious supervisory
action was taken in eight cases . A further increase in the level

of violations was noted by examiners this summer during a test using
monitoring data now required by the Board's regulations .
One area of weakness , however , bears special comment . That
is in the detection of pre- screening

the various subtle means

used to discourage or screen out would-be borrowers before they
get to the point of filing applications . Pre- screening has always
been a major source of discrimination , and we believe that its signi

ficance may increase as the supervisory agencies improve their means
of detecting discriminatory practices at the post-application stage .
The FDIC now requires banks to record the race and sex of persons who

25

inquire concerning loan terms but do not file applications , so as

to enable the agency to determine whether a disproportionate num

ber of minorities or women are being turned away . The occ is
considering other statistical methods of identifying discrimina

tory pre- screening patterns . But at best , statistics can only
identify patterns for examiners to investigate .
All of the agencies therefore need to train examiners in
techniques capable of detecting various pre- screening devices . Ex

aminers must lean to observe how bank personnel deal with people
who visit or telephone the bank .
In addition , we believe that detection of pre- screening requires

use of a technique known as testing which has been the stock - in
trade of fair housing groups dealing with discrimination in real
estate transactions . This involves making telephone or in-person
inquiries concerning the availability of loans on properties of
different ages and in different neighborhoods , and having paired
individuals , one minority and one white , make inquiries concerning
similar loans . The agencies have expressed reluctance to make use
of this technique . They appear discomfitted by the idea of assuming
the role of a borrower , and some feel it inconsistent with what

they view as the traditional relationship of the bank examiner to the
that is , of one cooperation and assistance . But we think

bank

that this concept of the relationship is inappropriate to an examina

tion intended to detect violations of law , and we regard testing as
both a legitimate and indispensable technique for dealing with the
problem of pre- screening . As you may know , the Massachusetts State

26

Banking Department has used this technique for some time as a
part of their investigation pépcess , and Commissioner Greenwald
will meet this afternoon with a group of federal agency staff
members to discuss her department's experience . We hope that this
may cause the agencies to reconsider .
Last but not least , each of the three agencies has now
designated staff positions to deal specifically with fair lending

enforcement , both in Washington and in the regional offices . These
agencies now recognize that civil rights enforcment is a specialized
responsibility , requiring specialized personnel , and they are on
their way to acquiring the necessary staff .

ment posture of the Federal Reserve Board

and for a simple reason .

It cannot be discussed in the same breath as that of the other three

agencies . The Federal Reserve has no examination or enforcement
program worthy of the name , and the reasons are fundamental . They
are perhaps best summarized in the report of the Board's own consul
tant , Warren Dennis :
Our negative conclusions with respect to the
Board's anti -discrimination enforcement efforts

derive principally from our observations rela
tive to the Board's not having recognized civil
rights compliance as a discrete and separate
area of responsibility differing from other
consumer protection measures , and requiring

fest in every aspect of the Fed's organization , staffing , examiner
training , examination methods , and complaint processing procedures .

27

First of all , responsibility for fair lending compliance
rests with the Consumer Affairs Division , which has responsibility
for enforcing compliance with the Real Estate Settlement Procedures
Act , Truth in Lending , the Fair Credit Reporting Act , the Fair
Credit Billing Act , the consumer Leasing Act , the Federal Trade
Commission Act provisions applicable to banks , and Regulation
dealing with interest on deposits . This Division is also responsi
ble for enforcement of Regulation B and the Fair Housing Act , but

it does not recognize the distinction between the examination and
enforcement problems inherent in civil rights compliance and those

involved in consumer protection . It has no specialized expertise
on its staff , and no individual with particular responsibilities
in civil rights matters . And finally , the Division reports to a

member of the Board of Governors who is not sympathetic to consumer
and civil rights compliance .

Examiner training , instructions and methods are deficient in
almost every respect . Once again , the Board's consultant offers

a succinct summary :

Investigative tools and techniques for finding
discrimination are lacking , and the sampling
techniques in use are wholly inappropriate for

civil rights investigation . " They evidence " a mild hostility toward
civil rights matters based partly on a perception that devotion of

their time and effort to civil rights matters would not materially
advance their progress within the System , as it was not an area to

37-415 O - 79 - 3

28

which the Board attached great importance

.

We are told by the Board's staff that fair lending examina

tion manuals and training programs are under review , and that
many of the Dennis report's recommendations will be implemented .

But to data there has been no concrete sign of change , nor is
there a basis to be confident that an effective fair lending pro

gram will emerge from a group which has resisted for so long .

ing , rehabilitation or improvement loans ; and it does not call

for recording of any information on creditworthiness , property
characteristics , or loan terms . Nonetheless , the Regulation B

monitoring data could be of some value for enforcement purposes ,
if the Board made proper use of it . Unfortunately , however , it
doesn't . Not only is there no centralized analysis , which could
identify potentially discriminatory patterns at individual banks , but
examiners are not taught how to analyse the data systemically dur
ing the course of examinations . Our conclusion in this regard is
fully supported by the Dennis report .

Likewise , Federal Reserve Examiners are not instructed to make
use of Home Mortgage Disclosure Act data , which might reveal evi

dence of possible redlining . On the contrary , their HMDA examination
instructions state that " The Act is not an anti -redlining measure

29

it is simply a disclosure act , relying on public scrutiny for
its effect . "

Therefore , examiners are not told to review HMDA data

for evidence of possible redlining , but simply check to make sure it
is maintained by the bank in compliance with HMDA's requirements .

lacks any procedures whatever . Information furnished during the
civil rights lawsuit shows that in practice the Board's investigation
consists of a written or verbal inquiry to a bank official , occasional

ly accompanied by a review of bank records, following which the
complainant is advised that no evidence of discrimination has been
found . The complainant is never interviewed , nor are any other ave
nues of inquiry pursued outside the bank .
If there is any ray of hope in this gloomy picture , it is
the new Chairman of the Federal Reserve Board , William Miller , whose

record indicates sensitivity to civil rights issues and a commitment
to addressing the disadvantages suffered by racial minorities in our
economic life . We hope that his influence will be felt within the
Board of Governors and among the staff , and that the Federal Reserve
may begin to catch up to the other agencies in this important area

of responsibility . Although the Board supervises lenders who make
only a small proportion of home mortgage loans , so long as this pres
tigious agency fails to adopt the measures necessary to enforce fair
lending , other agencies will be tempted to slip backwards , under

pressure from member institutions who would like to retain the old
ways of doing business .
Conclusion

Mr. Chairman , I have described a difficult and protracted strug
gle to convince four Federal agencies that they must respond to the
rights and needs of people long neglected by financial institutions .

30

While we occasionally have become discouraged , we recognize that
changes in the ingrained practices of institutions rarely are easy to
accomplish .

And at last we have some heartening action on the part

of three of the four agencies , action which we believe will ultimately
make a real difference to people and communities that have been vic
timized by discrimination .

The progress that has been made is attributable is no small
measure to public and congressional scrutiny . Thus we welcome these
hearings and thank the members of the Subcommittee for pursuing
this important oversight mission . Your continued interest will be
very important in monitoring the efforts of the three agencies that
have made a commitment and in turning around the recalcitrant Reserve .

31

Mr. ROSENTHAL. Our next witness is Carol Greenwald, Banking
Commissioner of the State of Massachusetts.

STATEMENT OF CAROL S. GREENWALD , COMMISSIONER OF

32

the same, or where the proportion of the woman's income to the

family income is the same. It is not going to be the same. It is
going to be different in every one of those cases.

33

Ms. GREENWALD . That is right.
Mr. ROSENTHAL. Tell us about your situation, what is happening ?

34

about, usually if there is going to be a delinquency, it is in the first

year or two of the home mortgage. Over the period there has not
been an increase in defaults from these loans.

35

I might comment that despite those 127 clean bills ofhealth , we

had several valid complaints on equal credit discrimination against
some of those institutions, complaints that we had investigated and
where we had recommended to the institution that they make the

loan, and that they did , after a discussion with our department.
This even included one case which we referred to the Justice

Department, and the Justice Department was actively investigat
ing the complaint.

V

36

make loans in that area, we restrict our loans. The bank named

three basically white population areas which were not suburban ,
where they said they make their loans. Thenwhen someone called
and said, we want an application for a suburban area , the bank
said , we will send you the application in the mail today.

37

between what they have to pay at the other institution and the
rate at the first institution at the time the person applied.

a

38

Ms. GREENWALD . No, I do not think you did. I think the court's
ruling was incorrect in this case but that is how they found, so now
there is a need for clarifying legislativelanguage.

39

Mr. DRINAN. What kind of an image do you have of Boston ?

40

Mr. DRINAN . On this one bank , whose name unfortunately you

cannot identify, is this the bank that ordinarily would be expected
to be the local bank, giving most of the mortgages? This is not a
Greater Boston bank, this is a local bank ?

Ms. GREENWALD. It is a bank that has a branch in that area . It is

area .

Mr. DRINAN . Why are you precluded from naming the bank ?

41

setts Advisory Committee to the United States Commission on Civil

Rights. We conducted hearings more than once on this topic and I
recall well the housing report, which I reread last night, which

came out in 1966 from my committee; it went into this problem .

42
PREPARED STATEMENT OF CAROLE S. GREENWALD, COMMISSIONER OF BANKS, STATE

EQUAL CREDIT OPPORTUNITY ENFORCEMENT

I am pleased to testify before the Subcomnittee about enforcement
of equal credit opportunity laws .

Proper enforcement will ensure that

loan applicants are treated without regard to sex , marital status , race ,
and other illegal discriminatory bases .

We have found that illegal credit

discrimination continues to exist , that innovative examination procedures must be
used to detect it , and that enforcement penalties imposed by agencies
must be substantial to serve as an effective deterrent .

This can only

be accomplished when an agency perceives its role as consumer -oriented ,
develops and implements sophisticated investigative and examination
methods , and recognizes its enforcement responsibilities are shared with
the courts .

I.

Massachusetts Banking Department Program

The Banking Department established an Equal Credit Opportunity
Division in June , 1977 .

It was initially staffed by four examiners

trained in equal credit opportunity. We quickly learned that our comp
liance efforts should be split into two categories - procedural and
substantive .

Massachusetts and Federal equal credit opportunity regula

tions , which are substantially similar , require creditors to comply with
administrative procedures intended to minimize the likelihood of discrimina
tion .

Initially , we developed an examination geared toward discerning
procedural violations , for example , failure to use appropriate application
forms, to send reasons for credit denial , to furnish credit information
for women , and so on .
corrective action .

This program emphasized bank education and voluntary

Our equal credit examiners , in effect , acted as rather

43

inexpensive management consultants for over 180 financial institutions .
This program concluded in July of this year . A copy of our examination
report is attached as Enclosure I.
The report , for the most part ,

did not address substantive violations ,

this is , actual credit discrimination .

Substantive violations include

refusal to extend credit to a creditworthy individual on the basis of sex ,
marital status , race , etc. , and granting credit with higher rates or on
less favorable terms because of a prohibited basis .

During our first year

of equal credit opportunity enforcement , we addressed substantive violations
only when we received a complaint alleging credit discrimination .

credit discrimination have been referred to the Equal Credit Opportunity
Division .

Since January 1 , 1978 , the Division has handled 44 such complaints ,

39 of which were found valid at least to the extent that the creditor com

mitted a procedural violation .

Where a substantive violation appeared

likely , a special examination was conducted .

These examinations usually

involved a review of the creditor's records concerning the complainant ,
a review of approved applications to determine if similarly situated persons
were granted credit , and , where the individual complaint was valid , a review
of other denied files to determine if a pattern or practice of substantive
violations existed .

Thirty of the 44 complaints were actual cases of

credit discrimination .

Several previously denied loan applicants received

loans as a result of our efforts .

Valid complaints tipped us off to pat

terns or practices of credit discrimination .

In one of these , a divorced

woman with an annual income of $ 25,000 was told she could not afford a

home mortgage of $ 41,400 ; her written loan application was thrown away

by a bank officer . A subsequent special examination revealed that under
the bank's credit standards she was qualified for the loan as requested

37-415 O - 79 - 4

44
and further , that several other qualified applicants were denied credit
due to sex or age .

the matter :

The Department is taking three courses of action on

First , we are seeking a cash settlement of over $ 2,500 for

the complainant.

Second , we are imposing recordkeeping requirements .

The bank will be required to keep detailed loan , property , and applicant
information for 12 months in a manner that will allow for bank and examiner
monitoring of progress toward non -discriminatory lending .

Third , we are

sending notifications of our findings to other adversely affected applicants.
A sample copy of the notification is attached as Enclosure II .

In addition ,

since our investigation , the Department has sent women testers posing as
prospective borrowers into the bank to check for prescreening.

None was

found .

Because the bank acted to correct problems which caused the discrimina

tory credit decisions , and because the number of adversely affected women
was small in relation to all women applicants , the above complaint was
handled by our agency .

Other complaints and subsequent investigations

revealed forms of credit discrimination which affected entire classes of
individuals .

For example , we received a complaint from a resident of the

racially mixed Hyde Park section of Boston .

He was denied a credit card

*

The complainant applied for a 90 percent home mortgage loan of
$ 41,400 .

If approved , she would have received an APR of 9 percent over

a term of 30 years with consequent interest of $ 78,520.95 ; instead , she
received a 90 percent loan from another bank at an APR of 9 1/4 percent

for 25 years .

The interest charges for the requested loan at 9 1/4 percent

for 30 years would total $ 81,211.54 .

The difference between this figure

and $ 78,520.95 is $ 2,690.59 , the amount requested for cash settlement .

45

from a major oil company , partially on the basis of " our credit experience
in your immediate geographical area . "

Upon investigation , we found that

the oil company used a credit scoring system , so that point values were
assigned for each of several characteristics of an applicant .

One of the

characteristics was residence , as defined by zip code. Most zip codes in
Massachusetts were given a positive value ; but some received one of two
negative values , both ºf which sharply reduced the likelihood of receiving a
credit card .

Supposedly , these negative values reflected the poor payment

histories of cardholders who lived in the respective zip codes ; however , our
statistical analysis suggests this was a proxy for racial discriminationwithin the Boston SMSA , 30 percent of the minority population received the
lowest score for the zip code characteristic , as opposed to 9 percent of
non -minorities .

Further , one-half of all minorities living in the Boston SMSA

received one of the two negative scores .

Because the case involved an ap

parent widespread practice of disproportionate treatment to minorities , it
was referred to the State Attorney General's office for further action .
We received another complaint from a minority individual who telephoned
a Boston bank to inquire about mortgage loan rates .

He was asked the location

of the property to be purchased , which was in a racially-mixed Boston neigh
orhood .

A bank officer said that the bank did not have enough money

available to lend in the neighborhood , that its lending was limited to other
neighborhoods .

A subsequent Equal Credit Opportunity Examination revealed

that the bank's stated lending area , in effect on the day of the complainant's
call , included all Boston and substantial portions of its suburbs .

A review

of the bank's written applications indicated that virtually none were re

ceived from mortgage applicants for properties located in racially mixed
and substantially minority neighborhoods .

It was clear that the bank was

prescreening prospective minority applicants and /or destroying written ap ;
plications .

The bank's practice precluded lending to minorities, and because

of its widespread impact , this case was also referred to the State Attorney General .

46

The volume and high validity rate of our credit discrimination
complaints are , we feel , a result of consumer education efforts .

My staff

has spoken to consumer groups about equal credit opportunity ; we have even
done a radio talk show on the subject .

Together with three other State

agencies , we wrote an equal credit opportunity pamphlet similar to those
put out by some of the Federal financial regulatory agencies .

Even our

recently published " Pocket Credit Guide" , which assists loan shoppers with
interest rate tables , includes a section on credit denial and how to file

a credit discrimination complaint .
Early in our program , we recognized that detection of substantive

violations is a more complicated task than discerning procedural violations .
Several months were spent experimenting with statistical sampling methodolo
gies for the analysis of loan files .

Our initial objective was to find

a quick and easy method of finding disparate treatment on the basis of
sex .

One method used for home mortgage loans involved aa comparison of

male versus female income.

Our simple procedure involved calculating the

percentage of female contribution to income for approved and denied loan
files and averaging the female contributions for the approvals and denials ,

in order to determine whether women's income was being discounted . Still
another quick and easy procedure was tried for credit cards .
income with credit line granted by sex .

We compared

Again , other factors pertinent

to the credit decision were not included , so that our results were in
conclusive .

Because factors other than income were not held constant by

these simple tests , their results were not conclusive ; however, the results
can be used to indicate whether more detailed analyses may be productive .

47

We finally began to build models of bank credit decision systems ;
these were more conclusive .

Recently , we began systematic examinations

of credit cara issuers , utilizing statistical methods designed to determine
substantive violations of sex discrimination .

several steps :

These examinations include

First , examiners determine the creditor's loan policy by

interviewing appropriate loan officers and reviewing written credit standards .
A substantial sample of credit card applications is taken from the files .

The examiner records information from each file , including the applicant's

sex , the credit line granted , if any , as well as pertinent characteristics
such as monthly income , expenses , duration of employment , credit history ,
and more , depending upon the bank's articulated standards .

The information

is submitted to the Department , where it is coded and fed into a computer
which performs a type of statistical analysis , called multiple regression
analysis , in order to determine which factors play a significant role

in the bank's credit decision process .

In this manner we are able to

determine whether women are assigned lower credit lines than similarly
qualified men .

These same credit card issuers are also examined for

procedural violations in each loan department .

Similar statistical

methods for home mortgage loans and instalment loans are in the advanced
stages of development.

The Equal Credit Opportunity Division now has

an econometrician and is supported by computer analysis personnel .
The Banking Department receives home mortgage and deposit informa
tion from banks with assets of $ 20 million or more located in an SMSA . This is
similar to the data submitted to the Federal Reserve under the Home Mort

gage Disclosure Act .

Unlike the federal bank regulatory agencies , we

analyze this data , not just collect it .

This mortgage and deposit data

is organized into table form and mapped for comparison with racial com

48

position of respective census tracts or zip codes .

We also receive

summaries of home mortgage application activity from most Boston based
thrift institutions .

composition .

This is also organized for comparison with racial

We then review this information to pinpoint banks which do

not grant , or grant disproportionately few , loans to applicants for pro
perties located in minority areas .

Banks may be chosen for comprehensive

examinations based upon this information alone .

Another means of sdection involves testing for applicant prescreening
and discouragement on

a prohibited basis .

We have found that a substantial

number of potential applicants are discouraged from completing a written
loan application .

Our system involves the use of testers who are paired

on the bases of differences in sex and race .

A female and a male are

given similar credit backgrounds; the female calls a bank , requests a
loan , discusses terms, answers the bank's questions, requests an applica
tion form , and records the bank's response .

Her male counterpart does

the same . Their experiences are compared for evidence of differential treatment .
Institutions are selected for racial prescreening in home mortgage
credit by use of the home mortgage application summaries and home mortgage

and deposit information received by the Banking Department .

One bank

was chosen for testing based upon its lack of application activity within

racially mixed and minority neighborhoods, as shown by the attached map
and table ( Enclosures III and IV ) .
results :

A subsequent test produced startling

A white and black tester were paired ; each was given similar

credit backgrounds , with the exception of property location .

The white

tester was given a property address located within a generally recognized

white neighborhood , the black tester an address in a black neighborhood .
Each telephoned the bank , requested information about mortgage loans , and

49

gave their respective property addresses .

Our black tester explained

that the property was located in Roxbury , a predominantly black Boston

neighborhood . The bank officer who handled the call immediately responded
that the bank does not service Roxbury , but only two other Boston neigh
borhoods and one suburban community .

The very next day our white tester

called , similarly requested information about a mortgage , and gave a
property address in another suburban community .

The bank officer mailed

an application to our white tester .
These tests were repeated over a period of several weeks with similar

incriminating results . Telephone testing confirmed our suspicions
about prescreening and discouragement of blacks ; unfortunately , it is not
a strong basis for court action .

We have currently undertaken a cooperative

effort with the Attorney General's Office for in - person testing ; this will
serve as a basis for court action against creditors which prescreen and dis
courage applicants due to race , sex , or other discriminatory bases .
II.

Federal Enforcement Efforts

The Federal Deposit Insurance Corporation examines state - chartered
nonmember banks.

The FDIC equal credit opportunity examination is part

of a " Compliance Report " for all consumer laws and regulations .

Up until

recently , its equal credit opportunity report page placed emphasis on the
procedural aspects of the regulations .

It dealt with 11 compliance cate

gories within Regulation B and required the examiner to indicate , yes or
no , whether the bank was in compliance with each .
examined 21 banks also examined by FDIC .

tion results of each agency .
1

State examiners have

Enclosure V shows the examina

Our examiners have found nearly three times

the number of procedural violations reported by FDIC .

In addition , our

examiners have reviewed three compliance categories not addressed by FDIC,

50

one of these the Federal monitoring information requirements .

We have

found ourselves in the peculiar position of enforcing a Federal require
ment

of the 21 banks examined , 19 had violations of the monitoring

provisions .

A new examination format , together with FDIC's new Fair Housing
Regulations , could portend a brighter future for enforcement efforts .
Recently , the Equal Credit Opportunity examination report page was expanded

to include 17 compliance categories .

But in one of the first exams using

the page , only one category was found in violation .

The bank was given

a clean bill of health for questions like " ...has the bank taken a pro
hibited basis into account in evaluating the creditworthiness of an
applicant ? " and " Has the bank refused to grant an individual account to
a creditworthy applicant on the basis of sex , marital status , or other

prohibited bases ? "

How does the examiner know ?

Answers to substantive questions require the use of sampling
methodologies to compare granted and denied loans and may well require
testing .

Certainly asking bank officers whether they employ discriminatory

practices is no way to discern discrimination .

The bank has been told

it is virtually free of discriminatory procedures and substantive evalua
tion and processing of applications.

Given the procedures used , is this

appropriate ? Probably not . We have reviewed 127 FDIC equal credit op

portunity examinations of the state - chartered , FDIC - insured institutions
conducted during 1977 and 1978.

None of these reports cites a bank for

a violation of the Regulation B general rule which prohibits actual credit
discrimination .

In contrast , the Banking Department has received several

complaints alleging credit discrimination against FDIC-insured banks .

51

In some cases , the banks granted credit to the complainants after our
investigations ; one is in the hands of the Justice Department.
The new FDIC Fair Housing Regulations include extensive log and
recordkeeping requirements.

These provisions employ plans to monitor

inquiries about and applications for home mortgage and home improvement
loans .

They also require banks to keep detailed information about loan ,

property , and applicant characteristics .

Unfortunately , the log and

recordkeeping requirements do not apply to inquiries and oral applications

taken by telephone . Individuals are prescreened or discouraged from
applying by some banks over the telephone. We strongly urge FDIC to re
consider its position regarding telephone inquiries and applications .
Further , in using the logs and records , we urge that telephone and in -person
testing be conducted to ensure that logs and records are kept ; that logs

and records be used to select banks for comprehensive equal credit
opportunity examinations ; that procedures be developed and implemented
for the analysis of loan files to detect substantive violations ; and ,
that a consumer - oriented enforcement policy be developed to deal with
substantive violations .

The Comptroller of the currency has also included equal credit
opportunity as part of its " Consumer Compliance Report . "

While it is

legally impossible for the State to review these examinations , their
Consumer Affairs Handbook , which outlines examination procedures for equal
credit opportunity , places emphasis upon the procedural aspects of the
regulations as opposed to substantive problems, i.e. discriminatory patterns
or practices.

The Comptroller should consider the adoption of similar

log and recordkeeping requirements as FDIC's so that it can actually be
determined if a bank is discriminating in its loan practices .

Again , a

procedure for utilization of this information needs to be developed and

52

implemented .

The Federal Home Loan Bank Board recently revised its nondiscrimination
regulations to address the problem of redlining .

The banking industry

has long disclaimed the existence of redlining , but a Banking Department
analysis of home mortgage and deposit data submitted from 1975 through
1977 , Home Mortgage Lending Patterns in Metropolitan Boston , clearly
documents that ( 1 ) a substantially lower proportion of Boston banks '
savings deposits are reinvested in urban mortgages than in suburban areas ;
( 2 ) suburban areas receive more bank mortgages relative to the number of
home sales than urban areas ; ( 3 ) almost half the home sales in Boston

were taking place without the aid of bank financing ; and , ( 4 ) bank home
mortgage lending appears to be racially discriminatory in effect , if not
in intent .

The Bank Board's nondiscrimination regulations fail to address

some important issues which contribute to redlining .

The regulations

prohibit use of appraisals which are discriminatory , or discriminatory
in effect , on the basis of age or location of a dwelling.

However ,

underwriting standards which are discriminatory in effect are not pro
hibited .

A state - chartered , FDIC insured institution located in my home

city was required to submit an Affidavit of Community Service in connection
with a branch application to the State Board of Bank Incorporation .

In

the affidavit , the bank stated that it makes home mortgage loans for
single family properties only and attempted to justify this practice by
further stating that the policy had no impact upon urban areas within its
lending area ; however , a quick look at the housing census data for the
city in which the bank's main office is located indicated that over one
half of the houses are

53

underwriting policies may be discriminatory in effect by first prohibiting
such policies and second , establishing examination procedures for examiner
review of underwriting standards .

The Federal Reserve Board recently commissioned an outside study of
its credit discrimination enforcement program .

The report , " The Detection

and Correction of Credit Discrimination ," issued in May of this year ,
states , " The Board has appeared hesitant to issue an unambiguous statement

of its commitment to vigorous enforcement of civil rights laws among state
member banks and has not identified civil rights legislation as having any

particular priority among the Board's enforcement responsibilities . "

The

study also points out that while the Board's examinations are adequate to
find procedural violations , they are generally deficient in detecting sub
stantive violations , i.e. credit discrimination ,

In this respect , the

Fed's examinations are similar to those of the other agencies .

Perhaps

the study was a first step towards effective civil rights enforcement .
It is our understanding that the Fed is developing civil rights specialists
for each bank , giving some thought to revising examination procedures , and
using testers .

The Board should clearly state its commitment to equal

credit opportunity and fair housing , and direct its staff to continue devel

opment and implementation of a comprehensive program for detecting credit
discrimination .

III.

Comprehensive Equal Credit Opportunity Program
A comprehensive program includes three major elements - selection ,

examination , and enforcement .

Ideally , every institution under an agency's

purview should receive a procedural and substantive examination for each

of its loan departments . Because of staffing constraints , some agencies
may have to select institutions which are the most likely discriminators .
This should not and need not be on a random basis , but rather

based

54

of this include analysis of home mortgage information which is already
collected , testing , and consumer complaint review.

Institutions which

make disproportionately few home mortgage loans in areas with substantial
minority composition as determined by the home mortgage data ; banks
which prescreen or discourage female and minority applicants as determined

by testers ; banks which have a record of valid credit discrimination com
plaints are likely first candidates for a.comprehensive examination . Even
where selection is random , disclosure data , testing , and complaints are
vital to a comprehensive examination .

Mortgage lending patterns can help

an examiner find discriminatory appraisal and underwriting practices ;
testing is virtually the only way of checking prescreening and discourage
ment ; and complaints can tip the examiner off to widespread problems .

The Comprehensive Equal Credit Opportunity Examination must include
procedural and substantive reviews .
is to make a mockery of enforcement .

To limit the ECOA exam to procedures
It is the equivalent of assuming

that if we check to ensure that all the traffic lights in a city are opera
ting , no one will go through a red light .
IV .

Enforcement

The Bank Board's general enforcement policy for handling violations
of its nondiscrimination regulations is inadequate.
of actions are required :

Generally , three types

1 ) that the bank correct the violation in the

future ; 2) that the bank undertake affirmative marketing ; and , 3 ) that dis
criminatory conditions are corrected .

Since these actions are not punitive

in nature , they are not likely to effectively discourage a bank from repeating
a violation .

Affirmative marketing could make the bank appear favorable

in the public eye , depending upon the manner in which public notification
is set up .

1

a

Ironically , a bank which is required to advertise its credit

55

services to women may be viewed by the community as a progressive institution .
The proposed uniform enforcement guidelines for the Equal Credit

Opportunity and Fair Housing Acts issued by the five Federal financial
regulatory agencies are also constructed on a " no penalty" basis , with
a

the exception of application fee refunds in the case of actual credit
discrimination .
( Enclosure VI )

A copy of our comments on these guidelines is attached .
Congress clearly viewed violations of the Equal Credit

Opportunity Act as serious breaches of law .

substantial punitive damages allowable

This is evident from the

$ 10,000 for individual actions

and up to $ 500,000 in class actions .

At the heart of the Massachusetts enforcement effort is a close
working relationship with the Civil Rights and Consumer Protection Divisions

of the State Attorney General's Office . During the last year , we have
referred two pattern or practice cases to the Attorney General for further
investigation and litigation .

One of the cases is in the discovery process ;

another is still under investigation. In both , we have shared expertise
1

in developing evidence and legal theories .

One combined effort involves

the use of testers , who have posed as prospective borrowers , contacted
the bank , and discerned disparate treatment on the bases of race and neigh

borhood . Another cooperative effort involved the preparation of a civil
investigative demand for complex statistical data. The Attorney General's
staff has provided us with valuable insight into the legal subtleties of

equal credit opportunity litigation ; we , in turn , have provided their staff
with banking expertise necessary for an understanding of creditor activities.

The Federal agencies should establish similar working relationships with
the Justice Department . When patterns of credit discrimination are found ,
1

either by complaints , examinations , or both , cases can be referred through
established channels for litigation .

56

It is important that aggrieved consumers be informed about the variety
of options and penalties available under federal and state laws .

An individual

who files a complaint with the Banking Department alleging credit dis

crimination is immediately sent an acknowledgment letter ( Enclosure VII ) ,
which also informs him or her that other agencies handle credit discrimina
tion complaints and that substantial penalties are available , especially
under the federal law .

Such a letter is essential so that consumers can

most intelligently select one or more courses of action .

Failure to

explain other options and penalties could result in a less than appropriate
remedy ; in effect , an enforcement agency might serve as a buffer to sub
stantial penalties .
As our enforcement program expands , we anticipate finding many
institutions with

more substantive violations .

When this happens , it

may be unrealistic to ask our Attorney General to litigate each case .
To meet this anticipated problem , we are in the process of developing
general guidelines for substantive violations .
In addition to remedies intended to correct discriminatory actions ,
we are convinced that the credit industry will not take equal credit

opportunity seriously unless violations will result in some penalty .
An enforcement agency can request a creditor to pay monetary compensation
to individuals who are discriminated against ; if the creditor does not
comply , the files can be turned over to the appropriate law enforcement
authority .

The dollar amounts may be substantially less than those granted

as a result of successful court action .

This serves

as

an incentive for

the creditor to pay the amount requested by the agency .
Under consideration by the Banking Department are the following guidelines :
For each substantive violation found in the credit card department we may

57
require :
1)

the issuance of a card or adjustment of credit line

upward to the amount given to similarly qualified
applicants ; and ,
2)

interest free credit for the first term of the credit
card up to a total of $ 500 .

Where there are several substantive violations , creditors would be
required to retain records for one year of applicant and credit character
istics in a prescribed manner so that examiners could review the bank's
lending activity and the bank could check its own progress toward non
discriminatory practices .
For each substantive violation found in the instalment loan department
we may require :

1)

that the institution grant the credit on terms given to
similar- situation applicants ; and ,

2)

interest free credit up to $ 500 .

Again , record retention requirements will be imposed if there is a
pattern of discriminatory activity .
For each substantive violation found in the home mortgage loan de
partment we may require that the creditor
?

1)

offer to grant the loan on terms given to similarly - situated
applicants ;

2)

refund any fees , costs , or prepayment penalties paid as a result
of the denied application .

3)

pay the first 6 months of interest charges , not to exceed
$ 1,000 ; and ,

4 ) where the applicant has received financing elsewhere ,
pay all settlement costs and excessive interest ( if the rate was

higher at the bank which granted the loan) for a combined total

58

not to exceed $ 1,000 .

Finally , prescribed record retention requirements would be imposed .
It should be pointed out that these corrective actions and penalties
are lighter than those consumers would gain under the Federal laws .

Where

an institution falls to comply with our requested remedial action , the
examination would be submitted to the Attorney General .
Conclusion

The enforcement programs of the Federal regulatory agencies
emphasize procedural compliance .

The agencies must recognize that use

of available home mortgage disclosure data , testing , and statistical.
sampling methodologies is necessary to find credit discrimination .

Once

found , enforcement should include both corrective action and penalties .

59

ENCLOSURE 1

EQUAL CREDIT OPPORTUNITY
REPORT OF EXAMINATION
INDEX

Statement of Violations

Page 1

Reference to Violations

Page 2

Comments and Recommendations

Page 3

Institution Name
Address

Telephone
Chief Executive Officer

Title

Senior Mortgage Officer

Title

Senior Installment Officer

Title

Assets $

as of

Home Mortgage $

Home Improvement $

Closed - end Installment $

Open -end Installment $

The equal credit opportunity laws and regulations prescribe procedures which , if followed ,
minimize the likelihood of illegal credit discrimination .

This Report of Examination con

tains a statement of violations and questionable practices related to the prescribed pro

cedures . The examiner found one or more violations or questionable practices in each of
the compliance areas checked below :

Posting of Signs
Application Forms
Application Rules

Monitoring Information
Evaluation Rules
Extension Rules

Notifications

Credit Furnishing Information
Record Retention

37-415 0 - 79 - 5
-

60

NAME OF INSTITUTION

END DATE

STATEMENT OF VIOLATIONS

Below is a partial list of possible violations of the State and Federal equal credit
opportunity laws and regulations . The number of violations in each category is placed
in the column headed " Violations " . Conclusions reached by the examiner are based upon
interviews with institution personnel , responses of officers to questionnaires , and the
sample of loan files which follows . Reference is made on page 2 of this report to the
interview , officer's response , or loan file which indicates a violation.
#
Adverse Action

Approved

Type of Credit

State

Federal

Regulation Regulation

#

Withdrawn

VIOLATIONS
Home Mortgage Installment

POSTING OF MCAD NOTICE
1.

Failure to post notice in a

1

Section 13

APPLICATIONS FOR CREDIT
2.

Failure to recognize that an

application has been taken when
an individual requests credit ,
either orally , in writing , or

through a third party , and the
creditor considers aspects of
the prospective borrower's
creditworthiness .

3.

4.

Sec . 2 ( e )

Sec . 202.2 ( f )

Sec . 7 ( a )

Sec . 202.7 ( a)

Sec . 2 ( e )

Sec . 202.2 ( E)

Requesting or requiring an

Failure to notify an applicant
that his /her application is
Incomplete and to allow the

applicant to complete it .

Page

1

STATEMENT OF VIOLATIONS

61

NAME OF INSTITUTION

END DATE

STATEMENT OF VIOLATIONS

State

Federal

Regulation Regulation

5.

VIOLATIONS
Home Mortgage Installment

Failure to use application
Sec . 202.5

Sec . 5 ( c )

Sec . 202.5 ( c)

=

Sec . 5

b.
c.

d ..

Sec . 5 ( d ) ( 1 ) Sec . 202.5 ( d ) ( 1 )

Sec. 5 ( a) ( 1) Sec . 202.5 ( a ) ( 1 )

Sec . 5 ( d ) ( 2 ) Sec . 202.5 ( d ) ( 2 )

Sec 5 ( d ) ( 3 )

Sec . 202.5 ( d ) ( 3 )

Sec . 5 ( d ) ( 3 ) Sec . 202.5 ( d ) ( 3 )

Sec . 5 ( a ) ( 4 ) Sec . 202.5 ( d ) ( 4 )

Sec . 5 ( d ) ( 5 ) Sec . 202.5 ( d ) ( 5 )
Page
la

62

END DATE

NAME OF INSTITUTION

STATEMENT OF VIOLATIONS

State

14.

VIOLATIONS

Federal

Regulation Regulation

Home Mortgage

Installcent

Failure to allow an applicant

Sec . 7 ( b )

Sec . 202.7 ( b )

REQUESTING GOVERNMENT MONITORING INFORMATION
15.

Monitoring information in the
Sec . 202.13

b . Failure to use an
appropriate form.
Failure to request
information when appropriate .

c.

d . Requesting information
when not appropriate , e.g.
refinance transactions .

Failure to request
information of each applicant ,

e.

if joint application .
f . Failure to make a notation
if applicant ( s ) refuse to
provide the information .
EVALUATION OF APPLICATIONS
16 .

17.

Using a credit scoring
system which includes age as
a variable when the creditor
cannot show it is a demon
strably and statistically
sound , empirically derived
credit system.

Sec . 6 ( b )

Sec . 202.6 ( b )

Taking into account the
Seć . 6 ( b ) ( 4 ) Sec . 202.6 ( b ) ( 4 )

OTHER RULES CONCERNING CREDIT
18 .

Concerning existing open- end
credit , requiring a reappli
cation , changing the terms of
the account , or terminating
the account because of an

applicant's age or a change in
the applicant's name or
marital status , except where
there is evidence of inability
to repay .

Na
Page
16

63

END DATE

NAME OF INSTITUTION

STATEMENT OF VIOLATIONS

State
Federal
Regulation Regulation

19.

VIOLATIONS
Home Vortgage Installment

Requesting or requiring the

Sec . 7 ( a )

Sec . 202.7 ( a )

20. . Requesting or requiring an

Sec . 7 ( a ) ( 5 ) Sec . 202. 7 ( a ) ( 5 )
21.

Refusing to extend or maintain
an account because credit life ,

Sec . 7 ( e )

Sec . 202. 7 ( e )

Sec . 9 ( a )

Sec . 202.9 ( a )

Sec . 9 ( a )

Sec . 202.9 ( a )

Sec . 9 ( a )

Sec . 202.9 ( a ) ( 2 )

NOTIFICATIONS

22.

23.

24.

25 .

Failure to notify an applicant of

Failure to notify an applicant

Failure to notify an applicant

Notification of adverse action :

Sec . 9 ( a ) ( 2 ) Sec . 202.9 ( a ) ( 2 )

Failure to give the
Federal Equal Credit Oppor
tunity Act notice .
a.

b . Failure to give the name
and address of the appropriate

Federal enforcement agency.
c.
Failure to make reference
to the State enforcement
agency ( MCAD ) in the Federal
Equal Credit Opportunity Act
notice ( effective June 1 , 1978 ) .

Sec . 9 ( b ) ( 1 )

STATEMENT OF VIOLATIONS

Page
lc

64

END DATE

NAME OF INSTITUTION

STATEMENT OF VIOLATIONS

State

Federal

Regulation Regulation

VIOLATIONS
Home Mortgage Installment

d . Failure to give the name
and address of the State

enforcement agency ( effective
June 1 , 1978) .

Sec . 9 ( b ) ( 1 )

e . Failure to give specific
ånd accurate reason ( s ) for
adverse action.

FURNISHING OF CREDIT INFORMATION

.

26.

Failure to determine and

Sec . 10 ( a )

Sec . 202.10 ( a )

Sec . 1006 ) ( 1 )

Sec . 10 ( a )

Sec . 202.10 ( a )

Sec , 10 ( a )

Sec . 202.10 ( a)

Sec . 202.10( 5)

Page
id

65

NAME OF INSTITUTION

END DATE

STATEMENT OF VIOLATIONS

State
Federal
Regulation Regulation

VIOLATIONS

Home Mortgage

Installment

RECORD RETENTION

31.

Failure to preserve for 25

Sec . 12 ( b )

Sec . 202.12 ( b )

32. Failure to keep for 25 months
a copy of any notification of
action taken , statement of
specific reasons for adverse
action , and any written state
ment submitted by the

applicant alleging credit
discrimination.

Page
le

66

NAME OF INSTITUTION

END DATE

REFERENCE TO VIOLATIONS

Below is a list of references to the violations listed on page 1 of this report . Reference
is made to interviews with institution personnel , responses of officers to questionnaires ,
or loan files sampled.

Numbers below correspond to the appropriate violations

summarized on page 1 .

:

REFERENCE TO VIOLATIONS

Page
2

67

NAME OF INSTITUTION

END DATE

REFERENCE TO VIOLATIONS

REFERENCE TO VIOLATIONS

Page
2

68

NAME OF INSTITUTION

END DATE

COMMENTS AND RECOMMENDATIONS

COMMENTS AND RECOMMENDATIONS

Page
3

69

NA
PLACIOSE
CA

The Commonwealth of Massachusetts

ENCLOSURE II

Dear

During a recent examination of

The Federal Equal Credit Opportunity Act and Massachusetts General

Laws prohibit creditors from discriminating in the granting of credit
because of race , national origin , religion , color , sex , marital status ,
age , or receipt of income from public assistance programs . You may have
been discriminated against on the basis of

This Office has established procedures under which you may receive
consideration for discriminatory treatment . In addition , you may exercise
a number of other options , including 1 ) filing a complaint with the Mass .
Commission Against Discrimination ( 727-3990) , 2) filing a complaint with
the civil Rights Division , Mass . Department of the Attorney General
( 727-1090) , 3 ) filing a complaint with a Federal enforcement agency , and
.

.

4)

consulting a private attorney .

If you sue in Federal court and win , the Federal law provides penalties
up to $ 10,000 plus actual damages , attorneys fees , and other costs . In the
case of class action suits , the Act provides for up to $ 500,000 in punitive
damages .

Please contact me at 727-2449 if you would like to discuss the matter
further .

Yours truly ,

Director

Equal Credit Opportunity Division

70
ENCLOSURE III

CITY OF BOSTON MORTGAGE LOAN APPLICATIONS

REVERE

BY MINORITY COMPOSITION , 1975
Su

CHARLESTOWN
os

WATERTOWN
cos

WEST END

EAST

BRIGHTON

BOSTON
203

SOUTH END

512

NORTH END
200

109
100
tos

BACKBAY

COM

102

GOS
810

NEWTON

603

ROXBURY

GOA

610
BOI

BROOKLINE

601

tozle

SOUTH
BOSTON

907

1207

900
ROS

909

JAMAICA PLAIN

911

911

1203
1205

90

DORCHESTER

ROSLINDALE

1201

NORTH

c1202
ru
1101
22

1005

106

1301

DORCHESTER

1103

1302

1057

1105

SOUTH

00

1102

JOOB
1104

1303

1200

1404

QUINCY CITY OF

1301

WEST

ROXBURY

1401

IV
ENCLOSURE

APPLICATIONS
MORTGAGE
LOAN
BOSTON
OF
CITY

Neighborhood

North
Dorchester

Census
Tract

#

919

100

34

Dorchester
North

923

100

44

Dorchester
North

924

100

13

0

0

0

0

0

0

0

0

0

0

0

0

o

804/806

100

5

814

100

48

Roxbury

818

100

11

0

:
0

End
South

702

100

23

0

0

1002

94

24

0

708/712

94

10
-5

North
Dorchester

901/903

South
Dorchester

1011

91

89

0

0
0
0

o

0

0

0

0

1

0

O

O

0

0

0

0

O

0

0

0

0

o

0

0

0

O

0

0

0

0

0

0

12,000

1

40

O

12,000

0

0

Roxbury

819

89

-5

0

0

0

0

0

Roxbury

820/821

89

-4

0

0

0

0

0

0

Roxbury

815/817

85

-4

o

0

0

o

0..

0

707

85

19

End
South

1001

84

10

812

82

23

Roxbury

802/803

72

7

0

0

Roxbury

813

68

-3

0

0

1003

67

56

0

.0

South
Dorchester

Roxbury

0

0

0

0

O

0

0

0
0

South
Dorchester

0

0

0

0

0

0

O

0

71

Roxbury

End
South

Declined
Applications
#

Roxbury

South
Dorchester

Applications
Applications
Approved

Received
Applications

R% acial

ZAdult
Minorities

IV
ENCLOSURE
APPLICATIONS
MORTGAGE
LOAN
BOSTON
OF
CITY

Neighborhood

%Racial
%Adult
Minorities Change
*
1970-1975

Census
•
Tract

Received
Applications

Applicatlons
pecilned

Approved
Applications

North
Dorchester

904/906

64

22

North
Dorchester

914

64

21

Roxbury

811

60

46

0

0

Roxbury

807

59

-14

0

0

End
South

705

42

5

0

o

Dorchester
North

920

38

33

0

0

North
Dorchester

915

33

25

1

24,500

1

24,500

0

North
Dorchester

913

32

14

3

61,000

3

61,000

o

o

O

0

0

0

0

o
0

0

0

0

0

0

O

0

o

1005

31

18

0

1010

31

25

2

36,000

2

36,000

,
370

9,609,731

300

7,464,864

o

0.
o

.0

72

South
Dorchester
Dorchester
South

0

0

O

O

Other
Neighborhoods
All

below
or
30

%aminority
,1less
minority
970
975
dult

:The
arNOTE
presents
table
above
picture
fictitious
but
epresentative

70

2,144,867

V
ENCLOSURE

Total

INSTITUTIONS
SAVINGS
X
х

7/22/77

N/A

12/2/77

12/2/77
8/15/77

N/A

X

1

X

/A
N

X
х

1
2

X

N/A

0

1

X

2
х

1
2
1

х

X

2
0
1

/A
N

关
х

X

X

N/A

X
X

20
Subtotal
27
V
IOLATIONS
DEPARTMENT
-STATE
BANKING

x

X
.X
X
X

х

/A
N

X

N/A

X
X

/A
N

X

х

X

х

X

х
X

X

X

X
х
х
X
X
X

X

X
X
X

N/A

X

N/A

X

X

X

X

X

X

X

3

19

-4

6
4

Subtotal
58

I

/A
N

uw vraunamun wowwUINNNN

X

/A
N

х
X

73

X
X

X
х

XXXXXXX

OAD O

G

NA

关

X X X X X

<

E

7/14/78
9723777

10/24/77

с

74

The Commonwealth of Massachusetts
MICHAEL S. DUKAKIS

August 31 , 1978
CAROL S. GREENWALD

ENCLOSURE VI
Equal Credit Opportunity Guidelines

Room B-4107
Washington , D. C. 20551
Re :

Proposed Equal Credit Opportunity Enforcement Guidelines

Dear Sir or Madam :

The proposed enforcement guidelines issued by the Federal enforcement
agencies have serious shortcomings which should be corrected prior to
implementation .

The stated objectives of the guidelines are to require

corrective action for violations and to assure future compliance . The
General Enforcement Policy section contains the following statement :

" In all cases , the enforcing agency will consider the suitability of
the prescribed remedy for the circumstances - for example , the character
-

of the violation , the condition of the creditor , and the cost and ef
fectiveness of the correction action - and will make whatever modifica
tions it deems appropriate . "
Conspicuously absent from these considerations is the adverse

impact upon individuals and protected classes .

The corrective actions

outlined for substantive violations do not compensate persons who were
discriminated against ; nor does assurance of future compliance . A creditor

which illegally discriminates and is caught by a Federal enforcement
agency will merely be required to act in a non -discriminatory manner
on past and future loan applications, i.e. , do what should have been done

in the first place . Victims of substantive discriminatory practices
should also be advised of practical avenues of redress and receive
substantive compensation .
Since September , 1977 , the Massachusetts Banking Department has
maintained enforcement provisions similar to those for procedural

violations concerning monitoring information , adverse action notifica
tions , and credit histories .

These provisions are adequate in most

situations. Failure to take remedial and future corrective action on
a voluntary basis is met with other administrative action , including
referral to the Attorney General .

Substantive violations , which include discouraging applications,

discriminatory credit evaluation , imposing more onerous terms , requir
ing co - signers, and terminating or changing the terms of open - end
accounts on a prohibited basis , should be dealt with by stronger actions
than merely requiring remedial and future corrective action . In these

!

75
situations, it is also the responsibility of an enforcement agency to
1 ) inform adversely affected persons or members of an adversely affected

class of the available enforcement options under Federal and State law ,

same of the
including the right to file complaints and to sue ; 2 ) inform
available in
substantial actual , punitive and other damages and fees
the case of successful actions ; 3 ) arrange for monetary compensation

to adversely affected persons ; and 4 ) where a creditor refuses to provide
compensation , forward examination report to the appropriate law enforce
ment authority .

Notwithstanding the above comments , some of the proposed enforce
ment actions for non-procedural violations as far as they go , appear

appropriate .

We do , however , have some thoughts regarding certain

violations :

( 1)
Concerning discouraging applications on a prohibited basis ,
serious questions have arisen concerning the adequacy of Federal agency

examination procedures to detect this practice . Aside from asking bank
officers , which is at best unreliable and at worst ridiculous , the only
way to discern prescreening is by using testers . The Banking Depart
ment currently conducts a systematic program where personnel , paired
on the basis of opposite race or sex , contact institutions to test for

possible differential treatment .

Prior to issuing an enforcement policy

concerning prescreening , the agencies should revise their examination
procedures in order to more effectively detect this type of violation .
When prescreening is detected , the proposed enforcement policy is to
require affirmative advertising. This may be useful , but only if it
results in increased applications from the discouraged class . Enforce
ment agencies should follow - up advertising by measuring its impact ;
if ineffective , revised or additional advertising should be undertaken .
The guidelines should clearly spell this out .
( ( 2 ) Concerning use of discriminatory elements in credit evaluation
systems , the proposed policy requires creditors to solicit new applica

tions from discriminatorily rejected individuals .

Many such persons

will not be interested in reapplying , because they received credit else
where , because they do not wish to do business with the offending creditor ,

or for other reasons . Consequently , acts of credit discrimination will
go unremedied .

This likely occurrence is another reason why enforcement

agencies should attempt to arrange monetary compensation for persons who
are discriminated against .

Concerning imposition of more onerous terms on a prohibited
( 3)
basis , the proposed policy requires reimbursement , adjustment , or release .
Again, creditors would merely be required to right a wrong . In addition ,
monetary compensation should be required .
( 4)

Concerning prohibited co - signer requirements , the proposed

policy requires the release of unnecessary co-signers . This is appropriate .
Where a co-signer is necessary to support the credit extension , but the

applicant's choice was restricted to his or her spouse , the creditor must
inform the applicant that a creditworthy substitute may be provided .
However , an applicant who would have originally provided a non - spouse

37-415 0 - 79 - 6

76

co- signer , but who cannot provide one at the time of notification , should
not necessarily be forced to retain an illegally required co- signer.
To prevent this problem , the notification should request the applicant
to contact the creditor if he or she ( a ) wishes to drop the spouse

co- signer and ( b) a substitute is no longer available . If contacted ,
the creditor must reevaluate the applicant using objective standards
applicable to his or her current creditworthiness , including the pay
ment history on the existing loan . Where the applicant is now credit
worthy as an individual , the co-signer spouse must be released ; where
the applicant remains individually uncreditworthy , the spouse would ,
as a matter of sound banking practice , remain on the note .
( 5)
concerning terminating or changing the terms of open end accounts
on a prohibited basis , the proposed policy requires the account to be

returned to its previous condition .

Again , creditors are not dis

couraged from committing this violation by any monetary compensation
to victims .
sincerely yours

Carol Greenwald
Carol s . Greenwald

Commissioner of Banks

CSG : esr
Enclosures

77

Mr. ROSENTHAL. Our next witness is Ellen Broadman , attorney
with Consumers Union .

78

cies to enforce the law adequately in the past, we are very con
cerned by this vagueness.

79

Disclosure also serves as an important educational role. It can
inform consumers of theirrights under the law and thereby enable
them to report violations to the agencies. We thinkthere is a very
special opportunity here to educate the public. When people are

told their rights are infringed upon , they will be more likely to
want to learn about those rights.

80

It has also been argued that disclosure of violation to the public
is unfair to lenders. Because examinations are conducted at differ
ent times and not for all lenders, information would not be made
available on a uniform basis. Some are concerned that individual

lenders might be singled out and the public might be misled by
disclosure. We think the public is capable of evaluating informa
tion . We think the public should be informed of all substantive

violations as well as the incompleteness of the information they are
given .

1

81

look at and consider in developing your position. There have been
numerous suggestions of ways to strenghen the guidelines. They
are not vigorous enough, they are not strong enough.

82
PREPARED STATEMENT OF ELLEN BROADMAN , ATTORNEY, WASHINGTON OFFICE ,

Mr. Chairman and members of the Subcommittee , Consumers Union*
appreciates the opportunity to testify at these oversight hearings
on the enforcement of the Equal Credit Opportunity Act ,

pecially pleased to be here today because of the importance of this
Act to consumers of credit .

I.

Introduction

The Equal Credit Opportunity Act expresses a strong national
commitment to the abolition of discrimination in the granting of
credit .

Recognizing that credit is not a luxury but rather a ne

cessity for many consumers who want to buy a home , automobile or
other consumer goods or services , Congress prohibited lenders from
withholding credit on the basis of sex , race and other characteris
tics unrelated to the creditworthiness of an individual . Vigorous
enforcement was also provided for in the Act , Credit applicants ,
the Attorney General and the federal agencies with supervisory res
ponsibilities for lenders all were authorized to bring enforcement
As explained in the Senate Report accompanying ECOA :
Since discrimination is inherently insidious ,
almost presumptively intentional , yet often

difficult to ferret out , the Committee believes
that strong enforcement of this Act is essential
to accomplish Its purpose ._1 /

*

83

II .

Administrative Enforcement

To fulfill their enforcement responsibilities the agencies
should adopt enforcement measures that effectively identify a
violation , establish strong incentives for compliance and fully
compensate all individuals who are injured by ECOA violations .
A.

Identifying Violations

Complaints filed with the agencies can be a valuable source
of information on violations ,

To solicit informed complaints , the

agencies should establish education programs that inform individuals

of their rights under ECOA and enable them to identify infringements ,
Education programs should utilize media that reach those classes of
people protected by ECOA , Educational materials should be designed
to attract the attention of consumers and be written in simple ,

easily understood language .

All educational efforts should be .

tested to assure their effectiveness .

sumers can easily lodge complaints with the appropriate agency ,

For example , lenders should be required to place complaint forms
in a location . visible to the public .

And , - the agencies should

establish a toll free " hot -line " through which individuals may file
complaints and require that this " hot - line " . number - be posted in the
lobbies of all lenders ,

After testing those and other complaint

... onefs.) ..
Silled..examiners and rigorous examination procedures should
also be employed by the agencies as part of their enforcement,

efforts . Effective training“ programs for examiners are a must ;

however ;. training alone is not enough .

Having talked with examiners

in consumer training programs , I am convinced of the need to upgrade
the career stature of consumer examiners ,

There should be a se

parate career ladder with attractive advancement opportunities for
consumer examiners

These consumer examiners are more likely to possess

84

the sensitivity and skill required to spot ECOA violations .
tablishing attractive career incentives , agencies are more likely

to attract and retain skilled and motivated consumer examiners .
B.

Establishing Incentives for Compliance

The agencies should respond to violations in a manner which

establishes strong incentives for lenders to comply with the law
on their own initiative .

The importance of these incentives is

1llustrated well by the result of inadequate enforcement of the

Truth in Lending Act ( TILA ) .

As revealed in hearings held by

Chairman Rosenthal , weak administrative enforcement of TILA re
sulted in widespread non - compliance and substantial financial
injury to consumers . 2 / The unwillingness of lenders to follow
the mandate of TILA , despite the civil remedies available to in

dividuals under that statute , should serve as a reminder of the
importance of establishing forceful inducements for lenders to obey

consumer protection laws .

Thus , it is not enough for agencies to

require violators to comply with the law in the future .

sanctions should be levied against these lenders .

Additional

Agencies , when

they discover unlawful conduct , must fashion comprehensive , ef
fective remedies that address all the effects of ECOA violations. 3/

2 / See The Truth in Lending Act : Federal Banking Agency Enforce
ment and the Need for Statutory. Reform , Third Report by the Committee
on Government Operations , May 10 , 1977 .

3 / See Albemarle Paper Co. v . Moody , 422 U.S. 405 ( 1975 ) ; Franks v .
Bowman Transportation Company , 424 0.5, 747 ( 1976 ) ; Green v . County
School Board , 391 V.S. 43071968 ) .

85

c.

Full Compensation for Injured .

If violations result in measurable damages , lenders should be re
quired to compensate fully all victims of these violations .
have an obligation under ECOA to return consumers to the position
they would be in but for the lender's infringements on their rights .
Infringements on ECOA rights are violations of civil rights .

As re

cognized by Congress in the legislative history of ECOA , judicial
construction of anti - discrimination legislation should serve as guides

for applying ECOA . 4 / Thus , lenders who violate ECOA have an af
firmative duty to remedy the effects of their past unlawful behavior .

As explained in Albermarle Paper Co. v . Moody , an equal employment
case cited in the legislative history of ECOA as controlling pre
cedent :

If employers faced only the prospect of an

injunction order , they would have little incentive

to shun practices of dubious legality .

It is the

reasonably certain prospect of a back pay award that
' provide [ s ] the spur or catalyst which causes employers

and unions to self examine and to self - evaluate their
employment practices and to endeavor to eliminate , so
far as possible the last vestiges of an unfortunate

ECOA violations . 6 /
The Proposed Guidelines

On June 27 , 1978 , the agencies responsible for the enforcement
of the Equal Credit Opportunity Act published for public comment

proposed enforcement guidelines .

These guidelines most definitely

are not the " strong enforcement " measures envisioned by Congress

41

5 /
6/

S. Rep . No. 94--589, supra at 4-5 .

422 U.S. at 418 .
See ft . nt . 3.

86

when enacting ECOA .

They do not establish powerful incentives for

complying with the Act nor require that injured consumers be made
whole .

In many respects these guidelines are vague and leave un

certain the vigor with which ECOA will be enforced .
A.

Guidelines Should Provide for Disclosure of Violation
to Consumers

Enforcement agencies that discover violations should inform

consumers of these infringements on their rights .

As a practical

matter , agencies may not be able to determine the full range of in
juries sustained by consumers as a result of ECOA violations .

Unlawful actions may have damaged a consumer's credit history or
have resulted in credit denials or higher charges for credit else

where .

Or , a consumer may have sustained measurable damages due

to unusual circumstances .

Because agencies often will not be able

to determine the extent or severity of the injuries caused by un

lawful conduct , they will not be able to require full compensation .
To satisfy their obligation to remedy injuries resulting from discri
mination , agencies should inform Individuals of these violations
and enable consumers to undertake actions to obtain full compensation .
Disclosure is imperative when agencies can identify measurable
damages , but do not require lenders to make full compensation .

Thus ,

for example , if lenders are not required to compensate consumers.
for the additional costs they incurred by purchasing credit else
where after a discriminatory denial , individuals should be informed
of this discrimination .

The proposed guidelines contain no such

compensation requirement when discriminatory credit scoring systems
are used .

Disclosure at least will allow Bonsumers to seek complete

redress elsewhere , possibly through civil actions .

Disclosure serves a second important enforcement role by creating
forceful reasons for lenders to comply with ECOA .

Disclosure is es

pecially appropriate when lenders discriminate against protected

classes of people since this is the most serious of ECOA violations

87

and the prime target of the Act .

Disclosure also should be required

when violations do not result in measurable damages . Here lenders
cannot be required to compensate individuals for damages , so other

compliance incentives are needed .

Unfortunately , in many such

situations the guidelines do not provide such incentives .

example , the lender who failed to send adverse action notices would
be required merely to send notices for the preceding two years .

The guidelines also merely require the lender who has discriminaterily
terminated or changed the terms of an open end account to comply
with the law in the future .

The effects of these lenders ' past

conduct are ignored entirely by the guidelines .

The creditor who

required a co - signer on a prohibited basis is similarly treated
gingerly .

It must only offer to release any unnecessary co - signer

and , in effect , offer to comply with the law .

If these meek enforce

ment sanctions are adopted by the agencies , disclosure is necessary
to motivate lenders to observe the law .
Disclosures also can serve a valuable educational function .

Consumers should be informed of their rights under ECOA generally
and of the specific right which has been infringed .

They should

also be informed of all efforts being undertaken to remedy the ef

fects of these violations and of their right to bring a civil
e action for actual and punitive damages .
Disclosure materials provide agencies with an excellent op

portunity to educate key members of the public as to their rights
under the Act .

Recipients of these materials are 11kely to be members

of classes that traditionally have been victims of discrimination

and are most in need of this information .

Educational materials

will make it more likely that these individuals will understand
their rights under ECOA .

Thus , such disclosure materials would pro

vide an unusually effective forum for consumer education .

Also ,

disclosure materials could serve a valuable enforcement function
by assisting these persons to identify violations and to protect

88

themselves in the future . 68/
Some regulators have expressed a fear that disclosure might

result in excessive litigation harmful to lenders .
simply unjustified .

This fear is

ECOA merely allows consumers to recover actual

damages , and authorizes courts to award punitive damages in narrowly
circumscribed situations , for example , when the lender acts in bad
faith .

If violations result in actual damages , consumers should

be able to recover these losses .

If lenders act in bad faith or

repeatedly violate the law , punitive damages should be assessed .

The limits on the liabilities of. lenders contained in ECOA provide
adequate protection against excessive litigation , and encourage only
those lawsuits which mightly seek appropriate redress for injuries
and serve to enforce important national laws .

B.

The Guidelines Should Require Public Disclosure of

Information on all ECOA violations should be made available to
all interested members of the public .

This , information enables citi

zens to evaluate the effectiveness of. ECOA and related enforcement

efforts.

It enables the public - and advocates of public interests

to voice, an informed opinion on the need for legal or administrative
reform ...And , it establishes forceful inducements for lenders to

follow legal mandates ,

bal The Federal Home Loan Bank Board gives lenders " the option "
of notifying people of unlawful practices and of the particular

regulatory provisions that may have been violated .
notified that the Board " will consider

Lenders are also :

instituting cease and desist

proceedings to - require this notification . See Memorandum dated
May 25 , 1978 entitled " Synopsis : General Enforcement Policy . for
Handling Violations of the Nondiscrimination Regulations , " at page

3.

The Board rightly appears to support the concept of disclosure .

However , it is unclear what criteria they will be used by the Board

to dectde whether to bring a C & D proceeding .

The examples presented

at page four indicate that disclosure will be required in two
situations : ( 1 ) when -a loan is denied on a discriminatory basis or ;
a borrower is given a loan at a higher rate , lower aplount or on
( 2)
loos favorable terms .

We strongly support such iteninsure .

89

C.

Creditors Who Use Discriminatory Credit Evaluation Systems .

The guidell'es do not fully compensate individuals for losses
incurred due to a lender's use of a discriminatory credit evaluation
system .

These individuals should be , but would not be reimbursed

the difference between the cost of credit denied them and the cost
of credit they purchased in lieu of the credit discriminatorily
denied them .

Lenders also should be required to forward corrected information
to any credit reporting agencies to which lenders sent information
on discriminatory credit denials whenever agencies can be identified
from the lenders records .

Also , applicants should be informed that

the lenders ' conduct may have damaged their credit ratings .

This

disclosure will allow individuals who were later denied credit or
charged higher interest rates because of a poor credit rating to re

apply for credit or better credit terms.

The guidelines should ,

but do not , include any of the above provisions that we suggest .

Creditors who use discriminatory criteria in their credit
evaluation systems should be required to re - evaluate credit an
plications as far back as these prohibited criteria were used or

back to the enactment of ECOA , whichever 1s earlier .

However , the

guidelines leave with the agencies discretion to determine a
period of time" over which these applications must be reviewed .
This flexibility flies in the face of the objectives of ECOA .

Use of discriminatory criteria is one of the most serious of
civil rights viclations under ECOA .

All individuals who suffer

from this type of discrimination should be identified and compen.
sated .

There is absolutely no justification for ignorint the

rights of certain individuals solely because those richts were
infringed upon during an earlier time period when the arencies

were not enforcing the Act ,

Failure to enforce the Act during

90

any time period would be an abrogation of the agencies ' respon
sibility to enforce the law during those years . 7 /
Also , if each agency independently adopts its own arbitrary
cut - off date , inconsistency in enforcement inevitably will result .

Such inconsistency is unfair to those consumers who are not com
pensated for infringements of their civil rights and for result
ing injuries .

Inconsistency also puts those lenders under the

jurisdiction of the more lenient enforcement agencies at an un
fair competitive advantage .
Although we are disturbed by the above omissions from the

guidelines , we strongly support the sanctions proposed by the
enforcement agencies .

The guidelines would require creditors

to solicit applications from individuals who had previously been
rejected due to discriminatory lending policies , and would pro
hibit the assessment of fees for these new applications . Fees
paid for the earlier application would be returned .

If the

latter application were approved , the applicant accepted the

loan , and the applicant prepaid an existing loan obtained in lieu
of the discriminatorily denied credit , the creditor would be
required to reimburse the applicant for any prepayment penalty .
D.

Creditors Who Terminate or Unfavorably Change the Terms
of an Existing Open End Account on a Prohibited Basis .

The proposed guidelines would require these creditors to
return the account to its previous condition unless an evaluation
of the creditworthiness of the affected parties justifies other
action .

This guideline merely requires lenders to comply with

the law henceforth , provides no compensation to persons injured

7 / Green v . County School Board , 391 U.S. 1430 ( 1968 ) ; Adams v .
Richardson , 351 F.Supp . 636 , implementing order , 356 F.Supp . 92

TD.D.C. 1973) ; Sounder v . Brennan , 367 F.Supp . 808 ( D.D.C. 1973 ) .

91

by the lenders past discrimination or other unlawful conduct and ,
therefore , is inadequate .

If , as a result of a lender's actions , a

consumer was forced to purchase credit elsewhere at a higher cost ,

the creditor should be required to reimburse the consumer for the
difference between the cost of the credit purchased and the cost

of credit the consumer would have purchased but for the lenders
unlawful conduct .

To determine if consumers have incurred such

expenses , lenders should be required to solicit such information
and documentation from consumers .

Lenders should also reimburse

consumers for any charges incurred in connection with applying for
a new account or an account with more favorable terms .

In ad

dition , consumers should be informed that if they have been denied
credit since the change in or termination of their account , this
denial may have been based on information wrongfully communicated

by the lender to a reporting agency and the consumer may wish to
reapply for that credit .
E.

creditors Who Have Discouraged Applications on a Pro

The proposed guidelines would require creditors who have
discouraged applications on a prohibited basis to solicit cre
dit applications from the discouraged class through affirmative

advertising .

We concur that affirmative advertising should be

required to inform the public that the lender will henceforth
comply with the law . However , affirmative advertising alone
is not enough . Whenever actual victims of this type of discrimination
can be identified , they should be compensated as described below .
The guidelines should require the agencies to review complaints

filed with and against a lender to determine if any of the com
plainants were discouraged from applying for credit on a pro
hibited basis .

Once these individuals are identified , lenders should be re
quired to compensate these consumers for all their injuries .

37-415 O - 79 - 7

Those

92
persons who later purchased credit from a secondary source should

be reimbursed the difference between the cost of credit purchased
and the cost they would have paid but for the discrimination . 87
Those consumers who ( a )

( b)

9/

were unable to obtain credit elsewhere,

would have qualified for credit but for the discrimination ,

and ( c )

still desire credit , should be offered credit on the terms

available at the time they were discouraged from applying for
credit . This is important because the establishment of a credit
record with the lenders of original choice has a positive effect
on the applicant's future credit rating .
Creditors Who Impose More Onerous Terms on a Prohibited
Basis .
The proposed guidelines would require a creditor engaging in
this class of violation to reimburse borrowers for any over

charges and to notify applicants who have been denied more
favorable credit terms that they may obtain the credit terms for
which they were qualified at the time credit was originally granted .

8 / It has been argued that the agencies lack authority to require
lenders to reimburse consumers for this amount . These advocates
claim that such reimbursement constitutes a penalty since the lender

would be reimbursing the consumer for monies paid to a third party ,
rather than monies wrongfully paid to the lender .

This argument is

entirely without merit . Such reimbursement is not a penalty since
it merely returns the consumer to position he or she would be in
but for the discrimination perpetrated by the creditor , The agency
not only has authority to require such compensation , but has an ob
ligation to do so .
The guidelines themselves acknowledge the au
thority of the agencies in this respect . Section 1l would require

lenders to reimburse consumers for prepayment penalties they sus

tain upon prepaying a loan they obtained in lieu of the credit
discriminatorily denied them . Here lenders are required to reim
burse consumers for monies paid to a third party as compensation
for injuries caused by the lender's discrimination .
9/

93

We support this provision because it would return persons who
suffered discrimination to the position they would have been in but

for the unlawful conduct of lenders . However , the guidelines are
too vague as to how reimbursement will be made .

They should be

clarified and public comment solicited prior to implementing

reimbursement programs .
G.

Creditors Who Fail to Collect Monitoring Information .

The proposed guidelines would require these creditors to
solicit monitoring information from all borrowers who had applied
for real estate loans since March 23 , 1977 , the effective date of
the FHA , or the previous examination , whichever is later ,
1

Lenders should be required to collect monitoring information
for whatever time period they have not done so --- either back to
March 23 , 1977 , or the previous examination , whichever is earlier .

Agencies need this information to determine if violations of ECOA
or FHA have occurred and to require complete remedial action .
Failure to collect this information for any time period subsequent

to March 23 , 1977 , is therefore an abrogation of the agency's en
forcement duties . 104
H.

creditors Who Fail to provide Adverse Action Notices .

The guidelines would require creditors who fail to provide
adverse action notices to send notices to all applicants denied
credit within 25 months of the date of the examination in which

this violation is discovered .

The guidelines should be amended to

require also that corrected notices be sent whenever notices that
do not conform to the requirements of Regulation B , Section 202.9

have been sent .

Thus , for example , if the reasons given for the

credit denial are not specific , notices with specific reasons
should be sent .

10 /

See ft . nt . 7 .

94

I.

Creditors Who Require Co - Signers on a Prohibited Basis .

The proposed guidelines would require these creditors to offer
to release from liability on a loan any co - signers required on a

prohibited basis .

Instead , the creditor should be required to

release that co-signer from liability .

Then , if a co-signer wishes

voluntarily to co - sign the loan , co - signers should be allowed to
again sign the loan agreement .

This procedure will assure that

only those co - signers who want to co - sign , e.g. to establish a

credit history , remain liable under the loan agreement .

Other

co- signers , who would not have signed the loan instrument but
for the unlawful conduct of the lender , will be released from
liability on the loan instrument .
The guidelines should also direct lenders to reimburse all

co - signers required on a prohibited basis for all monies they
paid due to their liabilities as a co - signer .

Creditors should

not be permitted to retain the unfair advantage of unlawfully
having required a co - signer .
J.

The Guidelines Fail to Address Two Common Violations

The guidelines fail to address two common violations :

( 1)

improper solicitation of information regarding other income , in
violation of Regulation B , Section 202.5 ( d ) ( 2 ) and ( 2 )

wrong

fully requesting marital status information in violation of
Regulation B , Section 202.5 (

l.

In both situations, the

guidelines should require lenders to disclose this violation
to persons from whom the above information was unlawfully re
quested .

As explained above , such disclosure would perform

Important enforcement and educative functions .
IV .

The Condition of the Creditor is No Justification for
The conditions of the creditor should not be used as justi-

fication for denying injured consumers full compensation .

Instead ,

95

if enforcement sanctions will render a lender insolvent or near in
solvent , the agencies should make two determinations .

First , they

should determine if the lender's insolvency or near insolvency will
be detrimental to the community it serves .

In making this deter

mination , agencies should consider whether another institution
might better serve the needs of a community .

It is difficult to

conceive of a situation where discrimination is so rampant that
compliance with administrative orders will render an institution
insolvent or financially insecure .

In these unusual cases , one

must question the desirability of permitting a lender to stay in
the lending business at the expense of the victims of discrimination

where another institution could provide lending services and comply
with the law .

If the agency decides that the financial impact of usual en
forcement measures will be detrimental to the community served by
an institution , they should formulate remedial actions that ac
ccommodate a iender's solvency problems , yet fully compensate injured
consumers .

For example , monies owed to consumers might be paid

out over time ( with interest ) rather than immediately .

Repeated Violations
The proposed guidelines fail to adequately address the
problem of the lender who repeatedly violates the Act .

The

General Enforcement Policy section states that if violations
remain uncorrected , enforcing agencies will exercise appropriate

authority , including cease and desist authority , to insure cor
rection .

The guidelines also provide that agencies that require

corrective action will not be precluded from referring cases in
volving a pattern or practice of discrimination to the Attorney
General .

96

an action against creditors who so violate the Act .

Referrals

of these cases to the Attorney General would not necessarily

result in a lawsuit in each case , but would allow the Attorney
General to exercise his or her discretion under the Act .

A

referral requirement also will act as an important inducement
to lenders not to engage in a pattern or practice of violating
the Act .

Moreover , referrals will allow the Attorney General ,

through litigation , to achieve a more complete enforcement of the
Act and more complete compensation of individuals injured by vio
lations .

For example , the Attorney General may seek punitive

damages through the courts , while the agencies appear to believe
they are without authority to assess punitive damages .

Also ,

the Attorney General might obtain greater affirmative relief for
the victims of discrimination than is awarded through administra
tive action .

Thus , a referral requirement would comport with

Congressional intent to establish a network of effective en
forcement measures under ECOA .
VI .

An Interagency Commission Should be formed to Oversee
Enforcement

An interagency committee should be formed to oversee and
evaluate enforcement efforts generally and to maximize uni
formity in administrative requirements.ll /

Whenever the treat

ment of a specific situation is left uncertain under the present
guidelines , the enforcement agency should be required to submit

a description of the situation to the committee .

The committee

should then make recommendations on appropriate enforcement re
sponses and , if necessary , draft more detailed guidelines . 12 /
For example , whenever lenders have discouraged applications on

11 / Despite the formation of this committee , each agency will
retain final authority to determine the enforcement requirements
it will impose .

12 / Before adopting any additional guidelines , the committee
should publish and solicit public comment on proposed measures .

97

a prohibited basis , lenders would have to solicit credit applications
from the discouraged class through advertising .

The committee

should review violations of this kind , recommend enforcement re
sponses and develop standards which may be used in the future to
design appropriate sanctions ,

Such standards should give guidance

on the media through which ads must be run , the frequency with
which ads must be placed and the content of the ads .
The committee should also review and make recommendations for

all factual situations that an agency believes deserves special

treatment because of the character of the violation , the con
dition of the creditor , or the cost and effectiveness of the
corrective actions .

Also , the committee should develop standard dis

closure forms to inform consumers of violations and educational
materials to accompany these disclosures .

See pp .

5-7 supra .

Disclosures and educational materials should be written in simple
English and tested to assure that they can be understood by the
general public .
The Committee should also include several consumer repre
sentatives .

Consumers whose rights have been infringed on will

not have an opportunity to comment on appropriate committee re
commendations in specific factual situations .

Yet , the

institu

tions that have violated their rights are likely to have ample
opportunity to express their views to the committee on the de
sirability of alternative remedies .

equitable situation .

This is indeed an in

To remedy this inequity , individuals re

presentative of the classes of consumers affected by enforce
ment actions should be afforded the opportunity to participate
in committee determinations and to vote on committee recommendations .

Also , inclusion of consumer representatives on the committee will
better assure that consumer interests are accommodated in determina

tions on specific factual situations .

98
VII .

Conclusion
In closing , we would again like to express our appreciation

for this opportunity to voice our concerns about the proposed
ECOA enforcement program .

We hope that this subcommittee will

carefully consider our testimony and encourage the enforcement
agencies to adopt the vigorous enforcement program envisioned
by Congress when it passed this Act .

[ Whereupon , at 11:18 a.m., the subcommittee adjourned , to recon
vene at 9:30 a.m., Thursday, September 14, 1978.]

BANKING REGULATORY AGENCIES' ENFORCE

MENT OF THE EQUAL CREDIT OPPORTUNITY
ACT AND THE FAIR HOUSING ACT
THURSDAY, SEPTEMBER 14, 1978

HOUSE OF REPRESENTATIVES,

( 99 )

100

insulate institutions from exposure, not to insulate them from com

pliance but to insulate them from exposure as part of the legiti
mate role that they have.

101
It is also instructive to note that the conduct which occasioned

that kind of liability was incredibly casual. And the point that I
make repeatedly to lenders whom we would advise, as well as the
agencies, is that the exposure, the victim machines, if you will, are
created on the front line, by those individuals who have
responsibility for dealing with the public. Ironically all of the man
agerial discretion in the

102

tion and new jargons are created, rarely can the majority of insti
tutions go out and add people. So the same people are trying to
pick up an expertise. Usually the new regulation is imposed with
new triggers for differing disclosure, andnotice requirements. In
essence ,we have an information bottleneck . So I see a marginal
and diminishing return every time we attempt to correct some
practice in the industry. The bottlenecks arise and new remedies

are not being effectively carried out because of the difficulty of

understanding what is going on , the conflicts of regulations, and
the overlap ofvarious triggers. That is aa real problem that has not
been addressed.

103

viewed the agencies as in a horserace and in this first generation.
Before you step out of the stall you look around and see what
everybody else is doing. I think most of the agencies have emerged
into the second generation where you recognize that you are not

really helping the lenders if you do not prepare them to comply

because of the so-called sleepinggiant exposure. This stage is char
acterized by an attitude where although you are putting the people
in the field, and are gearing up, you are still not thrilled when you
find discrimination .

104

I also think that civilrights compliance is by definition a very
symbolic affair as well. You get a very great deal of mileage out of
the symbolism thatagencies express.

a

105

dural aspect of ECOA, regulation B, or truth in lending, you want
to take a statistically significant example and see if there is an
incidence of violation and you have an objective standard to look
at-did they give the notice or not ? When you talk about finding

discrimination, the whole sampling has to be whites against blacks,
rejects against acceptances. It is a different kind of standard and
sampling.

106

were given the role by Congress of being the aggressive pattern
and practice kinds of enforcers, which would be Justice and FTC .

9

107

Mr. DENNIS. As the permanent and best way , I do not think that
is. Given budgetary constraints, the reality we are not going to go
out and duplicate another 600 examiners to do this, the way I come
down is as follows. You have these commercial examiners, they are
going to be in the institutions. Whether they do the bulk ofit or

not, they should be trained to this . I see situations where commer

cial examiners give directions contradictory to what other examin
ers do. I think each examination for civil rights area should be
directed by a senior examiner who is given intensive training, more

than a crash course , and that a good deal of the work in the
institution of gathering, marshaling information can be done by
commercial examinerswho are trained toward the gathering of
information, but that the evaluations and judgments of " well , we
are going to move here, look here , ” should be done by someone
fairly senior, so you can combine both of those, minimize the
additional expense necessary and still get the expertise into the
field .

37-415 O - 79 - 8

108
PREPARED STATEMENT OF WARREN L. DENNIS, ATTORNEY, TROY, MALIN &

Chairman Rosenthal and Honorable Members of this Subcommittee :

I am pleased to testify today in response to your
invitation of August 18 , 1978 .

I plan to discuss briefly the

conclusions contained in the report which our firm prepared for

the Federal Reserve Board entitled 'The Detection and Correction
of Credit Discrimination :

A Report to the Board of Governors

of the Federal Reserve System . " You have also asked me to address
seven questions dealing generally with the activities of the

federal financial regulatory agencies in the area of consumer
protection and civil rights enforcement .

I would like to begin by disclosing my biases .

Presently ,

a significant portion of my time is devoted to working with
lenders and trade associations of lenders in designing and
implementing approaches to " compliance management . "

In addition

to dealing with specific problems as they arise , we try to develop
practical internal controls to assure compliance as a part of
normal business operation and business planning .

A good deal

of this effort is directed toward training of senior executives ,

loan officers and other internal staff , and development of training
tools and guidelines to make compliance easier , more effective
and routine .

We also consult to several federal agencies in

the same areas .

Prior to leaving the government I headed the

Task Force on Financing Discrimination in the Department of
Justice .

In that capacity , in addition to trying cases when

significant violations of federal law were alleged , I worked with

109

the regulatory agencies and several interagency task forces
to help develop administrative compliance programs .

If there is a particular editorial perspective which
has characterized my view and the view of my colleague , Stan

Pottinger , former Assistant Attorney General for Civil Rights ,
it has been that Civil Rights Compliance and enforcement should

not be a game of " cat and mouse " on the part of the industry or
of the government .

playing " gotcha "

In other words , it is not a matter of

or of imposing severe regulatory burdens as a

sort of " penalty "

for untried crimes , but it is , or should be

a process of identifying the reasonable requirements of the law
and creating reasonable mechanisms to implement the law in

its historical context .
For the most part , civil rights laws are remedial , not
punitive in nature .

In the modern context , enforcement is not

so much a question of " good guys"

and " bad guys " as it is a

need to undo certain historical patterns of conduct that have
evolved over the years which we have now identified as arbitrary ,

uneconomic , fiscally harmful or socially undesirable .
considerable difficulty in accomplishing these high - sounding
goals , however , because of the following factors :
a.

The " law " is sometimes vague and thus

requires either the imposition of intricate

explanatory regulations or , alternatively , sub

jective case by case interpretations .

In either

event , it frequently occurs that the persons who are
subject to the regulations are given no reliable guidance

110

which tells them clearly the nature of the conduct
or changes in conduct expected to flow from the
law .

b.

The cumulative impact of layered

regulation has created a real crisis in the
industry because most institutions , being of moderate
or small size cannot , afford and should not have

to rely on expensive experts or consultants on

every aspect of operation .

Bank and savings association

personnel are literally at the saturation point in

terms of their capacity to absorb intricate new
regulations .

Since regulations are effectuated only

through the conduct of the men and women on the front
lines in financial institutions , a bottleneck of

this kind effectively thwarts the remedial measures
intended by Congress to be carried out .

The larger

this crisis grows , the less effective is each new
attempt to correct some industry practice .
c.

In the field of civil rights ,the regulators

themselves have only recently accepted the responsibility
for enforcement and compliance and are still in the

process of sorting out their proper roles .

dynamics are at work here .

TWO

Historically , the

financial regulatory agencies never perceived their

jobs as pertaining to the civil rights compliance
activities of regulated lenders .

Consequently , there

is no institutional memory of or commitment to the
subject matter .

In fact , to the extent that regulators

were recruited from the industry , they , as individuals ,

111

may have shared some of the very perceptions which
called forth the corrective statutes and regulations
at issue .

Accordingly , the very entry of the agencies

into this field over the past six years can be
characterized as " reluctant , "

and accomplished

through a combination of several vector forces

including Congressional oversight hearings , private
lawsuits , passage of new laws with specific delega
tion of responsibility , pursuasion and influence
from other government agencies , and public pressure .

As institutions , the agencies are , perhaps , still
uncomfortable with their roles , and are , commendably ,

bringing in new personnel with civil rights experience .
The second dynamic at work is the requirement

that the agencies simultaneously fulfill two inherently
conflicting functions .

On the one hand they have to

be enforcers , protecting the public generally and

specific complainants specifically .

This might some

times require action inimicable to the financial

position of an institution by exposing it to liability
for damages and private actions .

It also calls for a

fact finding process and a semi-prosecturial function ,

requiring examiners to be investigative experts and ,
once a violation is found , advocates .

On the other

hand , the agencies also must act in a protective way ,

helping institutions anticipate and meet regulatory
requirements. This is an educational function and

112

requires examiners to be genuine experts in the
subject matter and be able to delicately balance their

advisory and advierial

roles .

The key to controlling

this inherent conflict is examiner training , not just

in investigative techniques and the text of laws
and court cases , but in the overall proper discharge
of their difficult duties .

Some questions arise as

to whether it is appropriate or efficacious to place
responsibilities of this type primarily on examiners
who were recruited and trained to perform financial
auditing functions , or whether a special corp of

examiners would perform better in this area .
In any event , the conditions described above provide
the context and background in which we find ourselves today .

I must also point out that , in my experience , the
overwhelming majority of financial institutions recognize the
existence of problems, and the need to change with the times ;

and do not stand as apologists for the relatively small number of
lenders who do abuse the rules and who are legitimately subject to
corrective action .

I have found that most lenders want very

much to comply with both the procedural and substantive require
ments of the consumer protection laws . However , there is
an enormous frustration level rising in the industry because
of the extreme complexity of some requirements and , paradoxically ,
the extraordinary vagueness of others .
Some regulations , in fact , represent what I call " regulation
by telepathy . "

An example of this phenomena is the proposal by

the agencies under the Community Reinvestment Act .

I have taken

the liberty of attaching to this testimony a copy of comments

113

prepared by the Pennsylvania Savings League on this proposal
which point out some of the problems in this regard , by way
of illustration .

There is an additional phenomenon which should be noted
in the course of any analysis of the role of the agencies in
consumer credit protection .

The current method of rule -making and enforcement typically
calls forth a whole new jargon and regulatory structure to
accommodate each new remedy , with little effort at over-all coor
dination

For instance , definitions such as " dwelling " or

" application " are different under ECOA , the Fair Housing Act ,
Truth - in - Lending and Respa .

There are also divergent requirements

within each regulation so that various notice , disclosure ,
recordkeeping and recission provisions each have different

definitional triggers .

Experts who specialize in consumer credit

protection struggle with the vagaries here .

It is simply

unrealistic to expect this patchwork legal framework to be
administered with anything approaching ease . Accordingly , in
evaluating the performance of both regulator and regulatee it is
not just a matter of assessing motivation , good faith , technical

knowledge or budget constraints .

An accurate estimation of success

at enforcement requires analysis of a larger mosaic of these
and other factors .

As a beginning in the measurement process , we found it
necessary to develop criteria for designation of a successful
compliance program .

That analysis , which is applicable to the

activities of all of the agencies is set forth below :

114

B.

Criteria For Evaluation of The Board's Program

We begin with the observation that , with respect
to member banks the Board has a three - fold objective

in the interlocking scheme of federal bank regulation
and consumer credit protection :
To assure that all of the protections
( a)
and benefits intended by Congress to be realized
passage
through
of consumer protection and civil
rights laws are in fact extended to borrowers
and applicants who deal with member lending institu
tions ;

( c)
To contribute to the stability of the
credit marketplace by eliminating practices , such
as discriminatory lending practices , which inter
fere with the efficient matching of available

credit sources and creditworthy borrowers .
In determining whether the procedures ,
materials and policies currently employed by the
Board in its experimental consumer compliance

program fairly and effectively fullfil the Board's
objectives with respect to civil rights enforcement ,
we have measured these materials , procedures and

policies against the following general criteria which ,
We believe , should characterize a successful compliance
program :
1. Institutions subject to an agency's enforce

ment powers should be provided with a clear and
unambiguous statement of the agency's expectations

in the area of civil rights compliance , so that
they can anticipate changes which they might have
to make in their practices .
Compliance standards should be practical
2.
and realistic and not so procedurally difficult
or complex that efforts at assuring compliance
become unduly burdensome , either for examiners or

regulated institutions .
3.

115
Methods and techniques for uncovering unlaw

ful practices must be accurate and efficient , so
that institutions which persistently violate the
law can be identified for appropriate corrective

action . This is also necessary in order to assist
the large majority of institutions which attempt,
in good faith , to comply , to recognize potential
problems in their practices and take steps to
reduce any possible exposure to liability .

Examiners

should be given objective standards

and an adequately detailed investigative pro
gram with which they can determine whether

discrimination is or is not present in a fair
manner .

5.

Procedures for corrective action with

respect to institutions which do not comply
should be consistent and should be relatively
visible and vigorous , for prophylactic purposes .

6.

The administrative enforcement climate

created with respect to civil rights laws should
reflect the sense of priority which Congress
and the courts have traditionally assigned to

enforcement of such laws .

This is necessary

in order for examiners to place their responsi
bilities under these laws in proper perspective
and in order to convey to regulated institutions
the importance of their civil rights compliance
efforts .

7.

A civil rights enforcement program should

adequately reflect the extent to which civil

rights laws are unlike other consumer credit

protection measures , or regular banking regula
This is important because of the unique
standards of judicial construction attached to

tions .

civil rights laws .

Inasmuch as regulated lenders

are subject to these rules of construction , the
administrative evaluation of their compliance
should be undertaken with this in mind, and
examiners should be equipped with the necessary
background to make these evaluations .
8.

In the area of civil rights compliance it

is particularly important for examiners and others
engaged in carrying out an enforcement program to
have an adequate understanding of the history of
events which called forth the laws and regulations
which they administer , in order to understand their

intended scope and application .

In Appendix B I have reproduced a six page general
summary of the Report which sets forch our over- all conclusions
regarding the activities at the Federal Reserve Board .

I am

advised that over the summer the Board has had an internal

116

task force analyzing the report and its recommendations
purpose of revising its compliance program .

for the

I should also add

that the Board and its staff have been exceptionally helpful

and cooperative to us in the course of this endeavor and to my
knowledge , quite receptive to many of the suggestions made .

I

believe that they commissioned the report with the expectation that
it might be somewhat critical , and that is certainly to their credit .

I have also reproduced and attached several other sections
of the report which deal with specific recommendations for program
changes or new teaching tools or other compliance devices . The
text of the full Report is 145 pages with about 300 pages of
appendices .

I have included at the end of this statement the

following sections which I think will be of particular interest .

These are recommendations which are applicable to each of the
other agencies , as well as the Federal Reserve Board .

I hope

that this Report will be of some assistance to other agencies ,
as well as to the industry itself , which is subject to these
regulations .

In my judgement , in the area of consumer protection

there is a complete convergance of private and public interests
here and that implementation of the recommendations made will lead

directly to more rational and well informed enforcement and compliance

education activities .

This inures directly to the benefit of

lenders as well as to the benefit of the public .
The additional appendices are :

Appendix c :

Discussion of a model rating system

Appendix D :

Discussion of complaint Procedures and

Appendix E :

Discussion of observations and recommenda

117
With respect to the seven questions enumerated in
your letter of August 18th , I wish to point out an important

You have asked me , in some instances , to compare the

caveat .

activities of a number of the agencies .

Since I have not

recently analyzed the program of the other agencies with the same

degree of intensity as we analyzed the program at the Fed , it
would be unfair to imply that my comments are based on the

same level of familiarity .

I will attempt to answer your questions ,

however , based upon our general knowledge of the publically

disclosed programs of the agencies .
1.

How satisfactory is the civil rights enforcement work of the
other agencies , and how do they compare with the Federal
Reserve and with each other , in
a.

comprehensiveness of current program of detection and
enforcement ;

b.

technical competence of the staff ;

C.

adequacy of budget resources devoted to civil
rights enforcement ; and

d.

general agency commitment to civil rights enforce
ment .

ANSWER :
Arthur Burns once characterized the four federal

financial agencies as participants in a " competition in laxity . "
Recently , however , the opposite is true in the area of civil

rights compliance .

Each agency is now in a period of transition

and , in fact , is still in the process of hiring new personnel

and designing their programs .
concrete assessments .

It is thus , too early to make

Each , however , has shown outward signs of

commitment and the leadership of each have apparently accepted ,
in principal , a role for their agencies in civil rights enforce
ment .

This development , albeit somewhat late in coming

is welcome and should provide a good foundation for future activity .

118

The comprehensiveness of the program of each agency ,

in my judgement , is limited primarily by budgetary constraints .
I am concerned that the agencies have not evolved to the point
of being able to identify enforcement priorities and techniques
for serving these priorities .

For instance , I would suggest

that we recognize that it is not possible ( nor necessarily

desirable ) to try to find each and every procedural violation
in the world .
a.

Examiners should emphasize these priorities .

finding and correcting significant , substantive
violations and

b.

providing accurate and reliable assistance to
each institution in setting up prohylactic
programs and internal controls and

C.

assuring that employees of institutions are
all given reasonable adequate instruction
in compliance , since institutions act only
through their employees .

The establishment of these priorities is what I call
the " second generation " of enforcement efforts .

We are still

only emerging from the " first generation . "

As to the technical competence of staff , there are two
sets of staff at issue .

In most cases the Washington staff ,

naturally , contains more specialized expertise in civil rights

then the regional staff and this expertise is growing .

This is

not really a question of " competence " because , in my judgement
the agencies attract and are peopled by very competent
individuals .

The issue is familiarity with civil rights prece

dents and enforcement .

I am concerned , as to each agency ,

including the Home Loan Bank Board , which has been a leader in

this area , that examiners who constitute the front line of
enforcement and compliance are not being adequately trained and
tested .

The heart of an agency's program is the proficiency

119

of the examiners . Civil Rights , unlike other aspects of
consumer compliance , requires more than textual knowledge of

laws and regulations .

A good deal of judgement and familiarity

with case law is required .

I get frequent reports from lenders

of examiners giving what I regard as incorrect advice , and
this is troblesome .

I am moving toward a conclusion that , while

all examiners should be given exposure to training in this area ,

it is necessary to have , in each regional office or Bank , a
corps of specialists in civil rights and lending , if for no
other reason , to keep current in a rapidly changing area .

Examiners , like everyone else, do not have an endless capacity
to absorb new regulations and interpretations .
2.

What level of agency staffing - how many examiners and how
many personnel in other functions - are required for adequate

enforcement of fair housing and equal credit opportunity in
financial institutions ? In supervising institutions that
make both home loans and other types of consumer and small
business loans , what relative proportions of effort should

be devoted to home loans and to other types of credit?
ANSWER :

The number of federal examiners has not grown proportionately

to the number of new laws and regulations which they enforce .
However , in these times of a healthy and concentrated effort to control
government spending , it is unrealistic to expect or rely on
large budgetary increases to bolster
ment .

the efficiency of enforce

Accordingly , better enforcement techniques must be

developed .

I believe that existing staff , with the addition of

one or two specialists in each region can adequately do the job .

analyzing records which are more efficient then other ways .

H

There are ways of conducting examinations , comparing files and

120

do not believe that all of the agencies are aware of this .

One

suggestion is to do a very comprehensive initial exam for

civil rights and community investment , preparing a record which
is more complete than a normal exam would be .

Thereafter , sub

sequent regular examinations can be tailored to the facts at
hand .

Perhaps only an update is necessary .

Certain forms of

spot checking , if based on a knowledge of civil rights principles ,
can be used .

Perhaps lenders with very good records and good

internal controls need not be examined as thoroughly as others .

There are key " indices of compliance " which can be used as short
cuts in examinations .

Contact with organizations outside the

institution might help identify where problems are .

Because of the relatively greater amounts of money
involved and because of the importance of home finance , this
area of credit probably justifies more attention .
However , home improvement loans , which in banks are a
" retail "

category are also important .

Virtually no programs

have been developed in the area of business credit .

Also ,

very little attention has been paid , except by the Fed , in mostly

theoretical work , to the operations of credit scoring systems .
Many of the lawsuits now pending involve credit scoring and ,

in my judgement , some banks are remaining open to significant
financial exposures which can be avoided if caught early .
3.

Are discriminatory redlining practices of the sort prohibited
by the nondiscrimination regulations of the Federal Home Loan
Bank Board a significant problem at banks ? Would banking
agency regulations similar to those of the Bank Board ,
coupled with a suitable program of detection and enforcement ,
be an effective way to deal with this problem ? Do the banking
agencies have adequate statutory authority for issuing and
enforcing such regulations against redlining ?

121

ANSWER :

There is , in my judgement , adequate authority in each

agency to issue comparable regulations .
advisability of doing so .

The question is the

We recently authored a 130 page manual

with a five hundred page appendix explaining fourteen pages of
Bank Board regulation .

We generally need eight to twelve hours

of lecture time to bring lenders to a level of comfort with

the regulation .

The substance of the Bank Board's regulations are in the
right direction .

However , they were obtuse and mystical, using

new jargon and assuming levels of knowledge which do not exist
among most institution personnel .

Although we have ourselves

been called on to provide professional services interpreting
these and similar regulations , I think it should be unnecessary
for lenders to have to call on outside specialists to implement
a rule which applies to day to day operation .
For the most part , the Bank Board's regulation is really
a codification of existing law .

To this extent it will be

helpful to savings associations , in the long run , to come to grips

with these issues .
liability .

Ultimately , this has helped them avoid future

Commercial banks would definitely benefit from this

type of exposure , for this reason .

Also , banks and savings

associations , as a matter of principal , should probably be

subject to the same legal interpretations . I would , however , draft
and implement these guidelines in a different fashion , if issued
for commercial banks .

122

4.

How important to the elimination of credit discrimination
is a program of statistical monitoring of all loan applica
tions and inquiries ? Is statistical monitoring as important
to the detection of redlining discrimination as it is to the
detection of discrimination related to applicant character
istics ?

What items of information is it essential to monitor ?

Is Home Mortgage Disclosure Act data useful for detecting
discrimination?
ANSWER :

There are two myths at work here .

First , it is still

believed that the more elaborate or sophisticated a data

collection system , the more helpful it is .

Probably the opposite

is true and I believe that several of the statistical monitoring
programs being tested or undertaken by the agencies , at consider
able cost , are a waste of money .

They will not add significantly

to the ability to detect and correct discrimination .
Myth No. 2 is that the Home Mortgage Disclosure Act data
is useless .

The data should not and can not be used to draw

dispositive conclusions about discrimination .

However , it is

essential for identifying gross patterns that call for more
discrete analysis .

Some observers have stated that HMDA is useless
because it is never asked for by the public . The value of HMDA
data , however , is its potential use by examiners who should

regularly plot HMDA data on maps with demographic overlays .
Naturally , there may be many bona fide explanations for certain
patterns , and these must be explored with management and confirmed
by analysis of files .

But where a lending pattern is diverse and

well distributed , HMDA can be a very good defense for lenders
and an indication to the examiner that further investigation is
not needed .

It also identifies the kinds of further inquiry needed .

123

The nature of " discrimination " as that term is defined
by the courts precludes that use of statistics as accomplishing

much more than the establishment of a prima facie case , or as
evidence which can shed light on certain practices .

I have seen

agencies try to use elaborate statistical models to " prove " the
presence or absence of discrimination .

This effort comes usually

from a lack of knowledge of the rules of construction under

civil rights laws .

One cannot impose an " economic model " or a

dictionary definition of " discrimination " to prove or disprove

the presence of a legal condition .

Discrimination is what the

courts say it is , and cannot always be uncovered by computer - based
studies which define it as something else .

Frequently , it occurs

at some part of the transaction which is not even recorded .
Also , one problem with the elaborate studies attempted thus far
is that their complexity results in a very low accurate completion
rate at the primary data collection stage , thus resulting in a
low level of confidence in the results .
Depending on their accuracy and format , statistics can be
very important in ( a )

identifying enforcement priorities ( b )

establishing a prima facie case and ( c )
liklihood of discrimination .

tending to proving the

However , there is probably no way

to escape the need for reviewing anecdotal evidence , and documentary
evidence .

Also , given the many variables which go into every loan

decision , I do not think that a program of monitoring which is much
more complex than that now used by the FDIC or the FHLBB , can be
successful , or more successful , in finding discrimination ,

unless designed around a specific theory being tested for .

The

key in general compliance is the training and competency of the

examiner , on the premises , in identifying patterns and making
an informed judgement .

37-415 O - 79 - 9

124
In fact , I believe some degree of overkill is involved

in making all institutions regardless of size and location , carry
out extensive recordkeeping .
5.

What are the most effective regulatory approaches to the

problem of pre - screening and discouragement of loan appli
cants and potential applicants ?

There has been a good deal of confusion on this subject .

There are two types of " pre- screening . "

One is " substantive , "
such as an informal turn down on account of sex , race , neighbor

hood racial composition , etc.

This is a serious violation not

because of the informality involved , but because of the prohibited
basis involved .

" Procedural "

pre-screening , on the other hand ,

is the process whereby serious applicants or potential appli
cants are turned away at some point in their discussions with
the lenders , with no record being made of the contact .

This

" pre-screening " may or may not take place on account of a

" prohibited basis . "

In any event , it presents an enforcement

problem because it prohibits the regulator from ( a ) reviewing
the loan decisions being made in these informal contacts , to
see if they are being made on a discriminatory basis and ( b )
obtaining an accurate understanding of the type of demand made to
the institution , so that a profile of the persons who have
obtained loans can be compared with a profile of the persons
requesting loans .

The need to " profile " demand for loans is

particularly important in dealing with " effects test " questions
and in dealing with alleged redlining .

( It is also important

because it is as useful in constructing a defense against
unfounded charges of discrimination as it is in determining

whether discrimination is present . )

125
Regulation B deals with pre- screening in the following

ways , which , if implemented correctly , accomplishes the agencies
objectives and complements the agencies ' other proposed record
keeping requirements .

Normally , a written record is always made

of credit applications which are granted .

The Regulation B

notice provisions described below provide for a written record
of instances where credit is not granted .

12 C.F.R. 202.9 provides that notice of favorable or

adverse action must be provided to an applicant within thirty
days of receiving a " completed application , " or thirty days after
taking " adverse action"

on an " uncompleted application " or

within 90 days of making a counteroffer if the applicant does not

accept the counteroffer during that time .

Notice on adverse

action must be in writing and include either the specific reasons
for rejection or disclosure of the applicant's rights to obtain
the specific reasons in writing .

Section 202.12 requires the

lender to keep , for 25 months , the notice itself together with

any " written or recorded " information used in evaluating the
application .

This includes the application form and any information

conveyed , if recorded .

The important trigger which sets in motion all of the
above , is the definition of " application " provided in 12 C.F.R.
202.2 ( f ) .

Regulation B provides :

Application means an oral or written request for

an extension of credit that is made in accordance
with procedures established by a creditor for the

type of credit requested . The term does not
include the use of an account or line of credit
to obtain an amount of credit that does not exceed

a previously established credit limit .

A com

pleted application for credit means an application

126

in connection with which a creditor has received
all the information that the creditor regularly
obtains and considers in evaluating applications
for the amount and type of credit requested ( in

cluding , but not limited to , credit reports , any
additional information requested from the appli

cant , and any approvals or reports by governmental
agencies , or other persons that are necessary to
guarantee , insure , or provide security for the
credit or collateral ) ; provided , however , that
the creditor has exercised reasonable diligence
in obtaining such information . Where an application
is incomplete respecting matters that the applicant

can complete , a creditor shall make a reasonable
effort to notify the applicant of the incompleteness
and shall allow the applicant a reasonable opportunity
to complete the application .
In an unofficial staff opinion ( No. 6 , June 22 , 1977 )

Anne Geary , Chief of the Federal Reserve Board's Equal Credit
Opportunity Section , analyzed the language of 12 C.F.R. 202.2 ( f )

to conclude that " general inquiries concerning the availability
of funds , prevailing interest rate or the lender's credit
policies ... would not be an application triggering notice
requirements because ... the creditor would not have received

sufficient information on which to base a credit decision . "
The logic behind this approach is that the creditor sets up the
criteria and procedures for accepting applications , and that an
" application" occurs when these procedures are followed .

The

problem with this definition has been that most creditors , as
institutions , adopt formal application procedures as a matter

of policy , while employees , as a practical matter , often have
the opportunity to make informal qualitative decisions at
various points in the application process which in reality , can

result either in credit being granted or not being granted .
This informal decision may be no more than the decision that it

would be fruitless for the applicant to proceed to the next stage
in the application procedures established by the creditor .

127

The Federal Reserve Board , working with the Home Loan
Bank Board recently issued a new interpretive

letter setting

forth clearly , with examples , the way that an " application "
comes into being .

Under this definition , most " procedural " pre

screening is eliminated and , at the same time , lenders are given
a consistent guide to follow on a day-to-day basis .

The FDIC

goes further and requires each " inquiry " to be recorded .
As to " substantive pre- screening "

there is virtually no

way to detect it by a review of records alone .
it is an act which is unrecorded .

By definition ,

Even under the FDIC approach ,

assuming that a discriminating lender is honestly filling in
the register , inquirers would have to be interviewed .
6.

What should be the role of the financial regulatory agencies

in informing the general public about the existence and
possible usefulness to them of the civil damages provisions
of the Fair Housing Act and the Equal Credit Opportunity
Act ?

Are the agencies performing this role adequately ?

Individuals should be fully informed of their rights and
encouraged to exercise their rights at their option .

I believe

it is misleading , however , to assume that each suspected violation
must result in litigation in order to be successfully resolved .

The various applicable laws provide many avenues of redress ,
including administrative measures and even moral suasion .

There

is a significant difference between assuring that consumers are

informed of their rights and encouraging them to file lawsuits .

I am particularly troubled by the prospect of examiners or other
agency personnel regularly recommending lawsuits on the basis
of incomplete investigations , tentative conclusions or the like .
In fact , short of an administrative finding of discrimination
accompanied by due process safeguards , I am uncertain of the pro

128

priety of doing so .

While an agency might , in some circumstances

justify disclosing its conclusions , and even attempt to provide
relief to individuals through the administrative process , it
should be wary of recommending that suits be filed in particular
instances .
We have discussed this issue and the dilemma facing
agencies in the FRB report , and I direct your attention to
pages 119-121 , in Appendix D.
7.

What is your evaluation of the proposed uniform enforcement
guidelines for Regulation B?

What is your evaluation of

the Federal Home Loan Bank Board's statement of enforcement
policy for handling violations of that agency's nondiscrimina
tion regulations ?

As " guidelines " and " statements " of enforcement policy
neither

document has the force of law .

Each represents a state

ment of the agencies ' intentions , in the event of an enforcement
action .

Some of the items listed , in my judgement , might not

withstand judicial scrutiny if attempted to be imposed by these
agencies , particularly if imposed without the full due process
elements of a cease and desist hearing .
In terms of format , the Bank Board's statement reflects

much more closely the flexibility and structure of relief which
characterizes civil rights cases .

The joint statement seems

patterned on the Truth- in- Lending Enforcement Guidelines and
not terribly informative .

To some extent these statements are symbolic and intended
as an indication of seriousness .

From a prohylactic point

of view , there is nothing wrong with this , particularly since

129

both statements reflect the kinds of relief which courts might
order if a serious violation were found .

It is important for

the industry to be aware of this , from a defensive point of
view .

I hope that the above information and opinions have
been helpful .

Thank you again for inviting our view .

Respectfully submitted ,

Wow L.
Warren L. Dennis

Denn

130

Appendix A

Pennsylvania Savings League Inc. comments on proposed Community
Reinvestment Act regulations, August 1978

Appendices B- E

Excerpts from THE DETECTION AND CORRECTION OF CREDIT DISCRIMINATION :
A REPORT TO THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM ,

by Warren L. Dennis , Pottinger and Company , May 1978

Appendix B : Summary and Conclusions ( pages 9-14 )
Appendix C : Discussion of a model rating system for evaluation of
Appendix D : Discussion of complaint procedures and specific recom
Appendix E :

Discussion of observations and recommendations for

131

APPENDIX A

PENNSYLVANIA
SUITE 210 - 100 CHESTNUTSTREET, P. O. BOX 1203 - HARRISBURG , PA 17:08

GLENN O. STULL

August

14 ,

1978

Mr. Theodore Allison

Secretary to the Board of Governors
of the Federal Reserve System
20th and Constitution Avenue , N. W.
Washington , D. C. 20551

Dear Mr. Allison :
Re :

F.R.B. Docket No. R - 0139
Community Reinvestment Act Regulations

The Pennsylvania Savings League Inc. wishes to take this
opportunity to comment on the proposed regulations promulgated

under the Community Reinvestment Act of 1977 .
of the law firm of Troy , Malin &

Mr. Warren L. Dennis ,

Pottinger , Washington , D. C. ,

sisted in the preparation of these comments .

as

These comments are

based upon a review of the legislative history of the Community
Reinvestment Act ( " CRA" ) including Hearings on s . 406 */ , as well
as analysis of the extensive transcript of testimony at hearings
before the four financial regulatory agencies in Washington , D. C. ,
Dallas , Atlanta , Boston and San Francisco .
First , we wish to extend more than obligatory congratula
tions to the interagency task force for capturing in the proposed
regulations the sense of flexibility and moderation which was

Hearings before the Committee on Banking, Housing & Urban
Affairs, United States Senate , 95th Congress , First Session
on S. 406 , March 23 , 24 and 25 , 1977 Thereafter , Hearings ) .

132

reflected in the legislative history of the Act . */

At the same

time , we wish to point out aspects of the proposed regulations

which appear to be somewhat Delphic , and might appropriately be

characterized as " regulation by telepathy . "

This occurs where the

probable intended meanings of certain phrases and proscriptions are
really known only to a relatively small group of insiders and spe
cialists .

We are very concerned that the men and women with day - to - day

responsibility for formulating and implementing savings association
policy be able to understand the scope and impact of the regulations
without translation or mystery .

In this regard our comments and sug

gestions will fall into three categories .

language .
( b)

Suggestions relating to the redundancy
of certain criteria listed in the regu

lations .
( c)

Proposals for greater guidance with respect
to standards for acceptable levels of com

pliance under the Act .

The need for such

objective standards is particularly appro
priate for Federally chartered or insured
savings associations because of the legal

Senator Proxmire , the leading proponent of the law , characterized
the bill and its system of evaluation as a " mild proposal "
( Hearings at 323 ) and as a " mild incentive " ( Hearings at 326 ) ,
and approached the ends of the bill as being " limited " and not

intended to " reach as far as housing is concerned , everyone . "
( Hearings at 225 )

133

limitations on the types of loans which
they can make , and because of the appli

cability of the Federal Home Loan Bank
Board's Non - discrimination Requirements ,

which affect savings associations , but not
other financial institutions .
We will begin with suggestions relating to the last point
first .

Ascertaining And Meeting Credit Needs

taken into account in " assessing the record "

but have given very

little guidance as to the editorial or policy goals which the Act ,
in the opinion of the agencies , is intended to fulfill .

There is

repeated reference to the statutorily derived phrase " credit needs
of the entire community , "

which is a keystone of construction ; how

ever , the agencies have deftly avoided coming to grips with the real
meaning of that phrase .

It does little good for associations to know that they have
an obligation to " ascertain "

these needs and to " meet "

them , or that

the Board will " assess " their record of doing so , when the Board
fails to provide a reasonable hint as to the nature and substance
of actual conduct expected to flow from the regulations .

While we

concur that the regulations should be flexible , we do not think that
they have to be vague . "

*/ In the prefatory material announcing the regulations the agencies

134

On closer inspection it appears that the agencies perceived

dramatically different concepts of the phrase " credit needs " in the
testimony provided by representatives of consumer and community
groups as opposed to that provided by lenders and their representa
tives .

The current regulations appear to be an attempt to satisfy

all concerned through the use of a certain amount of " creative am
biguity . "

That is , the definition of " ascertaining and meeting

credit needs " under these regulations can mean whatever the person
interpreting them wishes it to mean .

In one sense , this state of af

fairs can be beneficial to lenders who can assert , at a later time ,
that the phrase has the meaning which they wish it to have .

There

is ' a false security here , however , because it is just as likely that ,
at some future date , perhaps in another political context , the agen

cies and community groups may assert that it has an opposite meaning .
It is , therefore , unfair to all concerned for the agencies to avoid
expressing a view initially with respect to the essence of the pro
cess of defining " credit needs of the community . "
As mentioned , there are two basic viewpoints expressed in

the Hearings testimony .

The first , voiced by community groups and

consumer advocates , is that the " credit need " within a community is

a relatively finite commodity which can be measured , albeit crudely ,
by reference to certain objective indicia of economic activity .
These include land records , census data , activity of lenders and

activity levels of types of lenders ( e.8 . , finance companies vs.
savings and loans ) .

135

derived . */

A savings association's record of lending would be com

pared with this empirically derived index of " need . "
Many lenders , on the other hand , have posited the theory that
the only valid indication of need is the number of actual applications
made to an institution .

Under this theory , " need " is not regarded as

a " fixed" entity , but as one which is transient and variable in mean
ing , depending on market conditions . Under this model , " need " is a
market concept and a lender " meets the credit needs of the community "

if it fairly and impartially evaluates the applications which happen
to come to its door .

While there are elements of truth in both conceptualizations ,
the Pennsylvania League believes that neither is necessarily the best
test for CRA purposes .

First , the " fixed need "

model is unrealistic , both from a

practical standpoint and on the merits .

We believe this was recog

nized by the agencies by virtue of their not articulating this model
in the regulations .

There is no calculus which can adequately express

" need " in some number which can be used to measure an ideal projected
loan activity .

Even the kinds of data suggested for use by consumer

groups are prohibitively expensive to collect , and notoriously inac
curate .

Also , the idea that a true index of needs within a community

could be derived by looking at home sales transactions , etc. , assumes
9

that the only types of legitimate " needs " are those which are expressed
in this kind of data , which is an unduly narrow assumption .

In addi

tion , and most importantly , this approach to measuring need appears to

See , e .8., The Citizens Regulatory Guidelines , Center for
Community change , 1000 Wisconsin Avenue , N. W., Washington ,
D. C. , June 1978 .

136

be based on a view of the word " needs " not justified by the Act or
its legislative history .

It is important for the agencies to make clear that the fol
lowing is not the concept of " need " intended to control under the

regulations . Using a generic definition of need , there is a direct
linear relationship between poverty and need , so that the lowest in
come areas and individuals , ipso facto , have the greatest " need "
credit .

A poor person " needs "

for

money more than a wealthy person .

This cannot be the definition of " need " intended under this " modest "
act .

Also , it is important not to confuse " housing need"

with

" credit need . "

The areas of greatest physical deterioration have the

greatest " need "

for revitalization , but at the same time may not have

the greatest " credit need " because of a lack of financially viable
buyers or investors willing to become involved with such properties .
Lenders cannot reasonably be held to a litmus test which simply

equates deterioration and need for physical rehabilitation with the
greatest " credit need "

and thus the greatest responsibility to lend .

Note that this is inappropriate , not just for safety and soundness"
reasons but because this concept of " credit need "
intended by the sponsors of the Act .

is not the concept

Unless this is made clear in

the regulations , we anticipate that challengers to association appli
cations will eventually seek to argue that a lender has not met its
CRA responsibilities because it did not seek out areas where the
" need " was greatest , as measured by the degree of deterioration in

the area , and not the degree of demand from creditworthy borrowers .

137

practical to identify " credit needs " in the abstract and impose
obligations on institutions to meet and satisfy a hypothetical mea
Remarks in the legislative record indicate
sure of " need " or demand .
that the words " need "

and " demand "

are used somewhat interchangeably

by the Act's sponsors.

I'm not saying you have to have 95 or
100 percent of your loans in the local
community .
or less .

You might have 50 , 40 , 30
If the situation in the local

community was fully met , you may have
less .

( Hearings at 392 )

In another exchange with a lender discussing the balance between in

vesting locally or in securities , the Senator said :

The Report of the Senate Committee on Banking, Housing and
Urban Affairs on the Housing and Community Development Act of 1977

described the purpose of the Act as to " encourage " lenders to give
priority to credit needs of their home areas , and characterizes the
problem at which the Act is aimed as that of lenders failing to take
advantage of " sound local lending opportunities " ( emphasis added ) .
In criticizing certain lenders , Senator Proxmire cited the
failure to " see the loan demand in their own communities "
at 2 , emphasis added ) .

( Hearings

He exhorts lenders to take steps to " find "

demand and states that the CRA will encourage this .

*/ S. Rep . No. 95-175 , May 16 , 1977 at 33 .

138

In an exchange on P. 326 of the Hearings Senator Proxmire
refers to a " demand "

which " materializes "

when lenders seek it out .

In fact , Senator Proxmire notes ( Hearilgs at 2 )

that , " Demand in our

economy is not a passive , fixed thing . "

are likewise not a " passive fixed thing , " but are variable .

elastic and that a lack of application flow may evidence a perception
by borrowers that credit is unavailable or unlikely to be granted .
There is , then , a need to fashion an approach to measuring
" credit needs "

and a lender's record of ascertaining and meeting

such needs which satisfies the goals of the Community Reinvestment
Act , and at the same time provides some objective standard of behav
ior for lenders .

We believe that the proposed CRA regulations and the Bank

Board's existing nondiscrimination requirements together can provide
a mechanism for establishing such an objective standard of conduct
against which associations can be measured .

Before discussing this

fairly simple mechanism , it is important to examine the " evaluation "
>

process itself .
At several points in the legislative history it is suggested

that lenders will be compared with one another , and that the applica
tion of the lender with the best record will be " approved . "

In reality

139

this kind of " comparison " will only occur in the most indirect way ,
inasmuch as :
( a)

most applications do not involve

" competing "

organizations but are

before the Board on their own merits ;
( b)

the competition , if any , may exist ,
in fact , between different types of
financial institutions , in different

forums, so that one agency is not mak
ing the " comparison " ;

( c)

the factors involved are so subjective
that it is impossible , except in excep

+ ional circumstances , to " rank" lenders ,
or to devise a " bell curve "

as one would

in grading exams with relative weights .

on unsuccessful challenges ) .

difficult problem of providing a mechanism for " ascertaining and

37-415 O - 79 - 10

140

meeting the credit needs in the community . "

This approach would

recognize that there may be creditworthy individuals and organiza
tions in the community ( including low and moderate income neighbor

hoods ) who have a credit need that can be met " consistent with the
safe and sound operation " of the institution , but who may be unaware
of the availability of funds or how to apply for them , or who , under
ordinary circumstances , may feel that submitting an application to a
conventional depository institution might be a waste of effort .

Reach

ing such individuals can be the highest priorities under any CRA com
pliance program .

If it can be determined that such individuals or

organizations do not exist , despite a bona fide , good faith , affirma
tive attempt to reach them , then it can reasonably be concluded that
there is no unmet " credit need " in the targeted community .

The key

to this approach is the effort to communicate with the community .
Both the CRA regulations and the FHLBB Nondiscrimination
Requirements contain provisions relating to affirmative marketing .
Provisions of Part 563e.5 of the CRA regulations relating to efforts

to ascertain needs ( Part a ) , consultation with persons in the com
munities ( Part 6 ) , programs to make members of the community aware
of services offered ( Part c ) , are all somewhat redundantly aimed at
the same process .

Likewise , $ 9528.3 , 528.4 and 531.8 ( d ) of the Non

discrimination Regulations and Guidelines are aimed at outreach ef
forts of associations .

Under the CRA regulations , the requirements

are vague and directionless , whereas , with some modification , they
can be made to be substantive and useful .

We propose that the language set forth below be substituted

for sections ( a ) , ( b ) , ( c ) and ( d ) of Section 5630.4 .

Incidentally ,

the present language of paragraphs ( b ) and ( c ) can be easily inter

141

preted to be meaningless .
local communities "

First , in paragraph ( b ) ,. " members of

can mean anyone :

the mayor , the Kiwanis Club ,

community groups , or local indigenous derelicts .

This combined

with the concept of an affirmative obligation to " consult " with

such persons can be read either to require an institution to at
tempt to consult with everyone , or to actually consult with virtually
no one .

What is intended , we believe , is provision of a fair and

reasonable opportunity to all groups and persons who are so disposed
to make their views known to the institution .

This requires a good

faith effort at notice , and due consideration of viewpoints , but
does not mandate " consultation " with undefined , phantom " members "
of a community .
Paragraphs ( b ) and ( c ) are particularly redundant , and again ,
use of the unmodified word " members "

in paragraph ( c )

is confusing .

The agencies should also keep in mind that no organization has a mo
nopoly on representation of a community .

Grass roots community or

ganizations can include business , civic , service , church , civil rights

and women's groups as well as " community groups " and " coalitions
against redlining . "

The degree to which an organization is vocal or

visible is not necessarily an accurate indication of the degree to
which it is representative .
Also , the loose language of paragraph ( a )
maelstrom .

is a potential

The very process of negotiating terms of a loan involves ,

implicitly , " discouragement " of some form or another .

If the agencies

meant " discriminatory " discouragement or " unreasonable " discouragement ,
they should so indicate .

Currently , the language of paragraph ( d ) is

thoroughly unworkable and provides no standard whatever .

142

Our proposal for substitute language under Section 563e.5
for savings associations is as follows :
A.

The Basic Approach To Ascertaining Credit Needs :

The Bank Board recognizes that the Congress did
not set forth specific , rigid criteria for ascertaining
and meeting the credit needs of the persons in a com

munity .

This is so because " credit needs , " in the

context of the Community Reinvestment Act , implies the
presence of a valid demand for loans from creditworthy

borrowers as the best measurement of sound lending
opportunities .

Congress specifically mandated that the

CRA was not to be interpreted to diminish the lenders '

obligation to make loans which satisfy criteria for
safety and soundness .

The Act also recognizes , however ,

that demand is somewhat elastic and that a bona fide
latent demand in a community might not become expressed
without the stimulus of a good faith effort to make the

availability of credit known to potential borrowers .
The Bank Board's current nondiscrimination requirements
already require lenders to examine all phases of their
outreach and image projection procedures to assure that

all segments of the community are being reached , and
that applicants are not being discouraged on a basis
which is prohibited either in purpose or effect .
Accordingly, under the Community Reinvestment Act , each
association will be evaluated against the expectation that
it has an obligation to make the availability of its loan
services known in a reasonable way in the " entire com
munity " which it has designated as its " community " for

CRA purposes , including the persons who reside in low
and moderate income neighborhoods in this community .

Outreach activity may include , but need not be limited
to ( or necessarily include ) , advertising in radio and
general circulation newspapers . It can, however , consist
of advertising in local newspapers, flyers , notices to
depositors and loan customers , notices to or meetings
with representatives of civic , service , church , business ,
civil rights , women's , or community organizations , and

lobby notices .

It can also consist of contact with real

estate brokers and builders in the community to apprise

them of loan availability , where this has been a usual
practice in an association . While it is expected that
outreach activities will be conducted among diverse seg
ments of the community , and not just in high income areas ,
it is self-evident that an institution cannot treat all

neighborhoods in its market area the same . Some neighbor
hoods in the same socioeconomic stratum will ultimately
such areas can be marketed to with mathematical equality .
Also , the marketing campaign ( which is the basic tool for
identifying demand ) , will probably generate demand un
evenly from area to area . However , by letting the market

143
itself define demand , neither the institution nor the
Bank Board has to impose artificial criteria for
" meeting credit needs . "

Basic outreach is expected to have two components :
communication by the association to the community
( a)
of the availability of funds for lending ( when funds are

available ) , including information on the types of loans
ments set forth in the Nondiscrimination Regulations ( e.8 . ,

made , the terms of loans and other disclosure require
loan underwriting standards ) , and ( b )

an opportunity

communicated to members of the community to make their

views known to the association with respect to aspects
of credit services which they believe should be brought
to the association's attention . There is no set pre
scribed way for this feedback to be structured , and any
approach which is reasonable in the circumstances will be

B.
As to the " meeting of credit needs "

the proposed regulations

fail to make clear the limitations of the CRA .

It was made explicit

in the Act ( Section 804 ( 5 ) ) as well as in the legislative history

that safety and soundness and other valid considerations were not
removed or diminished by passage of the CRA .

In fact , while other

factors , such as the anticompetitive aspects of an application , will
be " balanced " with community investment factors , the safety and

soundness considerations are not subject to such a balancing test .
The Act provides that the effort to " meet credit needs " must be
" consistent with the safe and sound operation of such institution . "

144

The agencies have missed an important opportunity to explain
how these sometimes competing interests must be accommodated under

the CRA .

For instance , in introducing s . 406 in the Senate , Senator

Proxmire made clear that :

The bill is not intended to force financial institu
tions into making high risk loans that would jeopardize
their safety :
Congressional Record, daily ed . , January 24 , 1977
at 1203.

At the CRA hearings , he said :

If they can show that the community where they haven't
made the loans is not a community in which they could
make sound loans I think that would be a complete and
adequate answer .
( Hearings at 154 )
Also :

The bill also does not substitute the judgement of
the regulator for the judgement of a banker on in
dividual loans . Each bank or savings association
will be free to exercise its best judgement on in
dividual loan applications.
( Hearings at 11)
The problem in reconciling " safety and soundness "

with com

munity reinvestment is paramount in " assessing " a lender's record of
" meeting credit needs . "

If an individual applies for a loan from a

low or moderate income area , or any other area , and is not personally
creditworthy, or if negative aspects relating to the condition of the

property , or legitimate adverse locational factors are present , these
factors cannot and should not be ignored .

Here , again , the Board's

nondiscrimination regulations are pertinent and distinguish member

savings associations from other types of lenders .

The CRA regulations

should make clear that a lender cannot be determined to be in violation
of the CRA on the basis of bald numerical showings about loan dis

tribution without consideration of safety and soundness factors .

1

145
Accordingly , paragraph ( f ) of " Part 563.5 is wholly inadequate
because it suggests that the Board believes that the simple " geo
graphic distribution " of loans , without more , is pertinent . It is
also inadequate for its lack of information .

What aspects of an

institution's " geographic distribution of loans " are important ?
The mere knowledge that " geographic distribution " will be taken
into account adds nothing to an association's ability to interpret
and comply with the CRA .

Clearly it would be inappropriate to expect

a lender's statistics to reflect some preconceived geographical rela
tionship , since it was made abundantly clear that the CRA was not
intended to result in " credit allocation "

of any kind . */

marketing , either

( a)

no loan demand was subsequently generated ; or

( b)

loans applied for did not meet creditworthiness

*/ See the statement of Senator Proxmire , Hearings at p . 2 and

146

" age of dwelling " and improper locational factors builds in a guarantee
that loans applied for will be evaluated in a nondiscriminatory , non
arbitrary way .

The message of all of this is twofold .

First , paragraph ( f ) of 563e.5 is inadequate .

Second , for savings

associations , compliance with the Board's nondiscrimination regulations ,

already in place , should figure more prominently in CRA compliance .
In fact , in both their goals and their means the two sets of rules
overlap , and where the nondiscrimination rules are being complied
with , a healthy CRA record almost necessarily follows . The Board
should articulate this point , so as to provide additional guidance

with respect to objective standards of conduct which will be con
sidered satisfactory under the CRA .

Currently , the only mention of

nondiscrimination requirements is indirect ( Item J )
a history of prohibited discrimination .

and it refers to

The Bank Board's require

ments are so much broader than this , and require such a great degree
of institutional compliance through review of practices and employee

training , that associations in compliance should be given formal
recognition in the course of CRA evaluations . Currently , only
negative credit can be given for noncompliance with rules on non
discrimination . No incentive is provided for affirmative institutional
steps to comply with the nondiscrimination requirements .
Additional Factors Relating To Section 5630.5

paragraph seems to ignore the important caveat in the legislative
history of the CRA to the effect that its sponsors did not intend

to subvert or impair an active , fluid secondary market , necessary to
import funds to capital - short areas .

147

Senator Proxmire himself said :

This concession is significant because prior to World War II

banking markets were generally localized , and expansion into
" national markets "

has been an important part of modern banking as

well as post -war Federal policy .

( ( See 12 U.S.C. $ 1716 et seg . ,

( FNMA and GNMA ) ; 12 U.S.C. $ 1451-1459 ( FHLMC ) ) . The CRA should not
be read as intended to undo three decades of movement toward a liquid
national mortgage market .

do 30 might subvert the very purpose of the CRA by making funds un

available in the capital -short areas where they are needed most .

a bill that has to go primarily to conventionally financed housing"

( Hearings at 225 ) .

Some institutions , due to the red tape and need

for specialized knowledge and staff , currently avoid FHA loans .

in some areas , buyers and sellers avoid such loans .

Also ,

Lenders should

not be judged on their record of making government- insured loans without

a sensitive inquiry into the market conditions of an area .

Which ,

for instance , is the better " community lender , " the association that
makes FHA- insured loans in older mature areas and thus has a better

148

record on such loans , or the institution which makes conventional
loans in the area , at greater risk , contributing to private invest
ment and confidence in an area ?

In its present form , Item ( i )

is

subject to either interpretation .
Item ( k )

is likewise nonsensical .

Every institution has a

history of " opening and closing offices " or providing services at
offices .

The paragraph reveals nothing about the Board's expecta

tions with respect to such history .

Consequently , it is impossible

to comment intelligently , other than to point out the omission .
Definition of Community

The flexible rule for defining " community"

proposed by the

agencies , in our judgement , is sound and consistent with the purposes
of the Act .
It delegates maximum discretion to the institution to
We have only a few suggestions .

designate community .

and " entire community . "
In the original version of the bill , the phrase " local com
munity "

was modified by the phrase " primary savings service area "

and , wisely or unwisely , the geographic focus of the bill was made
relatively clear .

" local community "

In the final version of the CRA , the references to
are retained in the findings and statement of pur

pose but " primary savings service area " was deleted and replaced by
the requirement that the regulatory agencies
assess the institution's record of meeting
the credit needs of its entire community
including low and moderate income neighbor

149

geographic parameters of the area to be served under the CRA , it
appears that in the final version of the bill they are intended to
be synonymous .

Thus , reference in 563e.3 and 563e.4 ( b )

( 1 ) to a

difference between " local community " and " entire community , " and
particularly the emphasis placed on the contiguous areas surround

ing each office or group of offices , " seems inappropriate .

principal proponent of the bill , was asked by Senator Morgan to

explain the differences between the bill as originally acted on by
the Senate in June , and as amended in Conference . Senator Proxmire's
answer illustrates the extent to which the phrase " local communities "
is really intended to mean something broader than the area contiguous
to deposit facilities :

The Community Investment Act , as we agreed to it
earlier in the Senate , was designed , as the Senator
will recall , to provide as much incentive as we could
for local investment in local communities . We found ,

in many cases , that banks had taken a great deal of
money from local communities and invested it outside
their communities and had not met the needs and re
quirements of the local communities .
We provided that when a bank wanted to open a branch
the regulating agencies would have to take into account
how much they invested locally , and they might have
this as a decisive consideration under some circum
stances .
What this legislation does , in contrast to what passed ,
is to delay implementation for 390 days , just about a

month longer than a year , after enactment .

It also

redefines the primary service area to be served on a
broader basis , so that there be no question that 1t is

not simply the immediate community where the bank was
located .

Those are the two principal modifications
( emphasis added ) . * /

* Congressional Record , daily ed . , October 1 , 1977 , s . 16114 .

150

An association's appropriate " community " might be " contiguous "

to its offices , but it might not .

For instance , downtown commercial

district branches , train station and airport offices , for loan
purposes , may serve areas proximate to the office , but not necessarily
contiguous.

Contiguousness might be one of the relevant factors , but

not a mandatory one .
appears incorrect .

Thus , the mandatory language of 563e.3 ( b )

This is particularly so in light of the express

Congressional deletion of the definition " Primary Savings Service Area . "
We suggest that the designation of " entire community "

be based

principally and initially on ( 1 ) proximity to offices and ( 2 ) historical

effective lending territory , as evidenced by an association's history
of retail loan origination activity and loan marketing activity .

Naturally , low and moderate income areas within the scope of that
radius would not be excluded .

As to " low and moderate " income neighborhoods , we believe that
some additional explanation is in order . First , the Bank Board should
make clear that some associations , particularly those which do not

market to an entire SMSA or regional market , might conceivably and
legitimately have no low and moderate income neighborhoods within
their own delineated " entire community . " There is no need , under
the CRA , to " adopt " such an area in order to have one in an institu
tion's market .

On the other hand , some institutions may have many

such areas in their " entire communities . "

It should be made clear

that the CRA does not require that each such area be the recipient of
any matched or quota- based marketing effort or loan production .

Even given compliance with CRA , loan and marketing activity within

different neighborhoods can be expected to vary .

151

Community Reinvestment Act Statement
For member institutions subject to the Bank Board's nondis

crimination rules , this requirement dovetails with the requirement
for disclosure of an institution's loan underwriting standards .
Accordingly , it does not appear to be significant additional burden .
However , as we saw during the comment process on the Board's non
discrimination rules , the Board is capable of changing proposed
regulations and reissuing final regulations with new provisions .
We believe that it was made abundantly clear by Congress that any

substantial additional paperwork burden would be prohibited under

CRA and that the CRA statement cannot justifiably be made more
extensive than its current version .
In the Committee Report on s . 406 , it states ( at 34 ) :

Also , when he introduced the basic amendment which changed

Section 4 during the mark-up session , Senator Proxmire pointed out that
the original version " ... would not have required significant re

porting burdens since most of the data already exists .

The idea was

to require the regulators to analyze existing data in connection with
branch applications and supplement it ( sic ) where necessary .

But the

amendment I am offering makes it absolutely clear that no additional
reports are to be required "
Vol . IV , p . 283 ) .

( emphasis added )

( Mark -up Transcript ,

152

Later in the mark -up session the Senators discussed the
possibility that the regulatory agencies might use the general

language of Section 6 as a lever to impose extensive additional re
porting requirements .

While the opponents of the bill feared that

this would occur , the supporters of the bill appeared certain that
by deleting the reporting elements of Section 4 , they had insured

against this .

( Mark -up Transcript , Vol . V , Tuesday , May 10 , 1977 ,

at 352-357 ) .

In debate on s . 406 Senator Proxmire discussed this decision
and said :

The committee considered this provision in
mark-up , and we unanimously agreed that bank

already have access to ample data
examiners
to carry out the purposes of this title . We

emption are nonetheless compelling .

We need not repeat here the

familiar litany of complaint about governmental paperwork and the
failure to apply a rational cost/ benefits analysis .

However , for

savings associations covered by the Board's nondiscrimination rules ,
there are no size and location exemptions .

Accordingly , the Boards

of Directors of smaller institutions are already very much aware of
requirements in this area .

The CRA statement requirement is un

necessary for such institutions , in this context .
*

Congressional Record , daily ed . , June 6 , 1977 , s . 8958 .

153
Additional considerations

The proposed regulations are silent with respect to how far
back in time a lender's record will be reviewed under the CRA . We
believe that the pertinent period for evaluation should begin 90 days

after the regulation goes into effect , to coincide with the date that
the CRA statement must be prepared . In no event should the pertinent
period be considered as extending earlier than the effective date of
the regulations .

We are pleased to see an emphasis on coordination with state
supervisory authorities , particularly in the light of certain recent

cases underscoring the role of state regulators in passing on appli
cations of FSLIC - insured , state- chartered institutions .
Finally , we believe , again , that it is necessary to emphasize

for examiners, supervisory agents and lenders the limited role intended
by Congress for this statute , which has been too often portrayed as

a " draconian "

measure .

when placed in context , the Act and its regu

lations are layered on top of existing considerations in evaluating
applications for change in structure .

The CRA is not a substitute

for traditional considerations , and approval of applications can be
affected as much by traditional factors as by new ones .

As stated by Senator Proxmire in his statement introducing
S. 406 into the Senate :

This does not mean that the regulators
would consider community credit services as the
only factor in approving or denying deposit
facility applications .

On the contrary , the agencies would continue to
apply the criteria they have traditionally used
for approving deposit facility applications , as

spelled out under existing law and regulations .
These include the financial history and condition

of the bank , the adequacy of its capital structure ,

154

its future earnings prospects , the general

character of the management , and the convenience
and needs of the community to be served .

The bill would not inject any significantly new
element into the deposit facility application
approval process already in place . Instead, it
merely amplifies the " community need " criteria
already contained in existing law and regulation

and provides a more explicit statutory statement
of what constitutes " community need " to make
clear that it includes credit needs .
Congressional Record , daily ed . , January 24 ,
1977 at

1202-1203 .

We suggest that the above quotation be incorporated or referred
to by the Bank Board in the prefatory comments which precede the final
regulations..

Respectfully submitted ,

Glenn
Glenn 0. Stull

President

o Stull

155

APPENDIX B

SUMMARY OF REPORT

A.

Background

Responsibility for enforcement of consumer credit and
anti -discrimination regulations within the Federal Reserve
System is shared between the Compliance Section of the Consumer
Affairs Division , located in Washington , and the corps of examiners in

the Reserve Banks. The attitude of the Compliance Section towards

civil rights enforcement can be described as very positive and
affirmative and characterized by a desire to develop the tools
and the staff necessary to do an effective job .

The attitude

of examiners , in general, might be described as more cautious .
Examiners interviewed seemed. unsure of their expertise in the
area of civil rights investigation , and suggested that this
" unsureness " was shared by most of their colleagues . In some

respects there was evidence of a mild hostility toward civil
rights matters based partly on a perception that devotion of
their time and effort to civil rights matters would not materially

advance their progress within the System , as it was not an area
to which the Board attached great importance , and partly on a
lack of confidence in their own knowledge of the rules of

construction in the area .
Examiners also placed a healthy emphasis on the need to

maintain the safety and soundness of institutions , but expressed
concern that enforcement of civil rights laws might be incon

37-415 O - 79 - 11

156

sistent with this responsibility .
Significantly , after exposure to some detailed explana

tion of the purposes behind the laws in question , and the rules

of construction, under civil rights laws, as well as discussion

In general , the Board's enforcement and education
programs with respect to technical disclosure - type regulations

( e.g. , Truth in Lending , Home Mortgage Disclosure , RESPA , Fair
Credit Reporting ) and with respect to the procedural aspects
of non -discrimination regulations ( e.g. , certain aspects of
Regulation B)

are substantially more effective than programs

relating to the detection and correction of discrimination .

Examiners seemed most comfortable in checking for disclosure

type violations and violations in forms .

Procedures and train

ing material related to the uncovering of such procedural vio

lations are well developed .

This is understandable inasmuch

as the Board has had considerable experience ( since 1968 ) , with

until recently , the Board appears to have had little experience
in checking for civil rights compliance .

157

Presumably , the Board's lack of emphasis on civil rights
matters derives from the fact that , historically , it has not

compliance within the system have been given :no indepth exposure to
civil rights enforcement or formulation of civil rights policy .
Accordingly , even though the Board has been delegated by
Congress with the responsibility for writing and interpreting
regulations under the Equal Credit Opportunity Act , this effort ,
and the allied enforcement activities of the Board among state
member banks , have consistently reflected the Board's primary

experience with administration of consumer credit , and not
civil rights statutės .

In fact ,

it was not until the recent

passage of ECOA that the Board perceived itself as possessing
any direct obligation for civil rights enforcement . * /

It has been argued that the Board had a responsibility to
become directly involved in civil rights enforcement under

the Fair Housing Act of 1968 , but the Board has historically
disagreed with its critics on the scope of that responsibility .

See Bearings before the Committee on Banking , Housing & Urban
Affairs , United States Senate , 94th Cong. , Second Session On

Oversight of Equal Opportunity in Lending Enforcement , Mar. 11 & 12,1976.
See also , Complaint , Urban League, et al . v . Home Loan Bank
Board , et al .
In May of 1978 the complaint in this case was
dismissed as to the Board of Governors on the basis of lack
of standing to sue on the part of the plaintiffs . No judicial

determination had been made with respect to the Board's
responsibility under the Fair Housing Act . The other regula
tory agencies named as defendants in this suit have entered
into settlement agreements with the plaintiffs , also without
any judicial determination of their duties under the Fair
Housing Act .

158

Our negative conclusions with respect to the Board's
anti - discrimination enforcement efforts derive principally
from our observations relative to the Board's not having
recognized civil rights compliance as a discrete and separate

area of responsibility differing from other consumer protection
measures, and requiring specialized expertise and policy con
Our observations in this regard can be summarized
sideration .
as follows :
B.

Summary of Observations

The Board has appeared hesitant to issue an unambigu
ous statement of its committment to vigorous enforcement of
1.

civil rights laws among state member banks and has not identified
civil rights legislation as having any particular priority among
the Boards enforcement responsibilities .

Consequently , examiners

and other agency staff have not identified civil rights compliance

as a priority within the agency and this has had a negative
influence on the effectiveness of the entire enforcement program .
At the same time , regulated lenders subject to the Board's
supervisory jurisdiction have not had the benefit of clear

policy direction on civil rights matters from their principal
regulator .

Further , they have not been given reasonable guidance

as to the salient elements and indices of compliance with civil

rights laws , necessary for their own protection in the event of
a court-based challenge by individual , class or governmental
plaintiffs .

159

2.

The Board's enforcement and advisory programs do

not adequately reflect the special nature of civil rights laws

as construed by the courts and the extent to which it is
inappropriate to interpret such laws in the same manner as
other consumer or banking measures .

Also , the Board's programs

do not adequately reflect the presence and influence of a vast
judicial literature containing precedents in the civil rights
area in fields other than credit ( housing , employment , educa
tion and voting . ) which , under settled principles of construction ,

are also applicable to credit practices .
3.

The Board's enforcement and advisory programs do not

adequately reflect the historical context in which current civil
rights laws affecting lending practices were enacted . Con
sequently , interpretation of these laws to lenders , both in
advisory visits and in the course of regular examinations, are

likely to be lacking in sufficient information about the scope

and application of civil rights laws .
Examiners are given virtually no guidance in how to

recognize discriminatory lending practices or the legal
standards for evaluating such practices .
5.

Investigative tools and techniques for finding

discrimination are lacking , and the sampling techniques in use
are wholly inappropriate for finding substantive violations of
law .

160

6.

The Board's program lacks nationwide uniformity ,

with the level of resources , procedures and enforcement
policies varying widely among the Reserve Banks .
7.

not

The Board's procedures for handling complaints do

adequately assure that individual allegations of dis

crimination are investigated thoroughly and fairly or that
potential " patterns" of discrimination are identified in the
course of investigating individual matters .

161

APPENDIX C

4.

The Rating System :

The rating system set forth in the

Examination Report and explained in the Instructions is confusing and

not well suited to summarizing non-discrimination require
ments .

First, it is confusing to use criteria of " adequate ,
fair and inadequate " as to one category ( management ) while
using " satisfactory , fair , poor "

for other categories .

the definitions given each criterion are not the same .

Also ,
For

consistency , one set of qualitative ratings should be used .

Second , the composite rating system is confusing because
it does not build directly on the various component ratings ,
but appears to be a new set of standards requiring application
of yet another set of criteria .

Also , some of the language

used is fairly awkward ( e.g. , rating No. 3 :

" An immoderate

volume of weaknesses is present that could reasonably develop
into a situation creating considerable financial liability to
the bank ! )
Third , and most important , we believe that some of the

ratings are qualitatively inappropriate .

For instance , an

institution in which " management is deficient in some of the
more important aspects of administration ..
.

rated " fair . "

should not be

Presumably these ratings are not based on a

" bell curve " with the " high quality " of one bank's performance

being judged relative to the degree of " low quality " of the
rest of the banks being evaluated .

Ratings should convey some

insightful and objective evaluation of the real risk of exposure ,

or index of non- compliance present in the bank .

Again , " fair "

162

seems too high a rating for an institution where " little
emphasis has been placed on the educational aspects of those
involved in effectuating the various requirements of the
consumer statutes and regulations and the examiner believes
that correction of the situation is not immediately planned . "
A designation as " fair " in such circumstances is misleading

and also provides the lender with little motivation to improve ,
since , in the judgement of the Board , it is in no worse shape ,
in terms of compliance , than other lenders , and it is , apparently ,
at a level which the Board deems acceptable .
With respect to the composite ratings , a No. 2 , the
second highest rating , can be won even where violations " range
from relative moderate to moderately severe or ( c ) educational
10

processes at staff level have been neglected .

.

yet , even this rating would only " trigger an informal correction
agreement

We recommend that the rating system be revised to
reflect realistic compliance expectations, particularly with
respect to non-discrimination matters . Banks should be rated
with one uniform composite rating of " satisfactory , " " good , "
" unsatisfactory , " and " hazardous . "

163

To be rated satisfactory

i.e. , as needing no enforce

ment action or internal changes , a bank would have to meet
certain minimum objective standards of compliance and internal
control .

Banks which took extra steps would be able to reach

a rating of " good . "

This provides incentive to take the extra

steps , and a rating of " good " would be helpful under Community
Reinvestment Act evaluations .

Likewise , a rating of " unsatis

factory " or " hazardous " would also be relevant to the CRA

Banks which are rated " unsatisfactory" would have to take

evaluation .

steps to improve to the " satisfactory " level .

definitive

Institutions rated " hazardous " or those unwilling or unable

to take steps to remove " unsatisfactory " ratings would be con
sidered for formal action .

Our proposed overall rating system is as follows :
( pages 102 to 106 , below )
SATISFACTORY :

The bank can demonstrate the presence of insti

tutionalized policies and procedures in the compliance area .
Senior management is cognizant of obligations

under consumer laws and civil rights laws as demonstrated
by tangible evidence of cogent , unambiguous direction to staff
to develop compliance mechanisms

( memoranda ,

minutes of

meetings , policy declarations , etc. ) .
2.

Middle management is cognizant of requirements for

implementing compliance under consumer laws and civil rights
laws , as demonstrated by tangible evidence of clear and com

164

prehensive instruction to employees in appropriate procedures .
( memoranda , manuals , courses , minutes of meetings , etc. )
3.

Operations staff ( loan interviewers , loan

officers , appraisers ) are cognizant of their obligations and
job functions in light of consumer laws and civil rights
laws , as demonstrated by tangible evidence of :
( a)

attendance at briefings which are

adequate to impart a reasonable understanding

of their functions ;
( b)

regard to compliance ( e.g. , signed or verbal
acknowledgements obtained by examiner ) .
4.

The number of violations found is minor and

potential seriousness of any problem is regarded as relatively
moderate .

Management is receptive to suggestions to correct

existing violations .
GOOD :

The bank can demonstrate the presence of an affirmative

approach to compliance .

Bank advertising , public relations , contacts
with brokers , dealers and appraisers provide evidence of bank's
1.

165

awareness of need to present positive affirmative image in
community as an equal opportunity lender .

2.

Bank has appointed a compliance officer to oversee

employee training , updating of management , resolution of

consumer complaints .

Compliance officer is adequately trained

to the job .

3.

Senior management and Board of Directors keep

current on new developments which affect bank operation in
consumer and civil rights area and take an active interest in
assuring compliance , as evidenced in memoranda and minutes of
meetings .
4.

Affected employees are given frequent opportunity

and encouraged to obtain additional training in compliance .

5.

Management is alert to the need for finding and

eliminating violations , as evidenced by :
( a)

an internal complaint resolution

mechanism or procedure .
( b)

an internal audit program to uncover

violations .
6.

The level of violations is minor ( as in " satisfactory " )

and in addition , management willingly demonstrates ability and
desire to take necessary steps to correct any violations .

166

UNSATISFACTORY :

The bank is not fully aware of its obligations

under consumer and civil rights laws or , being aware of its
obligations , has not taken sufficient steps to implement
compliance .
1.

Senior management rarely considers issues of

impact of civil rights laws and consumer laws on bank operation :

provides no definite directions to staff to develop adequate
compliance procedures .

2.

Loan policies and procedures are unwritten or are

unduly subjective, so that lending employees have no objective

criteria upon which to make loans on an equal basis .
3.

Middle management has developed no ( or inadequate )

manuals , instructions , memoranda , etc. , to implement compliance .
( Procedures are inadequate if they are not reasonably designed
to give operations - level employees a reasonable knowledge of
their obligations . )

4.

Operations level employees are unaware of compliance

obligations :

outmoded forms used ; no cogent , regular procedure

for notices , disclosures , etc .; employees not given exposure
to training in compliance obligations .
5.

Bank is not flagrantly violating statutes or

regulations , but because of lack of competency , many violations
exist and will require an administrative change to afford

future understanding and adherence .

167

HAZARDOUS :

Bank is operating in conscious disregard of con

sumer or civil rights laws .

( This status might involve exposure

of bank employees to criminal penalties and should be dealt
with as a matter of urgency . )
1.

Many violations are in evidence that will require

astute handling to avoid severe penalties , particularly in
the area of large potential financial liability .
2.

There are no policies or procedures in place to

implement compliance .
3.

Management at all levels demonstrate indifference

to matters of compliance .

i

168

APPENDIX D

B.

Complaint Procedures

The Board's consumer complaint procedures are contained
Regulation AA ( 12 CFR $ 227 ) and the Manual on the consumer
Complaint Control Procedure ( 1/1/77 )

( hereinafter CCCP ) .

Regulation AA essentially formalizes the existence of
a complaint procedure and encourages complaints to be filed in

writing and contain basic information about the complaint .

A

response is required within 15 business days and provision for

referral to other agencies is made , in the case of a complaint
incorrectly filed with the Federal Reserve System .
The definition of consumer complaint in the CCCP is
broader than that in Regulation AA and the CCCP is an umbrella

for procedural control of all consumer oriented complaints filed
with the System .
Theoretically , the CCCP provides for centralized review

of consumer complaints in Washington , by requiring that the
basic complaint

recordation form ( Form FR 1182 ) be filled

out in triplicate , with

copy going to the Division of consumer

Affairs ( DCA ) in the instance of a complaint filed with one of

169

the Reserve Banks .

However , in practice this centralized system

is only a central docket , and complaints received in the field

are handled primarily in the field .

In fact , complaints

received at the Board in Washington are routinely referred to

the appropriate Reserve Bank for substantive handling . This
means that there is no centralized quality control on the
investigations done in response to complaints .

This does not

suggest that the various Reserve Banks respond inadequately
to complaints ; only that there is no way for the Board , which
is charged with ultimate responsibility for enforcement , to

know whether they do or do not .
Given the overall structure of the Federal Reserve
System , with significant control over examination procedures

residing historically , in the decentralized Reserve Banks ,
we do not suggest that authority over consumer complaints be
totally concentrated in Washington .
( a)

We do recommend , however :

establishment of system -wide minimum

procedures for investigating complaints and
responding to the complainant
( b)

* /

establishment of the capacity and

authority in the Compliance Section of the
Division of Consumer Affairs to review the

*

Both the Comptroller of the Currency and the FHLBB have

170

handling of all consumer complaints to determine
compliance with these minimum procedures and to

provide overall consistency with Board policy
on compliance matters .
( c)

clarification of the authority of the

DCA to have a special examination performed

when , in its discretion , this is necessary in
connection with a complaint .
( d)

establishment of an increased capacity

in the DCA to provide the Reserve Banks with

technical assistance and continuing up-date on
developments in the compliance area , to enhance

both examination and advisory services through :
( 1)

more frequent exposure

of

examiners and consumer specialists to

training , including training in the field ;

Reserve Banks by representatives of DCA ,
to evaluate compliance programs , and help
provide visibility and credibility to the
program among Reserve Bank personnel ;

( 3)

regular circulation of a

periodic

up-date report on compliance matters so
that all of the Reserve Banks receive

consistent and correct information about

new cases , interpretations and enforcement
policies .

171
( e)

establishment of a program of joint

examinations by examiners at the Reserve Banks

and review examiners and consumer affairs
specialists from Washington , designed to assist
both groups in the performance of their functions .
( f)

establishment of a system-wide program

to evaluate the effectiveness of consumer complaint
procedures .

Currently , a " follow up letter " is sent

only to those complainants who filed their complaints
with the Board

( and by a few of the Reserve Banks ,

for those who filed regionally . )

The DCA should

regularly follow up with questionnaires to all
consumer complainants .
( g)

Expansion of the capacity of the Compliance

Section to deal creatively with the Board's enforce

ment program .

Currently , the Board is staffed with

two review examiners and three consumer affairs

specialists , two secretaries and a Section Chief .
Current responsibilities include handling of complaints

made to the Board , handling of phone calls , letters
and inquiries from member banks , Reserve Banks , other
agencies and Congress .

Responsibilities also include

liaison with other agencies in cooperative programs ,
development of examination manuals , instructions ,

checklists and forms and design and presentation of
consumer schools .

37-415 0 - 79 - 12

172

In this report , we have recommended adding more responsibilities
for overall review of complaints throughout the system .

How

ever , this office should also be continually considering methods
for improving techniques in consumer compliance , including
techniques to enhance examiner efficiency and reduce the costs

of examinations to the government and member banks .

It should

also be developing advanced as well as basic seminars in com
pliance , and regional seminars for Reserve Banks .
We hesitate to recommend increased staffing of the
Compliance Section as a panacea .

This hesitation is based

partly on budgetary considerations and partly on a general
reluctance to suggest expansion rather than contraction of govern
mental regulatory initiatives .

We believe increased staffing may

be inevitable here , however , for several reasons .
The Compliance Section grew in an ad hoc way .

The old

Office of Saver and Consumer Affairs ( OSCA ) was formed in 1974

in the anticipation of combining ECOA , Truth- in-Lending ,
Fair Credit Reporting and Securities Credit Regulation enforce

Personnel for OSCA initially came from these sections .
Later , OSCA became the Division of Consumer Affairs . Securities

ment .

Credit was dropped , but a new Regulation C and a greatly ex
panded " B " were added to the Division's responsibilities .

Meanwhile , enforcement of various new credit regulations among
state member banks was not centrally organized , even though the
Board's own Consumer Affairs Staff had rulemaking authority in
this area . Moreover , procedures for Fair Housing enforcement

among state member banks had , apparently , never been focused

173

upon , according to testimony before the Senate Banking

Committee in March 1976. Although not prepared for it in terms
of staff or historical orientation , the Board became a civil
rights enforcement agency as to state member banks upon
enactment of ECOA .

It also became a comprehensive consumer

credit protection enforcement agency .
Against the background , the concept of a compliance
Section came out of recommendations of a Task Force appointed

by the Reserve Bank Presidents in September 1976 , to develop
a proposal to respond to this new reality and to develop
system -wide enforcement of various consumer laws .
The Compliance Section was established in January 1977
to undertake training and enforcement responsibilities in this
area .

In March 1978 the Board announced its current compliance

program , but made clear in its public announcement that it was
" experimental " and for a " test period . "

Accordingly , the

Compliance Section was never staffed with an expectation of
permanence .

Also , it was staffed more for the purpose of

" evaluating" the task ahead , than carrying out that task .
Moreover , many of the Reserve Banks , responding to the temporary
character of the program , have not devoted substantial resources
to consumer or civil rights compliance , in proportion to the

size of the ultimate task involved in advising and examining
approximately 2009 institutions .

174

In June 1977 the complaint handling function was
transferred to the Compliance Section from the Administrative

Division and currently , the Compliance Section borrows attorneys
from other sections in DCA to deal with its own backlog .
It would be premature , in this report , to make projections
as to the optimum or appropriate size of the Compliance Section .
Part of that decision will depend on the changes in the

enforcement program , if any , adopted by the Board , and the
degree of priority which the Board decides to assign to this
area of compliance among member banks .

When these and other pertinent

policy decisions are made , we suggest that a zero-based analysis

be made of person-years required to accomplish the tasks
assigned to the section , and that staff expansion , if necessary
be based thereon .

175

Additional Observations Regarding The Board's Complaint Procedures
Complaint procedures , including the " minimum "

system

wide program for investigating complaints recommended herein
should be based upon some common principles :
Complainants frequently do not have the expertise

to adequately articulate their complaints in precise terms

and , therefore , should not be required to . Also , the com
plainant, typically , does not know enough about the reasons
the creditor used to make its judgements to be able to provide
this kind of information to the Board -- that is the reason for
the Board's investigation procedures .
Accordingly , the burden should not be on the complainant
to adduce evidence or proof in an " adversarial " way .

It is

the examiner's job to fairly and objectively evaluate both
versions of the dispute and use his or her expertise to " get
behind " the lender's version , as well as uncover all salient
facts about the complainant's version .

Except in rare cases

of undisputed factual issues , it is inappropriate to close a

case merely upon a review of the lender's explanation without
verifying the facts and contentions asserted .

Neither lenders

nor complainants have a monopoly on truth , accuracy or re
call .

The examiner is well - armed with a healthy skeptism , but

should not be more hostile to one constituency than another .

176

Adequate investigation , then , will almost always require a

visit to the Bank , particularly in cases of alleged discrimina
tion .

Adequate investigation also requires an interview

with the complainant .

As pointed out earlier in this report ,
the most important information may have passed verbally .
it is most unlikely that in a letter of complaint , a complain

ant will set forth all of the pertinent facts .

Reliance only

on the face of such letters is generally inadequate for getting
at the facts . Examiners may not have experience in interviewing
consumers in a way designed not only to get the facts , but to
test credibility as well .

This suggests strongly that either

examiners be given special training in this area , or that the

Board develop a corps of consumer specialists capable of skillful
consumer and civil rights interview techniques .
During discussions with examiners, a concensus
was expressed that , under present procedures , an examiner would

be severely reprimanded if , in the course of an examination ,
he or she contacted loan applicants to obtain information about

their dealings with the bank , or to clarify some aspects of
their dealings .

Whether this perception comes about formally ,

by rule or informally , by general impression , it seriously

limits the examiners capacity to make fair and objective deter
minations , and fails to recognize one whole dimension of
effective investigation .

177
2.

The goal of complaint procedures is to encourage ,

not discourage use of the administrative process to resolve
complaints .

This will , naturally , increase the quotient of

unjustified complaints received , but this nuisance factor may
be acceptable when one considers the alternatives .

The

alternatives are , on the one hand , to have complainants resort

increasingly to lawsuits or to other agencies with overlapping
jurisdiction ( HUD , Justice , local agencies ) to seek relief
or , on the other hand , to discourage bona fide complainants
from seeking assistance .
Because of the above , complainants who contact

the Board or the Reserve Banks , in person or by phone , should
not routinely be required to submit written letters if

sufficient information can be obtained verbally ( with copies
.

of documents mailed in ) .
1

Similarly , complainants who write

in should not be routinely asked to submit additional written
information .

Both techniques are certain to reduce the flow
of complaints brought to the Board or the Reserve Banks for
administrative resolution .
3.

An individual complaint should be viewed within

the system as an opportunity to uncover a possible broader
problem , and thus help the Bank protect itself from increased
liability .

178

Sometimes a form , procedure or errant employee
operates like a " victim machine . "

A creditor is fortunate

if that " machine " can be shut off early .

Accordingly , when

investigating individual complaints , an examiner should be
instructed to look for evidence of " patterns " as outlined in
his or her manuals and instructions .

Also , if , in the course of investigating alleged
violation " X , " the examiner comes across violation " Y , " this

should not be ignored simply because it is not part of the
instant investigation .

It should be noted and brought up

with management , for the Bank ; s own protection .
4.

Procedures for reporting and cataloging complaints

should not artificially limit the scope of the investigation .
In this regard , the instructions for completion of Form FR

1182 require designation of a " complaint code . "

On page 9

and 10 are listed numerous possible violations of Regulation B.
This is problematic , when filled in before an investigation
begins , because it suggests a limitation on the scope of the
investigation .

Most often , complainants cannot and do not
spell out the type of violation which has occurred . The

complainants know only that he or she has a problem , and
not which " niche "

it falls into .

Speculation by the person

taking the complaint is just that - because it is unknown what
the examiner will or will not find once the investigation is
commenced .

Also , the list is by no means complete in terms of

1

179

possible civil rights violations ( e.g. , redlining , appraisal
practices , etc. ) .

Also the list on p . 9 , under " credit denied

or adverse action" is awkward because it mixes " discriminatory "
reasons and non - discriminatory reasons .

As to non -discriminatory

reasons it does not even list all of the possible categories

for " reasons for denial " permissible in the Board's own suggested
form , contained in Regulation B.

Moreover , discriminatory practices do not necessarily
occur on only one prohibited basis .

Both sex and race may be

involved at the same time or sex and marital status , or age
Again , the type of

and receipt of public assistance , etc.

complaint cannot really be ascertained until after investigation .

Accordingly , or anti -discrimination laws we recommend that only
the broadest categories be used when initiating a complaint

( e.g. , " substantive " vs. " procedural " ) .
.

If more detailed coding

is desired for recordkeeping purposes , it should be entered

at closing of the file , and the list of coded practices should
be expanded to be more comprehensive .
5.

Where a violation is uncovered , some official

response should be forthcoming.

Even if such a response

is only a letter of understanding with the bank with regard to

the resolution achieved . Violations should rarely be handled
casually , and even where informal resolutions occur , documenta

tion in the Board's file should show that the agency exercised
its responsibilities . Accordingly , on p . 28 of the Complaint
Procedures , under " Investigation Made , " the final entry may

180

be inappropriate without a follow up category .
" Possible Bank Violation

As it stands ,

Unresolved " implies that it will

remain unresolved , despite the finding that a violation
occurred .

A follow - up entry might be :
Possible Bank Violation

Resolution Pending

Possible Bank Violation

Referred for formal

action .

A file containing .findings of violations should not be closed

until " resolved , " even if the resolution is an informal one .
Additional categories might be :
Consumer Informed of Resolution
Consumer Satisfied with Resolution
6.

The consumer should generally know as much as the

Bank about the Board's finding and resolution .
Sometimes the Board or the Reserve Banks will
be faced with a difficult choice .

If discrimination is found ,

there is frequently an understandable reluctance to tell the
consumer about it because ( a ) the agency may be wrong , but
may nonetheless generate litigation which is expensive for
both the consumer and the bank ; ( b ) public " findings " of
discrimination are most appropriately a judicial and not an
administrative function , absent the trappings of an administra
tive hearing with adequate due process to both sides ; ( c ) a
declaration of " discrimination " by the agency might be given

undue extra weight as an " official" finding , and generate

181

many lawsuits which might threaten the soundness of the bank .
The other side of the issue requires consideration

of the consumers' rights .
The Board's obligation is to eliminate discrimina
tion , not insulate discriminating lenders . If the lender has
engaged in unlawful practices , it and its shareholders will
have to take the consequences , as in any other area of law
violation , or else the incentive to comply with the law would
be non-existent .

The argument that the FDIC might have to

absorb losses based on excessive liability , as a justification
for not revealing the existence of discriminatory practices
is misleading because ( a )

lawsuits under ECOA, while they might

threaten short - term profitability, are not likely to threaten
basic soundness and ( b ) the same argument can be asserted to
encourage the FRB to do all it can to discourage violations ,
by disclosing violations where found .

Ultimately , the law iś

intended to protect members of the public and when individuals
avail themselves of an administrative remedy , or rely on the
agency to protect them , they should be fairly advised of their
rights and the likelihood of their recovery .
Even where the Board is able to reach successful ,

informal resolutions of complaints , the problems inherent in
the above dilemma are not completely eliminated . The question
comes up every time an examiner finds evidence of a violation
and must determine whether to notify potential victims of

182

the possibility that discrimination exists .
While we have set forth the policy considerations
which we believe are involved , ultimate resolution of this
policy issue must be made by the Board .

We do recommend that all complainants be given
routine written notice of the rights they may have , when
they file a complaint .

This notice should point out any

important time limits ( e.g. , 180 days under the Fair Housing
Act ) and all optional remedies available .

The current letter

used in Fair Housing matters does not provide information
on ECOA remedies and should be expanded .

It is patterned

after the form used by the Comptroller which is based on an
old form used by the Department of Justice , which has been since
amended .

183

APPENDIX E

C.

Case Studies And Curriculum of Consumer Schools

Presently , the consumer Affairs School is the principal

homogenizing influence that ties the system's geographically
diverse examiners and consumer affairs specialists together .
The Schools provide

some helpful introduction to civil rights

enforcement through guest lecture
of the Department of Justice .

from the Civil Rights Division

However , examiners who have been

through the Schools still express reservations about their

ability to deal with questions of discrimination .

One of the

}

major recommendations of this report , consequently , is that

184

the Schools add an expanded curriculum to adequately present
information needed by examiner and consumer affairs specialists

to handle matters of credit discrimination .
In addition to current instruction , we recommend at

least four hours of instruction in the history of discrimination
in lending and the rules of construction under civil rights
laws .

At least two additional seminar hours should be devoted

to discussion of these matters and of specific cases which

affect lending practices .

Naturally , examiners should be given materials revised
as discussed throughout this report .

They should also be

given a supplement consisting of pertinent civil rights cases
to be read outside of class .

It would also be appropriate to

distribute copies of relevant consent decrees obtained by
the Justice Department , FTC and private parties , to illustrate
types of relief in these cases .

We also recommend that students

be given a selection of articles and handouts of two kinds :
( a)

technical materials which help explain

and interpret Regulation B , and the Fair Housing
Act .

There are numerous sources from which to

make appropriate selections , including materials
written by DCA staff attorneys ;

magazines and trade journals which present the
full dimensions of contemporary issues in civil

rights and consumer protection enforcement .

185

Examiners and consumer specialists should be at least

as worldly on these subjects as the lenders with whom they
deal . They should know about controversies in the industry ,
the various positions being taken by the industry , civil

rights , community and consumer groups and governmental agencies .
This is necessary in order to convey a sense of currency to

the examiner and specialist .

Knowledge of industry efforts to

address " redlining " for instance and the response to these
efforts by Congress , agencies and the public can add vitality
1

to an examiner's view of his or her own role in the controversy .

Information about new initiatives being planned by government
1

in this area help place current enforcement options in context .

Also , it is very important to acquaint examiners and consumer
affair specialists with criticisms of his or her own agency

by both public interest groups and industry groups .
Without this kind of information , civil rights ( and
consumer compliance)

enforcement takes on a detached isolation

from real world issues .

This , in turn , warps the perspective

and motivation of examiners and consumer specialists .
At least two hours of seminar time should be directed to
a general discussion of enforcement issues and problems, based
in part on readings such as those referred to above .

recommendation is based on two observations :

This

First , it has

been our experience , confirmed by discussions at length with
FRS examiners that examiners need a forum ( out of the workplace
atmosphere )

in which to candidly discuss with others , particularly

186
the DCA staff which is responsible for enforcement , problems
and concerns which they have with the enforcement and compliance

process .

Many misconceptions which they may have about the

proper scope and performance of their jobs can be resolved

by discussion of the realistic expectations of the Board , and
by discussion of similar experiences and perceptions of others

involved in the same process .

Currently I, so few people at

each Bank are involved in consumer compliance that there is ,

in fact , this sense of " isolation . "

Moreover , other staff members

at the regional banks frequently have no greater background in
civil rights or consumer affairs than have the examiners , namely ,

attendence at the early consumer schools .

An unstructured

seminar at the Consumer Affairs Schools would be helpful in
dealing with this problem .

A second reason for undertaking

such seminars is to allow staff from the various Reserve Banks
to interchange ideas and observations with their counterparts

throughout the System in a way that otherwise would not occur .
In addition to current case studies and materials ,
additional case studies in the civil rights area should be pre

pared and used in the Schools .
categories .

Case studies fall into two

The first variety is the " narrative , " represented

by current Case Study 5 .

This is a case study developed by

the Department of Justice and in use by a number of the enforce

ment agencies .

Trainees review the narrative and discuss their

conclusions and findings .

The other type of case studies are

187

" mock loan files " which contain contrived cases , completed

forms, rejected loans , loan policies, bank memoranda , etc.

most part , however , they deal with procedural , not substantive
matters .

Accordingly , we recommend that considerably more

time be spent in dealing with issues of discrimination .
For instance , two other narrative case studies dealing
with discrimination are in use in other agencies and can be
adopted for use by the Board ( Appendix 13 ) . Additional case
studies can be created with little difficulty .
We do have some observations with respect to current

case study materials .

The materials which do deal with

discrimination frequently convey a negative or exceptionally
cautious approach to finding violations , and do not provide
practical guidance in how to compare files and make determinations .

Generally , if recommendations contained in this report are
accepted , case study materials will have to be rewritten to

illustrate the new Examiner Instructions for Credit Discrimination :

37-415 O - 79 - 13

188

Additional Observation With Respect to Training

It is important that lecturers presented at

1.

Consumer Affairs Schools not be dry and humorless .

A lecture

consisting of an attorney reading Regulation B out loud can
be fatal as a technique for educating and motivating examiners

and consumer specialists .

Material should be presented with

a healthy sympathy for the problems faced by examiners in the
We recommend that individuals with actual experience

field .

in the field be recruited and trained to participate as
instructors in schools .

It is also of great importance to

have senior examination and Reserve Bank personnel identified
positively with this program . It should not be perceived
as only a Washington based program forced , unwillingly , on the
Districts .

Accordingly , senior offices from the Reserve Banks

should speak at the Schools to emphasize the importance of this
program .

Lecturers from outside the System can also be very
The Civil Rights Division of the Department of Justice

useful .

has traditionally provided assistance to other agencies in
this regard and in a more limited way , to the Board .

This

source of expertise can be most helpful , and is available at
no cost to the Board .

2.

Every examiner in the System should be exposed to

consumer protection and civil rights training .

This is

necessary for several reasons .

without this training commercial examiners
can and do provide incorrect or inconsistent
( a)

direction to bankers in the course of commercial

189

examinations .

It is a frequent complaint among

banks that the consumer examiners say one thing
and the commercial examiner another .

For

example , attempts to prohibit redlining are

frustrated when commercial examiners , unaware of
the newer developments in appraisal techniques

and new approaches to risk assessment , or the
historical abuses in this field , criticize loans in
certain areas because of the examiner's own

traditional perception of risk .
not unlike lenders .

Examiners are

Without exposure to specialized

briefings , they cannot necessarily be expected

to perceive the impact of their actions on civil
rights compliance .
( b)

At the current time , participation in

consumer examination may be somewhat stigmatized
within the System .

It may not be regarded as among

the complement of skills needed to be considered a well
qualified examiner .

It is not identified with career

progression within the System .

Accordingly , there

is a need to regularize the place of consumer
protection and civil rights compliance in the con
stellation of skills which examiners are required
to have .

Compliance with consumer laws and sound

commercial lending should not be regarded as separate
or as mutually exclusive phenomena .

Institutionalizing

training of all examiners in the consumer and civil

rights area will help in this regard .

190

3.

Training in consumer and civil rights matters

should not be a " one - shot "

affair .

Compliance methods change ,

legal interpretations change , and people forget things .

be effective , the Board's training must be periodically
re- inforced .

This can best be done by bringing seminars to the

Reserve Banks on a rotating basis .

This degree of activity

will also lend credibility to the Board's commitment to
compliance

in the eyes of the examiners , bankers and the

public .

4.

The Board should develop advanced seminars for

consumer affairs specialists and examiners who specialize in
consumer compliance .

Individuals who participate in the

Educational Advisory Service , particularly , need to be very
comfortable in dealing with practical problems of lenders .
Specialists from various banks should have an opportunity to
colloborate on techniques and materials which can be helpful

in assisting lenders .

For instance , in a recent meeting of

examiners from different Districts , it was discovered that each
had observed a similar problem with smaller banks adopting

forms , procedures and policies of larger banks , without
adequately studying and understanding the materials , and
without making changes necessary to adapt the materials to
their own circumstances .

By confirming this as a generalized

problem , the examiners felt more comfortable in giving guidance

to banks about this practice .

191

5.

A segment in each school should be devoted to

equipping the examiner with standards for taking action .

In

other words , given the rules of construction and other
materials used in training , which provide standards for

identifying violations, what constitutes sufficient informa
tion or sufficient levels of violation to warrant a recommenda
tion for action and , in such cases , what action is appropriate ?

An in -depth review of the Board's current and proposed standards
for corrective action is beyond the scope of this report .
However , the following observations are relevant to examiner
training and preparation :
( a)

standards for corrective action should

not be a mystery to bankers or examiners .

The

examiner's ability to relate well to his or her

investigative function is closely allied with the
predictable results of the effort .

violation that can send someone to prison , or
result in substantial damages , or serious
administrative action , the examiner will logically

use greater care in preparing findings and devote
more time to the process .

It is natural and

efficient for the amount of time and care spent
in an examination to be reflective of the gravity
of the matter .

Accordingly , the Board should

192

have a remediation policy that spells out the
remedy the Board will seek for violations of
various degrees of severity .

The violations

should be described both in terms of " type " and

seriousness .
( b)

The Board's policy on corrective action

should be relatively consistent with judicial
standards for comparable violations , with allowance

for the differences between judicial and administra
tive enforcement .

In other words , where pertinent

patterns of violation would call for affirmative
measures to correct past practices , the same
standards should be adhered to administratively ,
since the overall remedy sought to be obtained is

the same .
( c)

The Board's policy with respect to

corrective action should be consistent from bank
to bank and among all of the Federal Reserve
Banks .

In other words , if a certain level of violation would
call for a written agreement to assure or monitor compliance
as to Bank A , the same standard should apply to Bank B.

The standards can and should have built- in flexibility , pro

viding for exceptions on a case by case basis when certain
factors are present .

These standards should be announced well

193

in advance , however , so that all regulated banks can anticipate

the same policy .

The basic standards should not vary from

Reserve Bank to Reserve Bank .

The standards should contain a clear description of when
formal action will be taken and the nature of the formal action- ( e.g . ,

write -up in file ; letter of agreement; letter of admonishment ; Cease
and desist order ) . * / This is particularly important in anti
cipation of implementation of the Community Reinvestment Act ,
where a bank's record in civil rights compliance will , presum
ably , be part of the review .

The standards should also contain explicit criteria
for referral of cases to the Department of Justice .

ECOA

provides specifically for such referral in individual cases
and pattem and practice cases .

Standards

for referral which

will trigger such a referral should be established and
announced .

We have reviewed the proposed Joint Guidelines for Enforce
ment and find them deficient in some respects if measured

against the above criteria . They do not address themselves
to traditional forms of generic relief appropriate in civil
rights cases and concentrate primarily on violations of
specific provisions of Regulation B.

194

D.

Additional Recommendations And Conclusion

We have concentrated in this report on the need to separate

considerations of civil rights and consumer credit protection
and the need to identify civil rights compliance as a matter of

priority within the Board .

The latter consideration is like a

fulcrum upon which the direction of the Board's entire program
is balanced .

Without visible and vigorous policy direction from

the Board , civil rights compliance will not , cannot , be identified

within the Reserve Banks and among examiners and among regulated
banks , as an issue of priority .

Act , and in the several years since enactment of ECOA , the
Board's enforcement program has identified very few instances
of substantive discrimination .

This might be , as some have argued ,

because such discrimination does not exist .

It might also be ,

as others argue , because no one has been looking for it .
pliance program of the Federal Home Loan Bank Board .

In the

9 month period after instituting a revised training program , the
HLBB, through its examiners , found 580 instances of non - compliance

195

whereas it had found no violations in the eight years preceding .
In the next full fiscal year , 2800 violations were identified and
hundreds of supervisory letters were issued .
If the Board does determine , as a policy matter , to announce
a clear and unambiguous position on civil rights and consumer

credit compliance , we

recommend that several corollary steps be

taken to implement such a policy :

1.

The consumer credit compliance program should be

formally reconstituted as a consumer credit and civil rights

compliance program and it should be declared a permanent , not
temporary, program .
2.

A conference of Presidents of the Reserve Banks

should be convened to provide them with a detailed briefing
on consumer credit and civil rights compliance and on
Board's policy .

the

This is necessary to bring the policy into the

Districts and to elicit the expertise , experience and prestige of
the Bank presidents in implementing the program . It is impor
tant that any articulation of policy by the Board not be re
garded as merely cosmetic .
3.

Each member bank should be provided with compliance

materials including manuals and training materials .

In addition

to consumer advisory services , the Reserve Banks should consider

holding seminars for bankers to go over in detail the Board's
expectations as to internal controls and general compliance .

196

Again , this is particularly important since compliance evalua
tions will probably be a part of Community Reinvestment Act eval
uations .
4.

The Board should appoint a compliance official with a

background in civil rights compliance and civil rights enforcement .
This is needed to complement the backgrounds of current staff who

exhibit outstanding competence in matters of consumer credit
protection , but who have not had extensive experience in the

specialized area of civil rights enforcement . Similar positions
should be created in each of the Reserve Banks.

It is important

to develop this expertise within the system so that reliance on
outside sources can be minimized .

5.

Proficiency in civil rights and consumer examinations

should be given formal and visible recognition within the exami
nation program .

Experience in this area should be a prerequi

site in career -path development for examiners ,

This simple ex

pedient can have a significant impact on the productivity of

examiners in this area and the attitude of examiners , including
commercial examiners toward consumer compliance .
CONCLUSION

Both the banking industry and the agencies which regulate
commercial banks may be rapidly approaching the point where they
cannot absorb additional regulation , either in terms of sheer

197

paperwork or in terms of the ability of bankers and regulators
to comprehend a quantity of new definitions , requirements and
complex instructions .

Thoughtful observers of banking economy

must be cognizant of a saturation point .

At the same time ,

existing laws in the area of civil rights call for implementa
tion in a balanced , responsible and objective manner .
There is such a thing as over- regulation and there is such
a thing as unintelligent regulation , but in an effort to avoid

these abuses we do not necessarily have the luxury of opting for
non - regulation .
In the field of civil rights , particularly , we are in a
period of transition , where historical and traditional modes and

courses of conduct , only recently challenged , are being rethought ,
and , where appropriate , changed .

This current state of flux creates both an opportunity and
a responsibility for regulators to midwife the coming changes
through a sensitive and earnest effort to encourage lenders in
their good faith attempts to cope , and assist lenders for whom

coping has proven to be more difficult .

In this report , we have

tried to identify for the Board some of the more important strate
gies for meeting this challenge while , at the same time , meeting
the reasonable expectations of the public with respect to enjoyment
of the benefits and protections mandated under our Nation's civil
rights laws .

The Board of Governors of the Federal Reserve System , if

for no other reason than because of its highly visible role as an
arbiter of practices under important laws dealing with civil
rights and credit , should be in the forefront of this effort .

198

Mr. ROSENTHAL. Our next witness is Mr. Lawrence Connell, Ad
ministrator, National Credit Union Administration .

1

199

I certainly do believe that urban neighborhood decay is in part

due to discriminatory practices in the handling of loan inquiries
and applications. When current and prospective residents of an
urbanneighborhood find it difficult or impossible to secure loans to
buy, rent or renovate homes, the neighborhood obviously must
deteriorate physically . Only with adequate access to financial re
sources can a neighborhood be preserved or revitalized .

200

We believe that adequate statutory authority exists for NCUA to
issue such a regulation under the Equal Credit Act, the Fair Hous
ing Act and the agency's general authority to regulate long -term
real estate loans as set forth in the Federal Credit Union Act.
Therefore, we will not need new legislation to convey this authori
ty .

|

201

requirements of the Equal Credit Opportunity and Fair Housing
Acts.

202

percent of the total assets of federally chartered credit unions.
Most of these small credit unions are run on a part-time basis by

volunteers. They have neither the benefits of full-time paid staff,
nor legal adviceon what they should or should not do.

203

As you are aware, the financial regulatory agencies are attempt
ing to fashion interagencyguidelinesfor enforcement of the Equal
Credit Opportunity Act. We believe that is highly desirable action

for the financial regulatory agencies to agree to employ the same
set of rules in enforcing the act since differences in agency enforce
ment could result in some types of institutions facing less stringent
compliance standards than others.

same .

37-415 0 - 79 - 14

204

Mr. CONNELL. That is right, the regulations would come out in
different form .

>

205

truth in lending guidelines is the cutoff date for restitution to
borrowers. Our examination process is such that we conduct a

sampling of the entire loan portfolio. So it is possible we can pick
up occasionally a loan that would go back as far as 1969, because
credit unions could make up to 10 -year loans then. We believe any
time - my position is any time that a consumer has been injured ,
whether a statute of limitation is passed or not, that the regulatory
agency has the responsibility to effect restitution.

a

years ahead .

206

rate avenues through which compliance would be achieved. The
first is administrative enforcement. Congress granted each regula

tory agency authority to ascertain , through its examination pro
gram , the degree to which institutions under its jurisdiction were
in compliance with the act. It was envisioned that the agencies
would issue cease -and-desist orders against institutions that persist
ed in violating the law .

207

Mr. CONNELL. No, I do not think we do. I think this area needs

considerable strengthening within our agency. This is what we are
in the process of doing.

208

Mr. DRINAN. Thank you very much for coming, and thank you
for your testimony.

209
PREPARED STATEMENT OF LAWRENCE CONNELL, NATIONAL CREDIT UNION
INTRODUCTION

Mr. Chairman , members of the Subcommittee , I am pleased to be here
today to present my views on enforcement of the Equal Credit Opportunity
and Fair Housing Acts .

Despite claims to the contrary , I believe that passage of the Equal
Credit Opportunity Act has resulted in a direct benefit to the economy .
According to recent publications , a significant proportion of new housing
sales have been attributed to lenders counting in full the incomes of

house - buying couples . In addition , an enormous number of women have
entered the credit marketplace for the first time .

greatly expanded the potential credit market .

Both factors have

The revenues flowing

to both homebuilders and creditors as a result have, in my opinion ,
gone far beyond merely offsetting the increased costs engendered by
Equal Credit Opportunity Act notice and recordkeeping requirements .
Thus , I believe that the Equal Credit Opportunity Act has had a decidedly

positive impact on the economy in addition to having greatly reduced

the incidence of discrimination in the credit marketplace .

210

REDLINING

The Committee has requested me to comment on whether there is a
problem of redlining discrimination in home lending by financial

institutions , and whether urban neighborhood decay is in any way due
to discriminatory practices in the handling of loan inquiries and
applications by financial institutions .

From a study conducted for

the Connecticut Banking Department , I understand that the problem of

redlining discrimination in home lending did exist . However, redlining
has not surfaced as a noticable problem for federally chartered credit
unions because they only recently received authority to engage in long
term real estate lending .

Prior to May

8 , 1978 , Federal credit unions

were limited to making estate loans with a maximum maturity of 10 years .
Under that authority Federal credit unions made relatively few home
mortgage loans , ( only 444 in 1977 ) , indicating that most prospective
home owners desired the longer term mortgages available at other

financial institutions .

Therefore , to date Federal credit unions have

not been a significant enough component of the home lending market to

have had any discernible redlining problem .
I certainly do believe that urban neighborhood decay is in

part due to discriminatory practices in the handling of loan
inquiries and applications by financial institutions .

When current

and prospective residents of an urban neighborhood find it difficult

211

or impossible to secure loans to buy and renovate homes , the
neighborhood obviously must deteriorate physically .

Only with

adequate access to financial resources can a neighborhood be
preserved or rejuvenated .

Equally important is the adverse

psychological effect created by redlining .

Such practices impress

upon the residents in redlined areas the fact that attempting to
obtain a mortgage loan is a futile endeavor .
In my opinion , many other factors have also contributed to the
problem of urban neighborhood decay.

These include the economy's

dependence on new construction ; a once prevailing public attitude

that new housing is preferable to old ; a reluctance on the part of
prospective homeowners to undertake the extensive remodeling effort

that an older home often requires ; and government imposed standards
in the area of land use , building codes , and punitive property taxes .
Anti - discrimination laws and the accompanying consciousness
raising process have helped to largely eliminate overt discrimination

against minorities in mortgage lending . Residual bias currently
manifests itself in more subtle discriminatory practices which financial

institution regulators must learn to detect and strive to eliminate .
Any remaining ignorance of lenders which contributes to their reluctance
to make urban mortgage loans must be combated through education programs
geared toward teaching lenders how to accurately appraise urban dwellings ,
how to take advantage of government rehabilitation programs and how

to evaluate lower income individuals as credit risks .

212

While redlining has not been a problem in Federal credit unions ,
the National Credit Union Administration ( NCUA) intends to insure
that such practices do not develop with the new authority .

other financial institutions that are community based , individual
credit unions are confined to serving persons falling within a
defined common bond of occupation ; association or residence .

At

yearend 1977 , 81 % of all Federal credit unions served a membership
based on the common bond of occupation ; the field of membership

of 15% was associational ; only 4% served a common bond based on
community .

Credit union members working in the same plant could

live in many different parts of a town or county .

In order to prevent

any potential credit union redlining problem from developing , whether
knowingly or unkowingly , NCUA is in the process of drafting an
anti - redlining regulation .

By taking this step , in addition to ensuring that an undesirable
practice does not arise , NCUA is affirming the duty of a credit union
to serve its members fairly and equally .

The idea of providing

equal access to credit to all individuals is one which triggered
the evolution of the credit union movement .

Thus , in fashioning an

anti - redlining regulation , NCUA is re-emphasizing and carrying
forth the ideals upon which the credit union movement is founded .

213

We believe that adequate statutory authority exists for NCUA to
issue such a regulation under the Equal Credit Opportunity Act , the
Fair Housing Act and the agency's authority to regulate long term
real estate loans as set forth in the Federal Credit Union Act .
Therefore , we will not need new legislation to convey this authority .

NCUA's regulation will address specific redlining practices .
example , we contemplate prohibitions against underappraising the value

of a home based soley on age of the home and against considering the
racial composition of the neighborhood and /or the prospective occupancy
of the community.

The thrust of the regulation will be to prohibit

Federal credit unions from redlining, without imposing extensive
recordkeeping requirements on them .
In addition , NCUA is expecting to expand its consumer compliance
program through the addition of specialized consumer examiners .

These examiners will be trained by civil rights specialists in the
most advanced investigative and analytical techniques for detecting
. subtle or unintentional discrimination in mortgage lending .

Based on the findings of these examiners , NCUA will take any
action necessary to bring offending credit unions into compliance
with our anti- redlining regulation , Regulation B and the Fair Housing
Act .

214

We will not hesitate to exercise our cease and desist authority , if
necessary , to prevent the continuance of discriminatory practices in

mortgage lending by any Federal credit union .
Our anti- redlining regulation will be published in draft for public
comment in the near future .

At that time , we will solicit the views

of civil rights groups and consumer groups , in addition to credit unions .
Our regulation will attempt to achieve the delicate balance between

minimizing the administrative burden on credit unions while obtaining
sufficient assurance that the consumer /member's rights are fully pro

tected .
One major benefit I foresee resulting from our anti- redlining
regulation is that it has the potential of playing a positive psycholog
ical role in urban renewal .

I expect the knowledge of credit union

members that their credit union does not engage in redlining and the

feeling of assurance this engenders , to encourage prospective urban
homeowners to apply to their credit union for a mortgage loan .

By

providing prospective urban mortgage applicants with a sense of optimism,
credit unions can thus play a significant role in the revitalization
of American cities .

215

PRESENT ENFORCEMENT

I will next turn to a consideration of NCUA's present Equal Credit
Opportunity and Fair Housing Act enforcement efforts .
NCUA conducts an examination of every federally chartered credit
union approximately once a year . Examinations are conducted to assure
that the credit union is financially sound and is in compliance with

all applicable consumer regulations .
In conducting the compliance portion of the examination , NCUA
examiners employ a checklist and Consumer Regulation Compliance
Summary form prepared by our Division of Consumer Affairs .

The

checklist is a list of questions covering the most important require
ments of each Federal consumer law or regulation applicable to Federal
credit unions .

Two sections of the checklist deal with requirements

of the Equal Credit Opportunity and Fair Housing Acts .

In completing the summary , the examiner assigns a code to each
checklist question and a code rating indicating the credit union's
overall compliance with each law or regulation . We use numbers 1

through 5 as codes . " 1" means the credit union was in compliance ,
" 2 " that the credit union was not in compliance but that the area of
non - compliance was corrected prior to completion of the examination ,
" 3 " that the credit union was not in compliance but that the examiner
and credit union officials reached agreement that all areas of
non - compliance would be corrected , " 4 "

that minor areas of concern were

not corrected and " 5 " that major areas of concern were not corrected.

216

The latest compiled data that we have available is preliminary
data for January - September of 1977.

Approximately 6,500 Federal

credit unions were examined during this period .

Of these , 30 had overall Equal Credit Opportunity Act compli

ance codes of " 4" and 49 had overall codes of " 5 " . With regard
to specific areas of non-compliance , 31 were found to be in
non-compliance by virtue of using improper terminology on their
application forms , 52 were found to be in non -compliance with the
previous Equal Credit Opportunity Act Notice requirements of
Regulation B , 31 were found to have failed to clearly label
optional information requested on their application form ,

31 were

designated as having failed to clearly indicate when spouse's
income should be listed on their application forms , and 24 credit
unions were found to be in violation of the rejection notification
requirements .

By comparison , 1,162 of the 6,500 credit unions had one or
more areas of non - compliance for which specific plans for correc
tive action were developed and agreed to prior to completion of
the examination .

( The vast majority of the violations related

to faulty loan applications .

There were 279 , however , which had

failed to provide proper adverse action notifications . )

In

addition , 508 Federal credit unions were found to have areas of

non-compliance which were fully corrected prior to completion of
the examination .

217

EXAMINATION PROCEDURES
Whenever an examiner finds a violation that is not corrected in

the course of the examination , he / she writes up a plan for corrective
action .

This plan describes the actions the credit union needs to

take in order to correct the violation in the future. In the overwhelming
majority of cases , credit union officials agree to make the necessary
changes and target dates are set and officials designated to carry
out the plan and follow up to assure that the credit union continues
to carry out the plan in the future .

At the next regularly scheduled examination , one of the first things
the examiner does is to check that the credit union has followed its

plan for corrective action .

All but a few credit unions would normally

be in compliance by the next examination .

In the few cases in which

an examiner finds that the credit union has not carried out the plan

for corrective action , the examiner makes an appropriate recommendation
to the NCUA Regional Director regarding administrative action ,

In the case of a really serious violation discovered for the first
time , the credit union would be coded on our early warning system ,
a system we have developed to flag credit unions with significant
operating or financial problems, for interim examiner contacts .
Those credit unions that have serious violations but do not agree
to the examiner's plan for corrective action receive NCUA Regional
Office follow up which may include a preliminary warning letter or
other appropriate administrative action .

218

We view the examination as one way of educating credit union
officials as to their consumer compliance responsibilities .

In order

to prepare credit union officials for the new compliance portion of

the examination , we distributed copies of the checklist and accompany
ing explanatory materials to officials even before the checklist was
actually employed by NCUA examiners .

SMALL CREDIT UNIONS

Despite the rapid growth and total aggregate assets of the credit

union movement , credit unions remain a relatively small movement , operated
for the most part by volunteers with limited access to specialized
legal sources .

At the end of 197 ?, of the 12,750 federally chartered

credit unions in operation , only 3,955 had assets of more than one

million dollars each .
dollars each .

This left 8,795 with assets under one million

Smaller credit unions thus account for 69 percent of

the total number , but for only 9 percent of the total assets of federally
chartered credit unions .

Most of these small credit unions are run

on a part time basis by volunteers. They have neither the benefits
of full time paid staff , nor legal advice on what they should or should
not do .
Since many small credit unions in particular have experienced prob
lems in designing application forms which are in compliance with the
Equal Credit Opportunity Act , as part of NCUA's enforcement effort ,

we are in the process of preparing a model credit union loan application
form .

This form will be written in simple English and designed to

meet the special needs of credit unions. We will be requesting state

219

credit union league attorneys to bring the basic form into compliance
with the laws of each state as well .

available to all credit unions .

We will then make the form

As a result of this project , we hope

to eliminate most Equal Credit Opportunity Act application form
violations .

In addition , to help small credit unions in particular , we are
planning to sponsor local clinics on compliance problems , for credit
union officials and staff .
FUTURE ENFORCEMENT

As a general comment on NCUA's future enforcement efforts , it was
my desire that NCUA begin separate consumer compliance examinations

in the next fiscal year .

Separate compliance examinations have proven

highly effective in discovering and correcting consumer law violations
in banks . Despite the fact that NCUA is self supporting through assess
ment of supervisory and examination fees , we are subject to Office of
Mana gement and Budget authorization .

As noted earlier , we are hoping to expand our consumer compliance

examination program for this fiscal year through the addition of some
specialized consumer examiners.

37-415 O - 79 - 15

220

In addition , NCUA will seek criminal prosecution of Federal credit

union officials , and / or institute cease and desist or removal proceedings
against officials , where the facts clearly indicate that an official
intentionally committed a substantial violation of law , where an official

instituted a practice in the credit union with the intention of causing
the credit union to be in violation of the law , or where the facts

clearly indicate that the official was grossly negligent in failing
to assure that proper procedures were instituted in order to assure
that the credit union was in compliance with the law .

We have already

instituted removal proceedings in cases of fraud perpetrated by credit
union officials .
In order to evaluate possible remedies , I believe that we must
refer back to the legislative history of the Equal Credit Opportunity
Act . In addition to being a consumer protection statute , the Equal
Credit Opportunity Act is an anti - discrimination statute .

As such ,

enforcement remedies should be designed to " effectuate the cessation "
of a discriminatory practice ; to ensure full restitution to the injured

party and to eliminate the lingering effects of past discrimination .
Thus , in fashioning a suitable remedy for any type of violation , all
three goals must be taken into account .

In cases of repeat violations,

where a credit union has failed to correct conditions found on a pre

vious examination , we believe that notification of the victim is an
appropriate remedy .

221

As you are aware , the financial regulatory agencies are attempting
to fashion interagency guidelines for the enforcement of the Equal
Credit Opportunity Act . We believe that it is highly desirable for

the financial regulatory agencies to agree to employ the same set of
rules in enforcing the Act since differences in agency enforcement
could result in some types of institutions facing more stringent compli
ance standards than others .
NCUA is participating in the drafting of interagency enforcement

guidelines in the hope that uniform enforcement will foster healthy
credit market conditions and increase overall compliance .

we are supportive of the endeavor .

Therefore ,

We must note , however , that we

consider the draft guidelines to be deficient in one major respect .

As I mentioned earlier , Congress intended remedies for violations
of the Equal Credit Opportunity Act to fulfill three goals .

In addition

to ensuring that the discriminatory practice would not be continued

in the future , remedies are also required to make the injured party
whole and to eliminate the lingering effects of past discrimination .

Based on comments we have received from consumer and civil rights groups ,
we believe that the remedies contained in the draft interagency enforce
ment guidelines do not adequately fulfill all three goals.

We hope

that this deficiency will be corrected when the agencies reconvene
and reconsider the draft guidelines .

At such time, NCUA will make

every effort to bring the guidelines into harmony with Congress' inten
tions as we understand them .

222

The Committee has asked under what circumstances NCUA would release
publicly the name of institutions that have refused or failed to

eliminate discriminatory practices .

As Connecticut Banking Commissioner ,

I supported disclosure of habitual violators where such institutions

dealt with the general public .

Since credit unions do not deal with

the general public , such notice could be expected to have less impact

on the credit union . However , I do support the concept of disclosure
of habitual violators to the credit union membership .

EDUCATION
I will next turn my attention to a consideration of NCUA's educational
efforts .

Since credit unions do not serve the public at large , but

only members of specific groups and residents of specific areas ,
we focus our educational efforts toward the consumer /member as well
as credit union officials and examiners .
A major component of our education program is the recently completed
and distributed loose leaf binder entitled Manual of Laws Affecting Federal
Credit Unions. NCUA distributed the Manual free of charge to all Federal
credit unions .

The Manual contains copies of Federal consumer laws and regula

tions applicable to Federal credit unions .

Each section is preceded

by a simple English explanation of the highlights of the law or regulation
and includes citations to the law itself .

An abbreviated version of

the Manual is being provided by NCUA free of charge to all federally

insured state chartered credit unions .

I have received numerous letters

from credit unions thanking us for providing the Manual

nd commenting

223

on how valuable it has been as both a comprehensive reference tool

and a source of understandable information on the consumer laws .
In addition , NCUA has prepared a slide show presentation on Regulation
B , designed to be used by credit unions in educating their officials

and members .

Many credit unions have been provided copies of this

slide show free of charge and have reported that the Equal Credit
Opportunity Act workshops they sponsored for their members using
the slide show have been extremely successful .
NCUA also offers to make both its regional and central office
consumer affairs staff available for presentations to credit union
members and consumer groups .

As a result of our standing offer , members

of NCUA's consumer affairs staff make frequent consumer education presenta
tions on the Equal Credit Opportunity and Fair Housing Act which again

have brought favorable comments .
NCUA recently expanded its Division of Consumer Affairs through

the creation of the position of Associate Assistant Administrator for
Consumer Affairs and the addition to the division of four consumer
affairs professional slots .

This expansion was in large part undertaken

to enable the division to engage in a more comprehensive consumer educa
tion program .

Two of the new consumer affairs slots were filled by

individuals with extensive backgrounds in consumer education .

224

Our expanded educational effort will include more emphasis on edu
cating consumer /members about their rights under the Equal Credit Oppor
tunity Act and Fair Housing Act .

Towards this end , we have embarked

a

on a review of all available Equal Credit Opportunity Act and Fair
Housing Act educational materials programs prepared for use by credit
unions and their members .

We are in the process of assessing what

educational needs of credit union members remain unfilled and how we

can best fill them .

Our goal is to supplement existing educational

programs , while avoiding unnecessary duplication of effort .
As soon as we determine exactly what information needs exist , we
will focus on how to most effectively present this information to the

consumer /member .

A brochure and a movie are two likely components of

our expanded efforts .

We will utilize sources outside of the agency

if necessary to provide artistic and technical assistance in the pre
paration of our educational materials.

I am committed to producing

educational materials of the highest quality and to making these materials

available to all credit union consumer /members .
The committee has inquired as to NCUA's view on the role of private
litigation in enforcing the credit anti - discrimination laws .

NCUA

believes that private litigation has a proper role in bringing about
compliance with the laws against credit discrimination .

In drafting

the Equal Credit Opportunity Act , Congress clearly provided two separate
avenues through which compliance would be achieved .
istrative enforcement .

The first is admin

Congress granted each regulatory agency

225

authority to ascertain , through its examination program , the degree

to which institutions under its jurisdication were in compliance with
the Act .

It was envisioned that the agencies would issue cease and

desist orders against institutions that persisted in violating the

law .

In addition to providing for administrative enforcement , Congress
fashioned a potent civil remedy available to individuals whose rights

had been violated .

The fact that the civil liability provision is

so stringent indicates that Congress expected it to play a deterrent
role in addition to compensating injured parties .

Thus , NCUA views the availability of a private remedy with the
possibility of large damage awards by the courts as one mechanism through
which Congress intended to achieve creditor compliance with the Equal
Credit Opportunity Act .
We distinguish between the administrative and private remedy as
follows .

When a consumer /member makes a complaint against a Federal

credit union to NCUA , we assume that the individual is choosing to
pursue an administrative remedy .

We conduct a full in - depth investigation

of the complaint , using regional supervisory personnel and consumer

analysts . If the consumer at any point in our investigation requests
information about his /her rights under the Equal Credit Opportunity
and /or Fair Housing Acts , we supply brochures published by other govern

ment agencies describing these rights . If the consumer asks an NCUA
consumer affairs staff member whether a private remedy is available

226

at any stage , they inform the complainant that a private cause of action
may be brought and that the complainant should seek the advice of an
attorney of his /her choice if he/ she desires to pursue this remedy.
When NCUA has concluded its investigation of the complaint , if
we have found no evidence of discrimination , our recently instituted
procedure is to explain first to the complainant what steps we have
taken in investigating the complaint , second , that we have concluded

our investigation and have not found evidence of discrimination and
third , that the Equal Credit Opportunity and /or Fair Housing Acts pro
vide individuals with the right to bring a private action .

We further

notify the complainant that if he / she wishes to pursue this course

of action, the advice of an attorney of his /her choice should be sought .
Thank you for providing me with this opportunity to share my views

on enforcement and education under the Equal Credit Opportunity and
Fair Housing Acts with you .

I commend this Committee for recognizing

the important role these two laws play in the credit marketplace and

for focusing its attention on the efforts of the financial regulatory
agencies to achieve compliance under these laws .

227

Mr. ROSENTHAL. Our next witness is Anita Miller, a member of
the Federal Home Loan Bank Board.

228

result of the hearing process. But he is basically a very committed
and fair human being. I think that it is a combination of his
commitment to the law , his own sense of what is fair, and his own

realization of what an important issue this was nationally that
resulted in his taking such a strong position.

229

Services Corporation. That office was staffed with 17 experts. It is
now going to full complement of 39. Its mission is to give technical
assistance and program assistance to the institutions that we regu

late. The notion here being that we not only wanted to move ahead
with the shall -nots but we really wanted to achieve urban lending
and to assure that there was the kind of assistance to savings and
loans that would result in loans going in to efforts to revitalize
communities.

!

a

230

those lenders who are indeed originating urban loans. So we have
moved on that front also.

231

to a complainant, even in cases where no explicit violation has
been found, 20 times.

232

Mr. ROSENTHAL. What do you base that on?

233

Mr. ROSENTHAL. I understand everything you are saying. Things
are better than they were. They were bad. How can you measure
that ? Are they 1 percent better, 3 percent better ? Is redlining still
prevalent, forexample, let's say, inBrooklyn and the Bronx?

-

234

The Bank Board has received very few complaints and
has not been able to substantiate any instances of redlining
in Brooklyn and the Bronx by the financial institutions
we regulate .

Specifically , in the past 15 months ( July 1977 through
October 1978 ) , we received only one complaint alleging redlining

in the New York City area . The complainant alleged that a
Federal association was redlining because it wouldn't re
finance a loan on his property . Our investigation disclosed
that the complainant already had a loan with the association

on that particular piece of property and that the association
had rejected the complainant's application because it found
that the property was very poorly maintained and that its
condition had greatly deteriorated in the hands of the

complainant .

We determined that the association's position

was substantiated and that no other supervisory action was
warranted .

235

$ 1 million to purchase a participation in a $ 12.8 million
construction and rehabilitation loan for a large low and moderate
income rental apartment project in the Bronx ; has committed
$ 1 million to purchase FHA/VA loans on properties located
in the Bronx and lower Westchester Counties ; and has contacted
three local originators of FHA mortgages and hopes to increase
its local commitments through them .

When our examiners returned to check on the association's
corrective action the next year , they were accompanied by the
District's civil rights specialist . They found that as of March
1977 , when the amended version of Regulation B went into effect ,

the association had redocumented its lending policies to fully
comply with the new regulations and now uniformly applied the

80 % LTV , 30 year maximum terms to all areas it served . The
examiners reviewed the association's adverse action files and
could find no indication of discriminatory rejections. The

examiners noted that the association , whose lending record
had been cited with approval by several citizens groups , had
made almost 70 % of its new loans in the Brooklyn area and that as
of the time of examination , 77 % of its total loan portfolio was
invested in Brooklyn , 9 % on Long Island , 5 % in other boroughs
of New York City , and 9 % in purchased out -of - state loans .
The examiners concluded that the problems noted in the earlier

examination had been fully corrected , that there was no evidence
of other discriminatory practices , and that this association was
generally viewed as having one of the best lending records in
the area .

37-415 O - 79 - 16

236
As a result of the New York City Commission on Human
Rights ' extensive 1976 hearings on redlining in New York
City and a group of studies on redlining produced by various
citizen groups about the same time , much attention has been
focused on this subject . However , as noted above , the Bank

Board has not been able to substantiate instances of redlining

by the institutions it regulates . We are not sure whether
this is because they have a clean bill of health or because
this is a very difficult problem to uncover , particularly
given the state of lending in New York State at the moment .

237

Commercial banks have been taking up some of the slack in
mortgage lending , though , since Federally chartered banks can
raise their mortgage lending rate a full percentage point
above the Federal discount rate ( which was 9 1/ 2 % as of
December 8 , 1978 ) . The recent action by the New York State
legislature to increase the usury rate to 9 1/28 ( with an

escalator clause which may go into effect next spring ) should

encourage other lenders to get back into the mortgage market .
However , this action will not completely solve New York's
problems since this rate is still below what National banks
can charge and is below the rates allowed in many other parts
of the country .

The Bank Board will continue to use the tools it has at
its disposal to combat redlining and to encourage the financial

institutions we regulate to meet their community's credit
needs . The implementation of our new monitoring system
and of Community Reinvestment Act will give us the tools
to determine if they are in fact doing this .

STATE
YORK
NEW

30
June

1978

Held
Loans
Estate
Real
Amount

90

90

004
14,032,278,0
17.6
005
48,210.840,0
60.7
00
17,224,233,0
21.7

17.1
60.1
22.2

79,467,351,000
100.0

100.0

Total
Deposits

0004
158,114,814,
62.2

100.0
254,072,871,000

100.0

1.33
S&L%oinsured
by
held
assets
of
as
State
York
New
in
FSLIC
-F(NFIncludes
hold
associations
sfon
SLIC
R2A97p15
,"FLiabilities
Banks
Savings
Mutual
and
Commercial
for
Income
.,17pof
13
977
eport
ssets
DIC

238

29.9

7.9

8.0

RESOURCES

31
DECEMBER

19761

City
York
New
State
York
New

%

Amount

%

%

145,868,000,00069.8
64.54
27.54

2
, 27,000,000
53

7.92

9,788,000,000 4.7

25.5

208,883,000,000 100.0
100.00

Mortgage

o
' riginations
Originations
Mortgage

percentage
as
.
of
deposits

Bronx
NW
in

Amount

%

%

1,740,015

40.9

0.50

9
, 00
1,460

34.4

0.01

1,052,000

24.7

0.30

4,252,915

100.0

14.5

70.4

15.1
100.0

239

19762
BRONX
NORTHWEST

240
[ From the American Banker, June 27, 1978]

NEW YORK STATE SAVINGS AND LOANS INFLOWS TRAIL THOSE OF 1977

SCARSDALE, N.Y.-A net savings gain of only $ 102 millionwas recorded by New
York State savings and loan associations last month, $ 59 million below the gain in
May 1977. For the first 5 monthsof 1978, the flow of net savings into the State's 130
savings and loans was almost $ 600 million below last year, the Savings Association
League of New York State said .

[ From the American Banker, November 29, 1978 ]
14 SAVINGS AND LOANS PROVIDING $ 12.3 MILLION BRONX REHABILITATION LOAN
( BY KEITH ROLLAND )

NEW YORK . - Fourteen savings and loan associations in the metropolitan New
York area are providing a $ 12.8 million construction and permanent loan for

rehabilitation of a run -down apartment complex in the central Bronx which will
provide housing for 291 working poor families, it was announced here this week .

241

program , HUD subsidizes about 60 percent to 80 percent of tenants' rent. Kraus
Enterprises, meanwhile, receives an effective tax exemption of about 20 years on
the Roosevelt Gardens complex under the city's 151 tax -exemption and abatement
program .

[ From the New York Post, Tuesday, July 5, 1977]
REDLINING FOES URGE BOYCOTT

( By Peter Freiberg)

An anti-redlining group in Brooklyn's Park Slope today kickedoff acampaign to
persuade residents to withdraw $ 1 million from the Greater New York Savings
Bank this week .

242

AID Chairman Herbert Steiner says the three " good banks ” where residents are
being asked to save - Atlantic Liberty, Brooklyn Federal and Hamilton Federal — all
make a " significant number of Brooklyn mortgages.'

243

Mr. ROSENTHAL . Jamaica is going downhill so fast you cannot get
hold of it.

244

old , and they do notyet have a regulation that has been published .
California has, I think, an aggressive program . We have a great

deal of respect for it. But for us to give away the responsibility that
we have under statute for the entire country I think would be a
very grave error.

245

in dealing with. And the question is whether the Federal Home
Loan Bank Board in the court suit has preempted a State program ,

which is by all accounts more aggressive and stricter than the
Federal policies. And I question that in view of the new attitude, in
view of the new leadership which you claim exists at the Federal
Home Loan Bank Board.

246

In response to your request for a comparison of
the provisions of the Bank Board's new Nondiscrimination
Regulations and the State of California's redlining law

and regulations , we have prepared the attached chart .
It should be noted that the Bank Board's regulations went

into effect on July 1 , 1978 ( monitoring requirements
effective as of September 1 , 1978 ) . No regulations
have yet been adopted to implement the new California
law , the Housing Financial Discrimination Act of 1977 ,
which went into effect on January 1 , 1978 .
The major differences between the Bank Board's regu
lations and the statute and regulations of California are :
1 .

The 1976 California regulations and 1977 statute

only cover housing accommodations of 1 to 4 units which
generally must be owner occupied ; whereas the Bank Board
regulations cover any dwelling , including mobile homes and
apartment buildings , regardless of ownership . In addition ,
the Bank Board's regulations also cover any vacant land which
is offered for sale or lease for the construction or location
of a dwelling .

2.

3 .

The Bank Board's prohibition against the use of

discriminatory appraisals is much broader than California's

regulations in that it prohibits the use of appraisals which
discriminate on the basis of the age or location of the dwelling

as well as those which are discriminatory per se or in effect
under the Fair Housing Act or ECOA . The California regulations

merely prohibit consideration of the racial , ethnic ( or
religious or national origin , in the case of the 1977 Act )
or changing composition of the neighborhood .
The remedies available to an individual whose rights

have been violated are more substantial under Federal law
than under California law . First , an individual has direct
access to the courts under both the ECOA and the Fair Housing

247
Act permit recovery of actual and substantial punitive damages ,
in addition to court costs and reasonable attorney's fees
if one is the prevailing party . Under the ECOA , for example ,
a non - governmental entity may be liable for punitive damages

in an amount not to exceed $ 10,000 in an individual action or
the lesser of $ 500,000 or 1 %

in a class action .

of the creditor's net worth

Under the Fair Housing Act , a creditor

may be liable for up to $ 1000 in punitive damages in addition to

actual damages . Under the 1977 California law, the Secretary
of the Business and Transportation Agency can only award the
financial assistance applied for or , if that is no longer
available , up to $ 1000 in damages . Upon petition to the court ,

the prevailing party may also be awarded costs and reasonable
attorney's fees .
The California regulations make no provision
for any additional remedies for an aggrieved individual .

Although both the Bank Board and the California Secretary
of Business and Transportation can issue cease and desist
orders against a financial institution in violation of the
applicable law or regulation , the Bank Board can issue a
cease and desist order against individual officers , directors ,

and employees and can impose civil fines of up to $ 1000 per
day against any association or officer , director , or employee

in violation of a final cease and desist order of the Bank
Board . In addition , the Community Re investment Act explicitly
requires the Bank Board to take an association's record in
meeting its community's credit needs into account when

determining whether to grant charters and approve deposit
insurance , branches and other facilities , relocations , mergers ,
consolidations , and the like .

We hope that these materials will answer the questions
you had about the comparative coverage of the Bank Board's
regulations and California's law and regulations .

(12
REGULATIONS
FHLBB
CFR

PROVISIONS
)
531.8
and
SS528

I.

1,1978
January
.Effective

into
went
regulations
Revised
Non
1
1, 978.
July
on
effect
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have
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discrimination

Effective
Date

Affected
Institutions

in
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o
other
&L,SAny
bank
,stitution
State
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including
ublic
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,
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for
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e
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of
refinancing

State
c
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the
of
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nsured
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-,. ence
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Board
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associations
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tion
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tructure
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designed
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w
, hich
families
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the
as
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residence
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248

for
offered
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vacant
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the
for
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.IV

-cshartered
.S&LState

.
modations

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.
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measure
emergency
as
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implement
1976
.
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to
proposed
been
not
have
act
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yet

L
c
S&and
- Shartered
Federally

Property
.Type
III
of

REGULATIONS
CALIFORNIA
the
of
23
( ubchapter
S
of
Regulations
and
Rules
)the
C
S&L ommissioner

.)
final
made

since
.
1972
effect
in
.II

CALIFORNIA
LAW
Health
and
C
( alifornia
)Code
SS35800-35833
Safety

REGULATIONS
CALIFORNIA
LAW
CALIFORNIA

REGULATIONS
FHLBB

PROVISIONS

.)(C
ont
P
IVrohibitions

c
, haracteris
conditions

person
of
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dwel
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ainarticular
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avoid
to
quired
unsound
and
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.
practice
business

249

assistance
public
of
receipt
rights
of
exercise
faith
good

PROVISIONS

REGULATIONS
CALIFORNIA

LAW
CALIFORNIA

REGULATIONS
FHLBB

Guidelines
interpreting
regs
discrim
prohibit
generally
ination
against
older
homes
minorities
on
impact
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because
Rules
of
the
S
(24
ubchapter
C
S&L ommission
the
of
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and
)
er

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eligious
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borhood
regarding
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unsubstantiated

aof
composition
origin
national or
or

or

of
the
risk
loan
on
effect
the

250

character
economic
or
physical
is
n
a eighborhood
of
istics
.
prohibited

Prohibits
appraisals
use
3)
of
of
basis
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or
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Fair

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shall
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ethnic
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practices
appraisal
use
or

.
statute
with
of
provisions
the

.
ECOA
or
Act

: equires
othing
rN)in
1Caveat
law

that
Board
policy
is
It
:
Caveat
on
based
are
be
to
decisions
Ioan
individual
property
of
value
the
unless
specific
security
offered
as
its
affecting
factors
neighborhood

f
a inancial
institution
provide
to
financial
assistance
if
clearly
is
it
evident
occupancy
that
create
would
health
the
to
threat
imminent
an

safety
or
occupant
the
of
2),or
afinancial
precludes
institution
considering
from
market
fair
the

value
future
r
ange
short
or
present
such
as

value
of
the
property
.

guide
extensive
Contains
3)

37-415 O - 79 - 17

PROVISIONS

REGULATIONS
FHLBB

CALIFORNIA
LAW

REGULATIONS
CALIFORNIA
value
market
Fair
defined
is
as

:Caveat
Same
'78
caveat
as

highest
price
which
p
athe
roperty
c
aand
in
bring
will
ompetitive
conditions
under
all
market
open
,t
sale
afhe
to
requisite
air
seller
and
buyer
prudently
acting
knowledgeably
.and

imminent
regarding
law
threat
health
which
explained
is
to
circum
extreme
in
only
mean
C
stances
section
on
. ontains

a
"orvoidance
unsafe
of
unsound
business
practice
."
Section
permits
lender
con
to
p
" roperly
sider
appraised
"value
market
fair
current
definition
same
approximately
in
statute
found
as
.

document
can
association
an
If
re
factors
more
or
one
that

251

geographic
such
area
to
lating
the
avail
assuming
,even
that
nondiscriminatory
of
ability
,it
area
the
in
financing
is
will
factors
such
probable
that
market
to
value
fair
the
cause
the
during
decrease
years
early
mortgage
the
of
it
term
may
ratio
loan
value
to
the
adjust
term
s
horter
ato
require
or
ad
that
p
- rovided
maturity
exceed
not
does
justment
"minimum
the
for
required
to
continue
property
security
r
a easonable
be
to
security

-

."
loan
the
for
regarding
factors
Permissible
:are
n
a eighborhood
V.

the
to
hazard
ogical
geol
avoidnt
to
ssary
nece
exte
ness
busi
unsound
or
fe
unsa

and
Business
of
Secretary
rulemaking
has
Transportation

Rulemaking

.
authority

.
tice
prac

REGULATIONS
FHLBB

PROVISIONS

Enforcement

VI
.

Board
authority
has
to
use

to
tools
supervisory
full
enforce
regs
.

REGULATIONS
CALIFORNIA

LAW
CALIFORNIA

statistical
analysis
indicating
10
concentration
loan
times
the
in

shall
and
monitor
Secretary
investigate
lending
patterns
take
practices
and
appropri

to
related
when
population
as
area
of as а
that
metropolitan
the
area

and
action
enforcement
ate
.
whole

recommend
funds
State
that
not
institutions
in
deposited
be
.
statute
the
violating

concept
describe
further
Guidelines

asecurity
allowable
"of
rnd
easonable
preventing
a
to
relative
evidence
.
decline
of
rate
probable

.
VII

Complaint
Resolution

of
Secretary
to
made
Complaints

Complaints
lend
concerning
discrimination
ing
may
go

Transportation
and
Business
,who
unlawful
eliminate
to
try
shall

Office
Board's
to
either

Investment's
Community
of
OCI
C
)(Affairs
onsumers

persuasion
or
.ation

receipt
of
days
21
within
applicant
the
Board
of
C
. omposition
complaint
of
Inquiry
:member
ne
public
,o

If
occurred
has
practice
unlawful
,within
must
Secretary
of
days
30
,make
complaint
receipt
of

:(such
needed
the
making
as
financial
assistance
requested
to
up
of
damages
paying
or
$1com
).I
or
,000
nstitution
may
plainant
through
appeal
administrative
before
hearing
Administrative
of
Office
the

review
judicial
nd
Hearings
,a
thereafter
.
available
is

ne
,o
i
S&L ndustry
of
representative

252

the
order
and
fact
of
findings
desist
and
cease
to
institution
such
take
and
action
other
as

VIII
.

ommissioner
C
S&L
Boards
E
. stablishes
Commissioner
which
Commissioner
the
with
doesn't
of
satisfaction
the
to
resolve

Division
HUD's
to
or

for
Assistant
Secretary
Opportunity
.Equal

the
with
filed
be
to
are
Complaints
filed
complaints
review
to
Inquiry
of

conference
,concili
by
practice

and
Transportation
Business
of
employee
.
Agency

PROVISIONS

on

be
kept
.

253

n
applicat
withdraw
of
sfile
A eparateions
mwhy
reason
of
otation
nw)the
a( ust
ith

,
notat
res
requi
ation
Regulion

PROVISIONS

REGULATIONS
FHLBB

Written ting
Underwri

.
IX
Standards

CALIFORNIA
REGULATIONS

CALIFORNIA
LAW

institution
Each
must
have

association
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violation
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or

254

or
these
Rregs
.ECOA
equires
institutions
review
to
their
advertising
marketing
and
their
that
ensure
to
practices
services
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to
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. efines
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community
discrimination
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including
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to
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stricting
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. xpected
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loan
portfolio
and
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ascertain
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whether
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credit
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the
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,the
munity
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aondiscriminatory
on
munity
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.Anstitutions
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the
EQUAL
HOUSING
OPPORTUNITY
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PROVISIONS

REGULATIONS
FHLBB

Reinvestment
Community
(Our
re
egulations
)r
(CRA
Act
to
association
each
quire
of
types
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offer
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to
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serves
:CRA
Statement
its
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include

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LAW
CALIFORNIA

REGULATIONS
CALIFORNIA

s
8), taff
breakdowns
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s
responsibilitie
describing
.In
information
,the
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give
to
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extent
to
relates
information

.
neighborhoods

255

de
programs
affirmative
services
market
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and
groups
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of
residents
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portion
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Statements
CRA
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public
the
to
available
.)
request
upon

4
.
XI

LAW
CALIFORNIA

REGULATIONS
FHLBB

PROVISIONS

Guidelines
concerning
practices
prohibited
and
sex
to
regard
with
marital
status
a
, ge
of
,prior
borrower
history

REGULATIONS
CALIFORNIA

Status
Marital
and
Sex

Status
Marital
and
Sex

Prohibits
numerous
practices
,
:but
to
limited
not
including
income
spouse's
of
discounting
-time
part
consider
to
refusal
or
,prohibits
income
on
questions
childbearing
p
eg
B.Rrohibits
,child
alimony
disallowing
.
payments
maintenance
or
support

to
identical
Virtually
B
Reg
and
Guidelines
FHLBB
marital
and
sex
concerning
.
discrimination
status

Borrower
of
Age

Borrower
of
Age
of
discussion
B's
Reg
to
Refers
use
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lender
says
which
this
egative
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factor
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use
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loan
no
that
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trary
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to
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be
will
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over
is
who
cant
plus
age
whose
,or
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term
mortgage
the

and
income
of
source
consider

should
terms
that
,and
security
likelihood
with
be
consistent

.of
income
future

number
certain
a
ceeds

of
years
.

.of
loan
years
early

256

likelihood
consider
May
and
continuation
income
of
income
of
sources
all
over

Prior
Histor
y

Prior
History

possible
as
discussed
While
,discrimination
effect
in
all
the
cite
guidelines
FHLBB
in
used
examples
history
prior
on
guidelines
,arrest
record
p
plus
: rior
restrictive
overly
of
use
;to
ratios
income
payment
o
-minimum
ff
cut
arbitrary
income
borrower
for
points
m
inimum
;or
amount
loan
.o
ffs
cut
-square
footage

consideration
undue
Prohibits
factors
such
history
prior
of
ack
credit
as
,l
difficulties
homeownership
f
,of
requent
job
,limited
changes
residence
or
education
formal
,n
having
ot
with
dealt
previously
lender
.

Effects
Test

Effects
Test

.Bprohibits
Reg
discrimina
in
."tion
effect

Contains
explanation
of
effects
test
examples
and
which
have
practices
of
.adiscriminatory
effect

257

Mr. ROSENTHAL. What portion of the Board's antiredlining regu
lations derive their legal authority from the Fair Housing Act and
the Laufman case , and not from the enabling statutes of the Home
Loan Bank system ?

258

Question No. 1

What provisions of law and what court decisions comprise
the legal basis for the Federal Home Loan Bank Board's new

nondiscrimination regulations and for the enforcement program
that will be followed to ensure compliance with these regulations?

Answer ( Revised )
The legal authority relied upon by the Bank Board in adopting

the new nondiscrimination regulations was that cited in Board
Resolution 78-302 :

1. The Community Reinvestment Act , Title VIII , Pub . L.
No. 95-128 , 91 Stat . 1147 ( 12 U.S.C. 2901 ) ;
2.

Equal Credit Opportunity Act Amendments of 1976 ,

Title VII , Pub . L. No. 93-495 ( 15 U.S.c. 1691 ) ;
The Civil Rights Act of 1968 , Title VIII ( Fair
Housing ) , Pub . L. No. 90-284 , 82 Stat . 81 ( 42 U.S.C. 3601
3619 ) ;
4.
Act of May 31 , 1870 , c . 114 , $ 16 , 16 Stat . 144 ,
( 42 U.S.C. 1981 ) ;

5 .

Act of April 9 , 1866 , c . 31 , sl , 14 Stat . 27 ( 42

U.S.C. 1981 , 1982 ) .
6.
11527 ;
7 .

E.O. 11063 - Equal Opportunity in Housing , 27 FR
Federal Home Loan Bank Act , $ 17 , 47 Stat . 736 , as amended

( 12 U.S.c. 1437 ) ;
.

Title IV ( Insurance of Savings and Loan Accounts )

of the National Housing Act , $ 402 , 403 , 407 , 48 Stat . 1256 ,
1257 , 1260 , as amended ( 12 U.S.C. 1725 , 1726 , 1730 ) ;
9.

Home Owners Loan Act of 1933 , 35 , 48 Stat . 132 , as

amended ( 12 U.S.c. 1464 ) ;
10 .
Reorg . Plan No. 3 of 1947 , 12 FR 4981 , 3 CFR 1943
48 Comp . 1071 .

These various authorities fall into two broad categories :
( 1 ) Items 1 through 6 are the broad statutory authorities
which generally prohibit discrimination in housing and credit

on the basis of race , color , religion , age , sex , marital status
and the like . Several of these authorities , specifically
items 1 , 2 , 3 , and 6 , require the Bank Board , among others ,

to adopt enforcement programs to insure that the prohibitions
against discrimination contained in these authorities are

adhered to by the institutions it regulates .

259

( 2 ) Items 7 through 10 are the grants of general authority
to the Bank Board and the Federal Savings and Loan Insurance
Corporation ( FSLIC ) , which the Bank Board directs , to supervise
the lending practices of those financial institutions chartered

by the Bank Board or insured by FSLIC .

These authorities

make no specific reference to nondiscrimination , but they do
give the Bank Board wide ranging authority and enforcement
powers over the institutions it regulates .

The following is a brief analysis of the various paragraphs
of the Bank Board's Nondiscrimination Regulations and a reference

to these authorities , as appropriate , to indicate the bases
for these provisions :

Part 528 of the Bank Regulations :
Section 528.1 Definitions

( a)

Application - This definition refers to the definition

found in Regulation B ( which the Federal Reserve Board has

issued pursuant to the ECOA , item 2 ) .

$ 4(
IV
to
of

( b ) Member institution - This definition is derived from
a ) of the Federal Home Loan Bank Act and $ 403 ( a ) of Title
of the National Housing Act and defines member institution
cover those financial institutions which are both members
the Federal Home Loan Bank system and insured by FSLIC

( items 7 and 8 ) .

( c ) Dwelling - This definition is derived from $ 802 ( b )
-

of Title VIII of the Civil Rights Act of 1968 ( item 3 ) .
Section 528.2 Nondiscrimination in Lending and Other Services

( a ) This section is derived from $ 805 of Title VIII of
the Civil Rights Act of 1968 ( item 3 ) . The court in Laufman
v . Oakley Bldg . & Loan Co., 408 F. Supp . 489 ( S.D. Ohio , 1976 ) ,
upheld the Bank Board's issuance of the original version of

this regulation which interpreted $ 805 as prohibiting redlining
of particular neighborhoods since this often had a disproportionate

effect on protected classes .

Similarly , redlining an area

because of the age of the housing alone often has a similar
effect , since many members of these protected classes may
only be able to buy in older neighborhoods where the housing

is usually less expensive .

The prohibition against discrimination

in application , collection , or enforcement procedures is derived
from Regulation B ( and thus the ECOA , item 2 ) as well as from
Title VIII of the Civil Rights Act of 1968 ( item 3 ) .
( b ) This section is derived from Regulation B , the
ECOA and 527 of the National Housing Act .

( c ) This section refers directly to $ 202.2 ( z )
of prohibited basis ) of Regulation B.

( definition

260

Section 528.2a Nondiscriminatory appraisal and underwriting
( a ) This section follows from the prohibitions contained
in 528.2 ( a ) ( derived from $ 805 of Title VIII of the 1968 Civil
Rights Act as amplified by Laufman v . Oakley Bldg . & Loan Co.
and applies the prohibition against discrimination in lending

to appraisals, one of the major components in a lender's
decision on the soundness of a proposed loan . This interpretation
was also upheld by the court in United States v . Am . Inst. of
Real Estate Appraisers, Supp . 1072 , 1079 ( N.D. ill . , 1977 ) .
( b)

This section is derived from Title VIII of the

Civil Rights Act of 1968 , Regulation B and the ECOA ,
the Community Re investment Act ( items 1 , 2 , 3 )

and our

general regulatory authority ( items 7 through 10 ) .
Section 528.3 Nondiscrimination in applications
( a)

This section is derived from $ 805 of Title VIII

of the Civil Rights Act of 1968 and the ECOA ( as amplified by
$ 202.5 ( a ) of Regulation B )

( items 2 and 3 ) .

( b ) This section is a necessary corollary to the enforce
ment of the other provisions of these regulations , including
$ 528.3 ( a )

above .

It is derived from $ 805 and 808 ( d )

of Title

VIII of the Civil Rights Act of 1968 , the ECOA ( particularly ,
as amplified by $ 202.5 ( a ) of Regulation B ) , and the Community
Re investment Act ( items 1 , 2 , 3 ) .
Section 528.4 Nondiscriminatory advertising

This section is derived from $ 804 , 805 and 808 ( d ) of
Title VIII of the Civil Rights Act of 1968 and 5701 and 704
of the ECOA ( as amplified by $ 202.5 ( a ) of Regulation B )
( items 2 and 3 ) .
Section 528.5 Equal Housing Lender Poster

This section is derived from Title VIII of the Civil
Rights Act of 1968 and the ECOA ( items 1 and 2 ) .
Section 528.6 Monitoring Information

This section is based on all of the authorities listed
above since the collection of this information is needed to
determine if regulated associations are in fact lending in
a nondiscriminatory manner ( items 1-10 ) .
Section 528.7 Nondiscrimination in employment
This section was adopted pursuant to Title VII of the

Civil Rights Act of 1964 and Executive Order No. 11246 .

261
As must be apparent , it is often not possible to offer
citations to specific provisions of individual statutes as
constituting the bases of a particular regulatory provision .

In the Federal Home Loan Bank Act and , particularly , the
Home Owner's Loan Act , Congress specifically directed the
Bank Board to supervise the savings and loan industry and
give " primary consideration to the best practices of local

mutual thrift and home- financing institutions ."
It is
this authority , along with comparable provisions of the
National Housing Act , which give the Bank Board broad authority
to adopt and enforce the regulations it has enacted pursuant

to the mandate contained in the ECOA and the various civil
rights acts to prohibit discrimination in the offering of
credit for housing by the financial institutions it regulates .

262

regulations under that statute. The examiners will go in to exam
ine for compliance with that statute and the regulation. All right.
What you will find at that time is massive numbers of violations,

many of them of a technical nature: recordkeeping, posters, and so
on. The examiner will talk to the association on the spot. What
happens is that the supervisory agent then sends a letter to the
board of directors, and they have to respond that corrective action
has been taken . In those cases where they do not respond we go

back to them again . So what you have in the case of any new
legislation and any new regulation is a massive educational and
enforcement program that takes place.

263

way and it is getting better daily and it is going to be better
tomorrow than it was yesterday.

one

Mr. ROSENTHAL . Oh, stop it.

264

coming back to buy housing, suburban housing is so expensive,
there are market forces at work that complement everything else
that we are trying at the Federal end. We have got HUĎ's commu
nity developmentprogram which gives flexibility to those commu

nities that know how to use it, to target money into neighborhoods,
to leverage private investment.

265
PREPARED STATEMENT OF ANITA MILLER, BOARD MEMBER, FEDERAL HOME LOAN
Mr. Chairman and Members of the Subcommittee :
The fact that these hearings relate to fair and equal
opportunity in housing makes , I think , particularily appropriate
the traditional opening statement that " I welcome this
opportunity to testify before your Subcommittee . "

so first for a personal reason .

I do

A realistic opportunity for

a decent home for all our families is , it seems to me , fundamental
to our sense of a decent society , and our persisting failures
in this regard must be a matter of persisting concern
to all members of the community .

This is an area to which

I have devoted many years of effort before my appointment
to the Bank Board .

In the 1960's , when I lived in Rhode

Island , I was Vice President of Citizens United for Fair

Housing , which helped achieve fair housing legislation
for that State .

Later on , when I lived in New Jersey ,

I served on the Bergen County Fair Housing Council . I
was active as well in personal investigations ( for example ,

as a tester ) in housing discrimination cases .

Most recently ,

as a senior program officer at the Ford Foundation , in
its Department of Urban and Metropolitan Development , I
was responsible for the national portfolio of grants made
by that foundation on housing conservation , neighborhood
revitalization , and community development .

1

266

Since I became a member of the Bank Board several months
ago , I have had to develop for myself a sense of the Board's
role , its policies , and its efforts in putting an end

to what is literally , as well as figuratively , a blight
on our American landscape . I shall be glad this morning
to do what I can to assist your Committee in its effort
to obtain its own sense of the Bank Board's responsibilities

and activities in this area .
the goal of achieving fair and equal housing opportunities :
one which involves both enforcement tools , to prevent and
impose sanctions against discriminatory lending , and special
assistance programs to encourage and enable associations to
make the greatest number of home lending opportunities available .
Our enforcement tools include :
o

Regulation B ( implementing the ECOA which we
enforce for Federal Home Loan Bank system members ) ;

o

Regulation C ( implementing the Home Mortgage
Disclosure Act which we enforce for our Bank
System members ) ;

o

the Community Reinvestment Act regulations which
will be in final form by November of this year .

They also include :

our new Nondiscrimination Regulations which attack
forcefully and specifically discriminatory home

lending policies ;

1

267

a formal enforcement policy for our nondiscrimination

regulations containing explicit directions to our
supervisory personnel on required corrective action ; and
o

intensive training for our examiners and supervisory
personnel in the detection and correction of

nondiscrimination violations .

Finally , we have requested statutory amendments to
our supervisory authority to strengthen our sanctions
against savings and loan associations and introduce sanctions
against individual officers and directors who violate
our regulations .

To coordinate and further develop our special assistance
and incentive programs , we have ,

created a new office , the Office of Community
Investment , to assist S & Ls in identifying investment
opportunities in areas which have been ignored

traditionally ,
established Community Investment Officers in
each Federal Home Loan District Bank , at the
Vice Presidential level , to coordinate the technical
assistance and community investment programs within their

districts ;
o

expanded the successful program initiated by
the Bank Board , the Neighborhood Housing Services
program , which now involves 800 S & Ls in 35 states ;

37-415 0 - 79 - 18

268

established the Community Investment Fund , a
special $ 10 billion fund which makes loans at

reduced rates to S & Ls which are actively involved
in neighborhood revitalization and community
development investment , and

proposed legislation , which has been favorably
considered by the House and Senate Banking Committees ,

to expand Federal associations ' lending authority
to permit the greatest flexibility in community development
investment , neighborhood revitalization , and support of
local government housing programs .

I would like to explain in somewhat greater detail these
tools and programs and their relationship because they
demonstrate the Bank Board's commitment to achieving fair
and equal housing opportunity in this country .
Nondiscrimination Regulations
The Bank Board's new nondiscrimination regulations
took effect on July 1 , 1978. They are , we believe , an

important step to assure that member institutions are
not making arbitrary lending decisions based on unsubstantiated
assumptions . The regulations implement the Fair Housing
Act and reflect the Equal Credit Opportunity Act .
A three pronged approach is represented in

the regulations by which :
( 1)

the Bank Board will monitor compliance through

effective detection and enforcement procedures ;

269

( 2 ) member institutions will be continuously examining
and evaluating their own commitment to fair lend ing ; and
( 3 ) the public will have access to important new
information to assist them in obtaining equal treatment
in the lending process .

Specific major provisions of the new regulations are :
1.

Institutions may not automatically refuse to

lend because of the location or age of a dwelling .
This does not mean that the age and location of the dwelling
will be eliminated from consideration in the loan evaluation

process and that institutions will consequently be forced
to make unsafe loans .

What it does mean is that it is

illegal to automatically refuse to consider or make a
loan simply because a property is old or located in an
area thought to be declining .

Such arbitrary behavior

is the antithesis of good. underwriting , and may result
in further deterioration of existing housing stock as
well as limit the areas and price range of housing .

2.

Institutions may not base their loan decisions

on appraisals which are discriminatory .
Our examiners have reported in their review of appraisals

a number of examples of appraisals indicating the " chang ing "
nature of a neighborhood and using other code words representing

discriminatory judgments against an area . Although we had interpreted
our previous regulations as prohibiting the use of discriminatory

270

appraisals , the new regulations are specific as to the prohibition
and prohibit the use of appraisals which discriminate on any of the
bases described in the regulations .

Our prohibition is intended

to have a direct effect upon the appraisal industry as well as
the savings and loan industry .
3.

Institutions may not discourage loan applications

on the basis of any protected borrower characteristic

or because of the location or age of the dwelling .
This includes refusing to answer questions about loans or
implying that no loan would be approved or application considered
on the basis of any protected borrower characteristic or because
of the age or location of the dwelling involved .

Furthermore ,

an institution must notify a person inquiring about a loan or
loan terms that he or she has a right to file a written appli
cation . The Bank Board believes that this will do much to pre
vent arbitrary pre - screening , a practice of major concern to our

agency .
4. Institutions must have written nondiscriminatory
underwriting standards which must be available to the public
upon request at each office .

Nondiscriminatory underwriting standards will have to be written
clearly , and each institution will have to review its standards ,
and the business practices implementing them , on an annual basis .

Also , persons inquiring about loans , in addition to being informed

about their right to file applications , must be told they have a
right to a copy of these standards . We believe such availability
will help borrowers evaluate their own ability to qualify for a
loan and to understand better the factors which are considered in

1

271

the loan underwriting process .

5.

Institutions must consider all relevant factors

respecting an individual's creditworthiness in making
loan decisions without giving undue weight to any one
factor .

Loan decisions must be based upon a realistic evaluation
of all pertinent factors respecting an ind ividual's credit

worthiness . Because of the pervasiveness of past discriminatory
practices , member institutions are not to give undue weight
to any of the following factors :

( a)

educational level ;

( b) lack of previous homeownership ;
( c)

a history of numerous jobs ; or

( d ) arrest records .
Institutions must comply with a new monitoring

system for fair housing and equal opportunity
lending compliance .
As of September 1 , 1978 , institutions must maintain a loan

application register that , with regard each loan application ,

contains such information as the sex , race , age and marital status
of the applicant ; the amount and term of any final loan and the fees
connected therewith ; the loan- to- value ratio ; the age of the security
house ; its census tract location ; and application disposition

as compared with the terms requested by the borrower . The register
a need for close examination of lending practices .

We expect also

that it will prove useful to the association for self-monitoring
purposes and to identify missed lending opportunities .

272

Enforcement Policy

We have also published , on May 25 , 1978 , our policy
describing the strong enforcement actions we will take

in correcting nondiscrimination violations or patterns .
The range of specific measures would include :
( 1 ) action to correct the violation and ensure that
it is not repeated ;

( 2)

action to inform the public that the unlawful

practice has been discontinued ; and
( 3)

affirmative action to correct conditions resulting

from the type of violation with respect to individuals
or classes of individuals or areas .

Using this policy , our supervisory personnel will when
necessary to correct a violation or conditions resulting from
the type of violation , in addition to notifying individuals
of their own rights to sue , require restitution of fees and the
solicitation of new loan applications from individuals

unlawfully denied home mortgage credit . They will require
the institution to correct onerous terms and refund to
the borrower any overcharges . In addition to the individual

relief required , the supervisory agents will require
affirmative advertising in areas underserved by institutions

announcing the institutions ' nondiscriminatory lending
policy . And they will require institutions in violation
to notify the members of the class discriminated against ,
of the possibility of discriminatory action and their
remedies .

273

It should be noted that this enforcement policy reflects
a substantially increased emphasis by the Bank Board on

specific redress for the victim or victims of discrimination .
Staff Training

Our examiners and supervisory personnel have received
specialized training which reflects the Bank Board's
commitment to the elimination of discrimination in housing
credit .

Examiners , field civil rights specialists , district

appraisers , and examination officers at the management
level of our District Banks , will receive intensive training

in the new Nondiscrimination regulations during the week
of October 2-6 , 1978. The course outline provided in
our written response indicates the scope of this training

program which has been designed by the Bank Board Civil
Rights Specialist .

Supervisory personnel will receive

similar training at a later date .
Regulation B - Equal Credit Opportunity Act ( ECOA )
The Bank Board enforces Regulation B for all Federal and

FSLIC insured state chartered S& Ls . Rather than restate
Regulation B , with which I am sure you are all familiar ,

I think it would be more helpful to explain the relationship
between our Nondiscrimination regulations and Regulation B.
ECOA as you know generally prohibits a creditor

from discriminating against an applicant on a prohibited
basis regard ing any aspect of a credit transaction .
Prohibitions against discrimination under the ECOA are

included in our nondiscrimination regulations.

This high

lights for S& L management , in integrated form , all

274

the pertinent nondiscrimination in home lending requirements .

For consistency , we use the Reg B definition of an " application . "
Also , the revised Equal Housing Lender poster , required

under our new regulations , contains a clear explanation
of both the Fair Housing and Equal Credit Opportunity
Acts .

Finally the loan application register includes

the record keeping data required under Reg B ( $ 202.13 )
plus loan terms and location to provide us with a fuller
picture of each loan application and disposition .
Home Mortgage Disclosure Act ( HMDA )

Regulation

Act . The Act , which went into effect in 1976 ,

requires lenders which have assets of $ 10 million or
more and main or branch offices in SMSAs , to reveal publicly

the areas in which they lend . Broadly speaking , this
is done by disclosure of all types of first mortgage
loans for the purpose of purchasing residential property ,
and of all secured and unsecured home improvement loans

broken down into loans originated by the institution
and loans purchased by the institution .

We find the Home Mortgage Disclosure Act data to be an
important component in enforcing the Fair Housing and Equal Credit
Opportunity Act because it provides our examiners at every
regular examination with information on where lending
institutions have been making loans . We have begun the
process of supplying our examiners with the economic

and social characteristics of all census tracts so that

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in reviewing HMDA data , they will have a complete picture

of areas being served and those not being served .
Community Reinvestment Act

The Bank Board is in the process of implementing this
new Act which will complement effectively our enforce
ment strategy . The CRA requires the Bank Board , in connection

with every regular examination , to assess how well each
institution under its jurisdiction is meeting the credit
needs of its entire community , including low and moderate

income neighborhoods , consistent with safe and sound
operation .

It also mandates that the Bank Board take

that assessment into account when we evaluate any application
by the institution for a branch or other deposit facility .
We receive approximately 3500 applications a year of
the type covered by the Act which gives you some idea
of its magnitude .

We have proposed regulations jointly with the other
Federal financial regulatory agencies which we are now
developing in final form for the November 1978 adoption

date required under the Act . The proposed regulations
would require each lender to prepare and publish a
Community Re investment Act Statement through which it would
delineate the community it serves and describe the credit
services it is prepared to offer there . CRA Statements

would have to be adopted within 90 days after the effective
date of the regulations and would have to be available for

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scrutiny and comment by the public and would be reviewed
by our examiners .

Any comments received would have to be

kept in a public file for at least two calendar years , and
would have to be reviewed by the institution's board of directors

at least once a year and by our examiners during every regular
examination .

Although flexibility is given the lender , two significant
checks on how institutions delineate their communities have

been built into the proposal .

First , the proposed regulations

prevent gerrymandering by requiring that communities consist

of the contiguous areas surrounding each institution's office

or group of offices , without excluding low- and moderate
income neighborhoods . And , second , each delineation's acceptability
will be further assured by the public's right to submit comments
and the review of the delineation and public comments by
Bank Board examiners .

I am hopeful that at this point a clear picture has
emerged of the relationship of these enforcement tools .

As

you can see our examiners will have the benefit of three tools :
( 1 ) the loan application register required by the
Nondiscrimination Regulations indicating from whom and
for what properties loan applications have been

received and their dispositions ;
( 2)

the HMDA data indicating the location and types of

loans that the institution has granted ; and
( 3)

the CRA Statement indicating the entire

community which the institution has stated it will

serve and the types of credit it will offer .

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Our examiners will review this as part of every regular examination ;

the S & Ls themselves will also have this annual picture of lending
activity . I feel confident in saying that this combination of
legislative and regulatory action represents the most comprehensive
enforcement scheme developed to date to ensure fair and

equal home lending opportunity .
Affirmative and Special Assistance Programs
As indicated , there is also the other side of the
coin , the positive assistance and technical support which

the Bank Board believes is equally necessary to build
fully effective fair and equal home lending policies into our

home loan system .
Office of Community Investment
Late in 1977 , the Bank Board created a new Office of
Community Investment ( OCI ) .

This Office is developing programs and

policies to support agency goals relating to the prevention
of disinvestment and to stimulate investment in communities

throughout the nation .

The office has authority to hire

17 people and we have included a supplemental request in

our 1979 Fiscal year budget for 21 additional slots to
raise the staff level to 38 .

The Office identifies and analyzes problems characteristic
of urban areas , studies the nature and extent of current savings
and loan industry activity in these areas , and then proposes methods
and programs to enable the savings and loan industry to deal
more effectively with these problems .

OCI also coordinates

the Bank Board's handling of consumer and discrimination complaints .
OCI is designed to provide training and technical assistance

278

to the savings and loan industry in discovering economically
sound lending opportunities in our nation's communities and
ne ighborhoods . The Office works together with other Federal
agencies , and national , regional , and local interest groups ,

to develop sound policies and programs for community investment
with the assistance of Community Investment Officers located
in each of the 12 District Federal Home Loan Banks at the
Vice Presidential level .

OCI recently completed a two day Forum on community
investment and revitalization at which representatives
from financial institutions , federal and local government

agencies , the insurance industry , the home building industry ,

community groups , civil rights groups , legal aid groups , and
labor unions , met and discussed ways to solve the problems of
redlining , dislocation , and how to create community vitality
and investment .

We are now following up on this Forum with

programs of common effort and action among these groups .

oversight of our activities in connection with the Urban

Re investment Task Force , a joint effort of the Bank Board ,
the Department of Housing and Urban Development and the

financial regulatory agencies to encourage neighborhood
preservation efforts through the NHS program .

As you know ,

since the creation of URTF , the Bank Board has provided all
staff support services for URTF ; during last year , the
Bank System contributed over $ 1 million for the ad

ministrative expenses of the Task Force activities .

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Neighborhood Housing Services ( NHS )

The Bank Board continues to be encouraged by the work
of the Urban Re investment Task Force .

By using local

resources while requiring sound underwriting criteria ,

the Task Force has taught us that much can be done in
our underserved communities . There are now Neighborhood

Housing Services programs in 45 cities . In addition , the
Ne ighborhood Preservation Projects program has developed
16 promising strategies to supplement the NHS program in
areas like apartment building rehabilitation , neighborhood
commercial revitalization , and the rehabilitation and sale
of seriously deteriorated structures .

During 1978 the

Task Force is working to develop NHS programs in 24 additional
cities , expand 10 existing NHS programs to new neighborhoods ,
support 6 new Neighborhood Preservation Projects and undertake

new trial programs in 8 cities .
Community Investment Fund

Another major initiative of the Bank Board is an incentive
program for the thrift industry to encourage greater lending

in unserved areas .

This is our $ 10 billion Community Investment

Fund ( CIF ) . The CIF in each of the next five years will
make available to FHLBank members $ 2 billion in specially
priced advances , with the objective of stimulating institutions
to make mortgage credit available to mature communities

in imaginative ways that will encourage preservation or
revitalization of those communities . Priced at what will
amount to 1/2

- 3/4 of one percent below regular rates

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the advances will be generated entirely by the FHLBank
System , which will raise the funds in the capital markets

by traditional methods . It is important to note that the
preferential rate inherent in the CIF will come from FHLBank

earnings ; not a penny of it will come from taxes .

we have made over $

1/2 billion in these specially priced

advances to over 200 institutions .

It is the Bank Board's belief that central to the task
of preserving and revitalizing America's communities is the
establishment of an effective partnership between the
nearly $ 500 billion savings and loan industry and State and

local governments and community organizations . We anticipate
that the CIF will both provide the spark necessary for this

partnership , and act as a catalyst to institutionalize
and make permanent the role of private financial institutions
as active members of it .

Institutions which have a record

of involvement in mature community lending and have developed

expertise in this specialty will be rewarded and encouraged
to expand their efforts . Other institutions will be

stimulated to acquire the capabilities required to participate
in the Fund . Accordingly , the pool of individuals experienced
in such lending will grow , and more institutions will familiarize

themselves with its opportunities.

By encouraging linkages

with HUD , for example , through the Community Development
block grant or Urban Development Action grant programs ,
and similar governmental and private sector programs ,

it

is expected that CIF funds can act to encourage the release

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of a substantially greater quantity of dollars than is
represented by the $ 10 billion amount alone .

Community Lending Proposal

Finally , the Bank Board has proposed legislation
which would expand the authority of Federal associations
in a cooperative effort with State and local government
agencies to provide increased and more flexible financing
for rehabilitation , home modernization , and residential
construction .

This too should have a powerful leveraging

effect in the conservation and revitalization of our older
housing stock . It too would involve our lending institutions
more directly and more consistently in our efforts to stop

ne ighborhood decay and to end discrimination and its effects .
The Specific Subcommittee Questions
It is the Board's hope that the replies and related
material provided your Subcommittee in advance of this

testimony have been responsive to the Subcommittee's needs .
Let me now address myself to your questions specifically .
1. a . To what extent are the problems of urban

neighborhood decay and redlining the result of discrimina
tory practices in the handling of individual loan inquiries

and applications?

In what ways and to what extent will the

Federal Home Loan Bank Board's new nondiscrimination regula

tions address these problems of neighborhood decay and
redlining ?

Data already presented to your Subcommittee confirms
the presence of discriminatory practices .

Certainly the

absence of adequate home financing has an effect on the quality
of neighborhoods . The studies relating to ne ighborhood

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decay also indicate that there are a number of factors that , in

addition to redlining or individual discriminatory action ,
have been fundamental causes for neighborhood decay . For
example , we refer to the fact of neighborhood disinvestment

in general , commercial as well as residential . We also
have in mind disinvestment by local government itself in

maintaining , and indeed providing , the public services
and support necessary to maintain livable neighborhoods

or to upgrade deteriorating ones . As another contributing
factor we have in mind the disinvestment by existing , often
absentee , property owners . And we have in mind the whole
question of disinvestment both public and private as it
relates to the city as a whole .

It is in part for these reasons that the Bank Board
has committed itself to the development of affirmative

programs to make home financing resources available to
those who need them on the terms needed .

The Bank Board

is committed , as well , to work together with all other

possible agencies , public and private , in order to marshal
and direct our collective resources on behalf of positive
efforts aimed at preventing or correcting the problems
of neighborhood decay .

This , in no way , of course , diminishes our commitment
to eliminate redlining and other discriminatory practices
by the institutions we regulate . Our position is simple
enough :

whatever the specific impact of such practices

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and whatever the necessity of other programs as well , there

can only be an unremitting effort to eliminate discriminatory
practices .

Thus , the new nondiscrimination regulations are intended to
emphasize to our own staff , the industry , and to the community ,
that this is in fact the Bank Board's commitment .
The regulations address the problems of neighborhood
decay and redlining by identifying and prohibiting discriminatory

conduct that constitutes or is related to redlining and
neighborhood decay ; and they establish clear rules for

the industry to follow in maintaining fair and equal
housing lending practices .

Specifically :
1.

The regulations prohibit refusals to consider a loan

or make a loan simply because a property is old or located

in an area which the institution considers undesirable
the classic redlining situation . Our previous nondiscrimination
regulations prohibited refusals to lend in an area because
of the racial characteristics or national origin of the
residents . The present prohibition is broader and seeks
to prevent loan officers from denying loans on the basis

of any generalized assumptions . The regulations likewise
prohibit the use of discriminatory appraisals which contain

unsubstantiated judgments about neighborhoods . We are convinced
that there are many sound loans not currently being made
in

areas and that they can be made within our regulations

on a prudent basis . We do permit consideration on an
individual basis of the condition and utility of improvements

37-415 O

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to the security property and of conditions of the area
which can be reliably related to risk .

These may include

street conditions , amenities , availability of publie
utilities and municipal services and exposure to

flooding and land faults .

However , such adverse factors must be

clearly documented .
2.

Consideration of the creditworthiness of the borrower

must follow a similar pattern .

Here , too , our standards

emphasize that determinations must be based on the actual

facts rather than on the basis of any kind of generalized

standard , no matter how traditional .

In connection with

minority groups which have had to face discrimination in
all aspects of their activities and needs , with employment ,

education , housing , or otherwise , our standards therefore
call for recognition of the fact that weaknesses suggested

in a particular record may , because of this pervasive dis
crimination , simply reflect lack or denial of opportunity

rather than inadequacies of the borrower .
3.

The regulations attack the pre- screening process

in several ways . They emphasize that potential borrowers have
a right to file a written loan application and are to be so
informed . Institutions may not discourage applications by
implying a loan would not be approved . The underwriting
standards of the institution must comply with our

nondiscrimination regulations , must be clearly disclosed
in writing and must be available to the public . Persons

285

inquiring about loans must be informed of these standards

and their right to a copy of them , as well as of their right
to file a written application .

In summary , the Bank Board's new regulations :
( 1)

identify for savings and loans , borrowers ,

public interest groups , and the community generally
what residential underwriting standards are acceptable ; and
( 2)

assure that under these underwriting standards ,

fair and equal housing opportunities will be available
to families seeking credit from insured savings
and loan associations .

b.

How will the Federal Home Loan Bank Board detect

redlining discrimination at individual associations , and

how will you enforce compliance with the nondiscrimination

regulations , especially the anti-redlining provisions of
these regulations? What role will the monitoring informa
tion specified in section 528.6 have in this program of
detection and enforcement ?
Detection :

The detail of recordkeeping and information required by
the new monitoring system , HMDA , and CRA , combined with
the firm charge to our examiners and supervisory agents

to consider this problem area as one of our prime areas
of concern , will contribute fundamentally to detection .
The intensiveness of the examination procedure as it

relates to possible discriminatory actions is indicated
in the materials submitted to your Subcommittee .
In addition , we have instructed our examiners that

the basic norm for discrimination is not intent but effect .

286

" Good faith " will simply no longer do .

Further by " effect "

the basic question or standard is whether the particular
practice or action may have a discriminatory effect .

Finally , we have developed intensive training programs
for our examiners in the detection of discriminatory practices .
Basic to an effective detection program is the experience and expert
judgment of our examining staff .

This staff , with its familiarity

with the community itself as well as with savings and loan

operations generally , is in an effective position to uncover
the most sophisticated types of discrimination .

We have

therefore added to our general training program specialized
training in nondiscrimination for examiners and supervisory

personnel . Additional intensive training explaining the
new Nondiscrimination regulations will be conducted during
the week of October 2-6 , 1978 .
Enforcement

Since enforcement of the regulations is the subject of
question number 2 , I will confine my answer on enforcement

of our anti- redlining provision to that question .
Monitoring

With regard to the role which the monitoring informa
tion , specified in section 528.6 , will have in our program
of detection , let me first state what information ( as to both
borrowers and co - borrowers)

we require on the loan application

register :
( 1)

race/ national origi

( 2)

sex

287

( 3)

marital status

( 4)

age

( 5)

census tract

( 6)

loan terms : interest rate , amount and term
of loan

( 7)

fees

( 8)

loan- to- value ratio

( 9)

age of property

( 10 )

any change in terms offered from those
requested

( 11 )

disposition of the application

This information is designed to flag for the examiner possible

discriminatory practices . If the register indicates
a possible discriminatory pattern , such as denial of loans
on older homes or denial of loans to minorities or women ,
the examiner would then review the loan application files
themselves to determine whether or not there has been
discrimination .

As already indicated , the examiner will also have the
advantage in detecting nondiscrimination of :
1.

The CRA Statement which will identify the association's

lending area and what services it has stated it will
offer in it , plus the public comment file on the CRA
Statement .

288

2.

The Home Mortgage Disclosure Act data , along with

the census tract data , to indicate where loans have been

made by the association and the characteristics of those areas .
What is your expectation about the date by which
you can reasonably expect to achieve full compliance with
these regulations throughout the industry?
The number of violations detected on an association by

association basis should decrease with each examination as
S & Ls practices under the new regulations become increasingly
institutionalized . In addition , we fully expect that compliance
will be furthered as S & L's find that in fact fair and

equal opportunity in housing makes both good community sense and

good business sense .

We are optimistic also , that the dynamics

of the Bank Board efforts together with efforts of other agencies ,
public and private , will have far reaching positive effects .

However , it should also be recognized that with additional
examiner training and experience the number of reported violations

may increase in the early years . Also , we anticipate that
examiners increasingly will uncover more sophisticated and
subtle forms of discrimination . So our basic answer is that

this is an on-going process but one which will result in
institutional change in the industry .

289

2.

Recent Enforcement :

a.

How many and what types of violations of the Fair

Housing Act , the Equal Credit Opportunity Act , or Regulation B
have the Bank Board's examiners found in insured savings and

loan associations in 1977 and 1978 ?

What portion of these

violations were clear violations of the substance and spirit

of the laws prohibiting discrimination ?

What remedial or

enforcement actions has the Bank Board taken to correct these

violations?
During the 12 month period from July 1 , 1977 through

June 30 , 1978 , our examiners noted 4,091 Equal Credit
Opportunity Act violations and 1,427 violations of the Bank

Board's Nondiscrimination Regulations implementing the Fair
Housing Act . The types are tabulated in our written response
to your questions . Violations of the Fair Housing Act were found
in approximately 13 %

of the industry and violations of the

ECOA and Reg B were found in approximately 43 %

of the

industry .

A problem arises in the context of determining
which violations are technical in nature , and which are
substantive . Even an unintentional violation of a
a

technical nature could have a substantive effect upon
an individual applicant or class of applicants . In addition ,
various inadequacies in keeping the required records
or in sending out the proper notices may in themselves seem

technical but they also mean that the data is not available
for the examiner to review to determine if substantive

violations have in fact taken place . Consequently , we

290

have had a very difficult time in answering your question
regarding the number of substantive violations . Our best

judgment is that at least 10 % of the violations noted were
of a substantive nature . This percentage represents clear

violations such as discounting a wife's income or using
appraisals containing references to minority or ethnic
characteristics of the area in which the security property
is located . However , as indicated , a certain portion of the

other 90 %

of the violations found in the year ending

June 30 , 1978 , may also have been of a substantive nature
but necessary data for our review in order to make that
determination is not available . Because of the seriousness

of recordkeeping and notification requirements , we have
insisted on correction of these procedures to insure
that data will be available in the future .
Remedial action

After the examiner has noted violations in the examination

report , the Supervisory Agent writes a supervisory letter to
the association requesting correction of the violations found
by the examiner . Corrective action which has been required of
institutions is as follows :

notifying individuals of the violations of
their rights

refunding fees and other costs
permitting refiling of applications
оо

affirmative advertising in underserved areas
obtaining new appraisals

291

sending new adverse action notices to prospective

borrowers
changing lending policies .

In addition , where it is clear that an association has no
nondiscrimination policy or that it is not followed , the Super

visory Agent insists on a meeting with the association's Board
of Directors . Through this meeting , the Supervisory Agent makes
the Board of Directors aware of the seriousness of the problem

and his or her inability to correct it by working with management
personnel .

A cease and desist order has been filed in one case where
an association persisted in its refusal to take corrective
action .

In that case , the association refused to make home

mortgage loans , investing its assets instead in government
securities .

It argued that its function was to

act as a repository of savings and that its investments were all
lawful .

The Bank Board brought the cease and desist action

against this association to require it to meet its basic

obligation of providing home mortgage funds in serving its
community . The order is presently in effect and the association
is now actively seeking home mortgage investments throughout
its community .

Evidence of the Bank Board's commitment to use strong
sanctions against associations found in violation of our

regulations is present in a recent case in which we ordered
an institution to make restitution to over 400 borrowers
who had been overcharged interest on their mortgage contracts .

292

This major action will be published in the Bank Board Journal ,
which is distributed to all savings and loan associations
in the Bank System .

In our view , redress to the individual

is essential to the proper enforcement of laws and regulations

designed for their protection .
b . Were there any instances of repeat violations ,
in which associations were found to be continuing to engage
in discriminatory practices after having previously been
told to stop? What enforcement actions has the Bank Board

taken in these cases of repeat violations?

We have not found a substantial number of repeat violations .
However the special examiner training program in nondiscrimination
was not completed until May of 1977. Consequently , most

institutions have not undergone a second comprehensive
examination of their compliance with nondiscrimination
requirements . The Supervisory Agents have reported only
two instances of repeat violations of a clear , substantive

nature . In one case , the Bank Board issued the Cease and
Desist Order described above . In this case also we began

our policy of publishing notice of cease and desist orders
to inform the industry of situations in which the Bank
Board has brought such proceedings .

In the other case ,

the prior examination disclosed that an association was

making few loans in census tracts with high minority con
centration .

Although the association then developed an affirma

tive lending program , the subsequent examination disclosed
that the program was not achieving good results . As a consequence ,
the Supervisory Agent required the association to strengthen

293

its affirmative lending program by including specialized

media advertising , and by hiring a qualified loan agent
for the area .
3.

Future Enforcement :

How will the Federal Home Loan

Bank Board deal in the future with cases of repeat violations

of the Fair Housing Act , the Equal Credit Opportunity Act ,
or Regulation B , where an association is found on the second
or third examination to have failed to correct conditions
found on a previous examination ?

Under our current enforcement policy , published May 25 , 1978 ,
an association is required to take corrective action immediately

following the discovery of the violation .

Moreover , the Supervisory

Agent does not wait until a subsequent examination to see

whether the necessary corrective action has been taken .

Follow - up

special examinations are performed to review the association's
implementation of corrective action .

However , if an association proves recalcitrant in

correcting a violation , or if a recurrence should be found in
a subsequent examination , the matter would be referred to the
Bank Board for cease and desist action .

a.

In particular , in the case of repeat violations will

you inform , or require the association to inform , the victims
of lending discrimination that unlawful discrimination has
been found in the institution's handling of a previous

application or inquiry from them ?
In both first instance cases and repeat violations our
policy is to require that victims of discrimination be
notified .

In addition , the institution would be given the option ,
unless it wishes to be subject to a cease and desist order ,

294

to notify the class of affected individuals that their rights
may have been violated .

Also , going beyond notification to particular individuals

Supervisory Agents may require institutions to
( 1)

Adopt an advertising program aimed at the
class or area which was adversely affected
which will be effective in reaching the
class :

( 2)

Notify sources of loans , such as real
estate brokers , and community groups , of
its new policies or practices ;

( 3)

Inform real estate brokers or others who
accept applications of the correct procedures
to follow to prevent perpetuation of the effects
of the violation .

b.
Under what circumstances will you release publicly
the names of institutions that have refused or failed to

eliminate discriminatory practices?
In cases where a Cease and Desist Order has been issued
and the affected institution fails to comply with the terms
of such order , the name of the institution would become public
since enforcement action would occur in the courts .

c . Under what circumstances will you seek criminal
prosecution of or other punitive action against associations
or their officers who fail to eliminate discriminatory
practices ?

We would seek criminal prosecution in cases where we
find falsification of records or reports , perjury , intimidation ,
or other action of a like nature .

In general , our experience

has been that the substantial civil sanctions , and particularly

295

the cease and desist order , will be as effective in discrimination
cases as they have been for other types of regulatory violations .
The cease and desist order carries with it the posssible sanction

of contempt of court , which could involve imposition of a fine or
a jail sentence . In addition , the Bank Board has proposed legislation
which would give us direct cease and desist authority against
individual officers and directors , as well as against the
association , and which would provide for civil penalties of

$ 1,000 per day for violation of a cease and desist order .
The Fair Housing Act likewise reinforces the civil
sanctions that are available .

Under its provisions , when

the Board finds discriminatory patterns , it may refer the
matter to the Attorney General for action by the Department
of Justice as well as by the Bank Board .

Beginning this fall , the CRA , will make available yet another
important sanction .

As part of every S & L examination there

will be an assessment of the record of the association in
meeting the credit needs of its " entire community" . This

record will have to be taken into account by the Bank
Board in the case of any application by an association
for a branch office , electronic deposit facility , and
various other deposit facility applications .

Civil Damages Litigation :
a.

What is the view of the Federal Home Loan Bank
Board about the effectiveness and proper role
of civil damages litigation by private indivi
duals in bringing about general compliance with
the laws against credit discrimination ?

296

To the extent they are successful , they will act as
a deterrent to violations by increasing the risks generally
to S & Ls of suit .

They can also serve as a very effective

means of alerting other victims both of the same and other
S & Ls of the possibility of discriminatory action or
practices .
In such litigation the Bank Board itself is in a

position both to help and to be helped .

As indicated by

one of the landmark cases in this area Laufman v . Oakley
Bldg and Loan Co., referred to in our written answers ,
in which the Bank Board participated as an amicus, such
participation can prove effective not only in securing
redress for the victim in a particular case but also in
helping develop legal precedent to make civil litigation

a much more effective tool . We are making every effort to
provide consumers with information enabling them to determine
whether or not they have been the victims of discrimination
and their rights as to civil damages litigation .
Nevertheless , the Bank Board feels strongly that the onus

of protecting victims against violation of their civil rights
should not be placed fundamentally on them .

Such litigation

may be difficult and costly . Primary responsibility for
assuring that the public is in fact protected against
violation of their civil rights is a public responsibility

and one which we respect .
b.

What steps does the FHLBB take to inform consumers

of their right to file civil damage suits under the Fair

297

Housing Act and the Equal Credit Opportunity Act , or to

facilitate in other ways consumer use of the civil damages
provisions of these acts ?
As indicated above , in the case of violations of our
nondiscrimination regulations our policy is to require that

victims of lending discrimination be informed by the
Supervisory Agents that unlawful discrimination has been

found in the institution's handling of an application
or inquiry from them . In addition , the Bank Board regulations
require that all savings and loan associations display

prominently in their lobbies an Equal Housing Lending poster
which informs prospective borrowers of their rights under

the Fair Housing and Equal Credit Opportunity Acts .

Under the new regulations the poster is significantly
more informative in alerting borrowers as to the possibility
of discrimination .

It specifically instructs them on the

three means available to seek correction of discriminatory

action by a savings and loan lending officer :

complaint to

the management of the association itself , complaint to the
Bank Board or HUD , or direct civil law suit .

These are

cumulative remedies .

5.
Consumer Information : What other consumer
information and education activities does the FHLBB

conduct to inform the general public about the laws

against credit discrimination ?

Do you have any plans

to expand these activities?

We believe that the required written underwriting
standards which must be made available to prospective

borrowers will provide needed information to the public
on home mortgage credit decisions . We are currently

298

preparing a series of pamphlets on consumer rights

for distcibution through local consumer groups
as well as by savings and loan associations . One
pamphlet series will outline the borrowers' rights

under pertinent consumer credit protection statutes ,
the Fair Housing Act and Bank Board regulations . ( A draft

copy is in our written materials . )

A second series of

brochures will educate consumers on how to go about

shopping for and financing a home .

Our Office of

Community Investment also sponsors seminars with consumer
protection groups ; a recent one has been on the proposed
CRA regulations . The Bank Board is now working with

HUD in connection with its Women and Credit Program
to help determine how public information campaigns
can be made most effective .

We expect to develop other

materials and techniques as we gain experience in this

area . In brief , we see the area of consumer informa
tion as a continuing obligation that requires consistent

re - examination and expansion .
Conclusion
In summary then , as to redlining , and discriminatory

action generally , we are committed to making every effort
to assure that savings and loan associations will know
what constitutes discriminatory practice and that they
are aware of the Bank Board's commitment to end such
practices .

We have focused our efforts on affirmative

299
programs designed to make home mortgage credit opportunities

available to all on a nondiscriminatory basis . We have directe

our concerns and efforts also to prevention .

legislative and administrative efforts has been to tell

S& Ls that the " gut " choice is really theirs .

If they

choose to join with us , in a sense of common effort , to
wipe out discrimination and its effects , then the legislative
focus , the agency focus , and the prevailing community focus ,
will be on providing them with all possible aid and support .
If instead they choose to reject the sense , most recently

reaffirmed in the CRA , of their " continuing and affirmative
obligation to meet the credit needs of their entire community , "

then the legislative focus , the regulatory focus , and the

community focus , will have to be on the policing process and
on sanctions .

recognition of its own responsibility , as an agency of
the public , and of its commitment , to move aggressively

in order that the objective of fair and equal opportunity
in housing may become a reality for all our citizens .

[ Whereupon , at 11:55 a.m., the subcommittee adjourned to recon
vene at 9:30 a.m., Friday, September 15, 1978.]

37-415 O - 79 - 20

BANKING REGULATORY AGENCIES' ENFORCE

MENT OF THE EQUAL CREDIT OPPORTUNITY
ACT AND THE FAIR HOUSING ACT

FRIDAY, SEPTEMBER 15, 1978

HOUSE OF REPRESENTATIVES,

STATEMENTS

OF CANTWELL

F.

MUCKENFUSS

III , DEPUTY

COMPTROLLER FOR POLICY PLANNING , OFFICE OF THE
COMPTROLLER OF THE CURRENCY; THOMAS W. TAYLOR , AS

SOCIATE

DEPUTY

COMPTROLLER

FOR

CONSUMER

PRO

GRAMS; PHILIP C. JACKSON , JR ., MEMBER , BOARD OF GOV

ERNORS, FEDERAL RESERVE SYSTEM ; AND CARMEN J. SUL
LIVAN , ACTING DIRECTOR, OFFICE OF CONSUMER AFFAIRS
AND CIVIL RIGHTS , FEDERAL DEPOSIT INSURANCE CORPO
RATION

STATEMENT OF PHILIP C. JACKSON, JR.

Mr. JACKSON . Thank you, Mr. Chairman. It is a pleasure to be
here this morning. I appreciate the opportunity to appear before
this subcommittee on behalf of the Board of Governors to discuss

the Board's enforcement of the Equal Credit Opportunity Act and
the Fair Housing Act.

( 301 )

302

redlining regulations and redlining monitoring. Unfortunately, the
term redlining is used to describe a wide variety of credit under
writing practices. Thus it becomes necessary to descibe the prac
tices to which the word applies before responding to the questions
and issues.

303

geographic redlining than a legal prohibition against geographic
discrimination in the extension of credit.

304

ly procedural: three- fourths related to forms — 65 involved applica
tions and 15 involved statements of adverse action . A good number
of these institutions have now been brought into compliance after

further clarification as to what regulation B requires. The Federal

Reserve banks are dealing with the others on a case-by -case basis.

305

exposure to the civil damages provisions when they write to ask
the Board for interpretations of the regulations.

STATEMENT OF CARMEN J. SULLIVAN

Ms. SULLIVAN. Mr. Chairman , the FDIC, as a Federal supervisor

of banks, places a high priority on insuring that the credit needs of
communities and individuals are being met in an affirmative, non
discriminatory manner.

306

bank at least once every 15 months for compliance with consumer
protection, civil rights, and related laws and regulations. Examin

ers are selected to participate in the examination program general
ly for a 6 -month tour of duty. They receive special training in
consumer protection and civil rights prior to their participation in
the program

307

consumers in understanding fair lending laws and their rights
under these laws.

308

The FDIC recently initiated a pilot project in Brooklyn , N.Y., in
response to this problem . The study will attempt to: ( i) Ascertain

the cost of acquiring information useful in determining the extent
to which financial institutions are meeting the credit needs of their
communities; ( 2) identify underserved neighborhoods; and ( 3) evalu
ate supplementary data collection and analysis techniques which
might be used by examiners to assist in their review of a bank's
compliance with the Community Reinvestment Act, CRA .

1

309

period. This information by itself, however, cannot confirm or dis
prove the existence of redlining practices.

STATEMENT OF CANTWELL F. MUCKENFUSS III

Mr. MUCKENFUSS. Mr. Chairman and members of the committee,

I appreciate this opportunity to participate in the committee's over
sight hearings on the enforcement of the Equal Credit Opportunity

310

Act and the Fair Housing Act. I have with me Tom Taylor, Asso
ciate Deputy Comptroller for Consumer Programs.

field .

311

In addition, a separate career path is being devised for consumer
examiners. This will provide incentives for our personnel to focus
upon civil rights and consumer matters and will result in the

development of an ever -deepening pool of expertise in this area .

312

" expand the urban reinvestment task force housing concept into
thecommercial credit area.” In response to this charge, the Comp

troller convened a task force composed of concernedagencies and
departments. We are presently involved in two initial phases which
involve the application of the concept. The first phase involves the

application of the concept developed by the Urban Reinvestment
Task Force to projects already in progress around the country
which would significantly benefit from increased financial institu
tion participation.

313

Fourth , careful analysis on a block -by -block basis may demon
strate that there are some areas in which the failure to lend or

imposition of more stringent terms is clearly warranted by con
crete economic factors and any other conduct would constitute an
unsound banking practice. Although the unavailability of credit in

such circumstances can serve to further the decay of such an area,
few have suggested financial institutions should make such loans.

In these cases the targeting of Government subsidies and guaran
tees aimed at changing the circumstances of such areas, combined
with private sector involvement, are clearly warranted.

314

Mr. ROSENTHAL. Well, the other agencies, it seems to me, were

more out in front in termsof enforcing the law on racial redlining.
The FDIC was stronger than the Board in saying that it could
check its monitoring data for redlining, but it has no plans to do so .

.

315

Mr. JACKSON. This testimony and its position were reviewed at a
full, open meeting of the Board, open to the public, on Wednesday
morning.

37-415 0 - 79 - 21

316

We stated in our answer to the question that we do not maintain
detailed data . The other agencies may have provided you with
specific hours based on their guess. It would be easy to take the
number of hours that we furnished you , multiply by 40 percent and
supply an answer to your question.

you do it?

Mr. MUCKENFUSS. It is an estimate.

Mr. ROSENTHAL. They kept a log of all that time.
We have to adjourn for a few minutes. We will be right back .
[ Brief recess .]

Mr. ROSENTHAL. The subcommittee will be in order.
I want to ask each of you to discuss some of these issues:

317

the Financial Institutions Regulatory Act will go through with that
authority so clarified .

-

318

training might have — however, it is my judgment that the scope of
our authority under that act would allow us to do so if it were
found to be necessary.

319

Mr. ROSENTHAL. Do you think that is fair to consumers in that
respect ?

you know ?

Ms. SULLIVAN . I am not sure ; I believe it is the 1974 date.
Mr. ROSENTHAL. 1974.

Governor Jackson , do you have any recollection ?

320

Ms. SULLIVAN. Well, for example, an examination of a bank's
loan policy.

321

Mr. JACKSON. Mr. Drinan , I didn't say that we had decided not to
use testing

322

Mr. DRINAN . No, Mr. Chairman .

Mr. ROSENTHAL. All right. We will be right back .
[ Brief recess .]

Mr. ROSENTHAL. Congressman Drinan ?
Mr. DRINAN . Thank you, Mr. Chairman .

Ms. Sullivan, youcan tell me anything that you want.
Ms. SULLIVAN . OK, thank you.

323

have deteriorated . However, the situation in Boston and all across

the country in the inner city has deteriorated since that time.

324

different rules with respect to home mortgages ? Is there something

special about the Community Reinvestment Act which attempts to

direct itself to the same problem, to make sure that institutions
that are not giving equal credit opportunity, that they are to be
permitted to plan those kinds of things? All of those are basically
procedures and mechanisms to accomplish the one basic substan
tive purpose, aren't they ?

325

Mr. ROSENTHAL. The subsidy she talked about was outside, in the
suburbs, whichpresumably drew people out ofthe inner city.

C

326

have a simpler statute that reflects the lessons. You haven't dem
onstrated that any of the laws have in fact eliminated redlining;
that it goes on in a massive way in the slums of downtown Syra
cuse, Los Angeles, San Diego is a testament to that. You have yet
to demonstrate that anything has happened by reason of the imple
mentation of these laws to improve the situation .

327

Ms. SULLIVAN . There is a memorandum of understanding right
now between the three agencies here, the Bank Board, HUD and

Justice, concerning exchanges of information .

328

MEMORANDUM OF UNDERSTANDING REGARDING
INTERCHANGE OF INFORMATION CONCERNING COMPLAINTS

The Department of Housing and Urban Development, the Department of Justice ,

and the four principal Federal Financial Regulatory Agencies ( the Comptroller
of the Currency , the Federal Home Loan Bank Board , the Federal Reserve
Board and the Federal Deposit Insurance Corporation ) agree to the following

exchange of information concerning complaints of discrimination in financing.
I.

The Department of Housing and Urban Development
HUD will provide the appropriate Federal Financial
Regulatory Agency with a copy of all complaints
received pertaining to discrimination in financing
that have been accepted for investigation .
HUD will provide a copy of the notice to resolve
or not to resolve served on the respondent to the

appropriate Federal Financial Regulatory Agency .
C.

The Department of HUD will provide the Department

D. In appropriate instances, where there is a failure

E.

II .

HUD will provide a copy to the appropriate Federal

The Federal Financial Regulatory Agencies

A.

Each Federal Financial Regulatory Agency will

329

III .

B.

Each Federal Financial Regulatory Agency will provide

C.

At the discretion of each Federal Financial Regulatory

The Department of Justice
At the discretion of the Justice Department , cases

reflecting discrimination in lending by financial
institutions will be referred to the appropriate

Federal Financial Regulatory Agency . Justice will
furnish notice when it is decided to institute suit

against a financial institution .

B.

Department of Justice will provide a monthly list

330

Mr. DRINAN. It is just exchange of information ; there are no
guidelines for prosecution ?

331
PREPARED STATEMENT OF CARMEN J. SULLIVAN , ACTING DIRECTOR , OFFICE OF

CONSUMERAFFAIRS AND CIVIL RIGHTS, FEDERAL DEPOSIT INSURANCE CORPORATION
Mr. Chairman , we at the Federal Deposit Insurance Corporation

welcome this opportunity to testify on our enforcement of the Equal
Credit Opportunity Act , the Fair Housing Act , and matters related
to these Acts .

The FDIC , as a Federal supervisor of banks , places a high
priority on ensuring that the credit needs of communities and
individuals are being met in an affirmative , nondiscriminatory
manner .

FDIC enforcement of antidiscriminatory statutes is the subject

of criticism on two sides .

Consumer groups and other organizations

are always concerned that the agencies ' enforcement efforts are not
as vigorous as they should be .

On the other hand , bankers complain

about the costs generated by paperwork required by regulations imple
menting these statutes and point out that it is the bank customer who

ultimately bears these costs .

It is the policy of the FDIC to design

the most effective and efficient regulatory and supervisory mechanisms
to enforce the fair lending laws .

In my testimony today , my focus will be on the FDIC's enforcement
activities in the areas of equal credit opportunity and fair housing .

In the course of my testimony , I will attempt to present our initial
difficulties in ascertaining bank compliance with these statutes , how
these difficulties are being resolved , and the direction our present
and proposed enforcement program is taking .

Ten years ago the FDIC for the first time was delegated
responsibility for enforcing a Federal antidiscriminatory statutethe Fair Housing Act .

37-415 0 - 79 - 22

That Act prohibits a bank from denying a loan

332

or other financial assistance to an applicant for the purpose of
purchasing , constructing , improving , repairing , or maintaining
a dwelling , or from discriminating against the applicant in the

fixing of the terms and the conditions of that loan or other
financial assistance because of the applicant's race , color ,

religion , national origin , or sex .

In 1974 the Equal Credit Oppor

tunity Act was passed which , as amended , makes it unlawful for any

lender to discriminate against any applicant with respect to any

aspect of a credit transaction on the basis of race , color , religion ,
marital status , age , sex , the receipt of public assistance , or
because the applicant has in good faith exercised any right under
the Consumer Credit Protection Act .

In 1975 the Home Mortgage

Disclosure Act was enacted , requiring banks with $ 10 million or

more in total deposits located in standard metropolitan statistical
areas to make available to the public on request data disclosing the
amount and the location of their residential real estate and home

improvement lending activity for each fiscal year .

Finally , in 1977

the Community Reinvestment Act was passed requiring the Federal

financial supervisory agencies when examining financial institutions
to encourage them to help meet the credit needs of the local communi
ties in which they are chartered and to take into account their
record in meeting community credit needs when passing on applications
for branches , mergers , and so forth .
These four statutes are designed to eliminate discriminatory

lending practices that adversely affect individuals , organizations ,
However , because discriminatory

neighborhoods , and communities .

lending practices are often subtle and were difficult to detect on

333

the basis of records available to us , our initial enforcement
program did not turn up many violations .

With the adoption of

racial notation requirements in Regulation B as amended and record
keeping and racial notation requirements in the FDIC's Fair Housing
regulation ( Part 338 ) , our ability to enforce the Equal Credit Oppor
tunity Act and the Fair Housing Act has been enhanced .

Retention of

racial , financial , and other information on the applicants and the
property which is the subject of the application are essential

elements in an effective civil rights compliance enforcement program .

FDIC's Compliance Enforcement Program

lending opportunity in its advertisements for loans and public dis
closure of equal credit opportunity on a bank premises .
As of January 1 , 1974 , the FDIC developed a separate compliance
report .

This report was developed in conjunction with our withdrawal

from the examination of banks for safety and soundness in three states .
The FDIC continued to examine these banks for compliance with Federal
laws and regulations .

Recognizing that there were certain advantages

to the new approach , the FDIC required the use of a separate report
for compliance in the examinations of all State nonmember banks
effective September 9 , 1974 .

334

Recognizing the need for a still more effective compliance

enforcement program , the FDIC developed and implemented a separate

compliance examination program early in 1977.

Essentially , this

program includes an examination of each FDIC -supervised bank at

least once every 15 months for compliance with consumer protection ,
civil rights , and related laws and regulations .

Examiners are

selected to participate in the examination program generally for a
6 -month tour of duty .

They receive special training in consumer

protection and civil rights prior to their participation in the
program .

This program has resulted in a significant increase in commit
ment of examiner resources .

It also has resulted in more thorough

compliance examinations and a recognition by FDIC- supervised banks

that the FDIC takes very seriously their compliance with consumer
protection and civil rights laws and regulations .

In turn , the

banks have increased their own vigilance and most try hard to comply
with laws and regulations .

FDIC examiners try to assist bankers

whenever possible in understanding the requirements of applicable
laws and regulations .

To measure the effectiveness of our separate compliance
examinations , we undertook a survey of examination reports to
compare our experience under the new separate compliance examination
system with that of the old system .

From the results of that survey

we found that we are able to detect better instances in which the

bank , either through inadvertance or otherwise , has failed to comply
with consumer regulations .

Accordingly , we intend to continue to

examine banks for compliance in a separate examination with examiners

335

especially trained for that purpose .

These examiners are helpful

not only with respect to detection of apparent violations , but also
in obtaining corrective action on the part of banks .

Corrective action on violations discovered during the course
of a compliance examination generally begins with the examiner point
ing out to bank management the violations discovered and the correc
tive actions necessary to make the affected individual whole and to
preclude a recurrence .

After review in the Regional Office , the

report of compliance examination is transmitted to the bank's board
of directors .

If the violations are not corrected voluntarily or

satisfactorily , a strongly worded supervisory letter is addressed
to the bank's board of directors .

In some cases , the directors are

requested to sign a written agreement on corrective measures .

A

continuation of unsatisfactory compliance will result generally in
a recommendation for formal cease -and -desist action .
Since January 1977 the FDIC's Board of Directors has issued
13 cease - and -desist orders in which one of the items stated was
substantial noncompliance with the Equal Credit Opportunity Act and
its implementing Regulation B.

Corrective action required to be

taken by the bank included providing rejected applicants with a
written notice of adverse action , designating a compliance officer in
the bank , adopting a written compliance program subject to the
approval of the Regional Office , and providing periodic progress

reports on compliance efforts to the Regional Director .

The

foregoing represents a summary of our present approach to achieving
compliance with fair lending statutes by FDIC- supervised banks .

Apart from the compliance program I have described , we have
considered public release of the names of institutions that have

336

refused or failed to eliminate discriminatory lending practices .
There are two reasons why such public disclosure might not be

advisable .

First , disclosure could present a misleading picture

unless there were a full explanation of the nature of the violation .
Second , public disclosure would deny an institution the benefit of
asking for an administrative hearing and the attendant safeguards
such a hearing could entail .

It should be noted in this regard that

final cease -and -desist orders issued , following an administrative
hearing or after being consented to , are available to the public

upon request .
The law presently does not authorize criminal prosecution of
either a bank or its officers who fail to comply with the fair

lending statutes .

However , the Equal Credit Opportunity Act

authorizes the FDIC to refer cases to the Department of Justice
which may seek appropriate relief in court , including injunctive
relief

The FDIC presently has no statutory authority to penalize

a bank or a bank official for failure to eliminate illegal discrimi
natory lending practices .

However , if the Financial Institutions

Regulatory Act of 1978 should become law , the FDIC will gain the
power to impose penalties for the violation of Federal laws and
regulations .

If it is determined that civil penalties can be

imposed for such activity by an enforcement agency under State
law , the FDIC would refer the matter to the appropriate State
agency for disposition .

During the course of the safety and soundness examination ,
bank officers are required to provide information on all litigation
involving the bank , including civil damages litigation .

While

litigation information is collected , it has never systematically

337

been collated .

Thus , we do not know the extent to which customers

of FDIC-supervised banks have pursued such litigation as a means of
corrective action and redress for discriminatory lending practices .

While civil damages litigation can be an effective way of achieving
general compliance with the laws against credit discrimination , such

litigation is expensive , time consuming , and generally applicable
only to the facts of the specific case adjudicated .

However , we

recognize that well publicized cases involving substantial penalties

can have a salutary effect in encouraging compliance .

Opportunity Act and its implementing Regulation B were proposed
for comment by those Federal agencies that regulate banks , thrift
institutions , and credit unions .

The basic objective of these guide

lines , as proposed , is to require offending institutions to take

corrective action to make their customers whole where prohibited
discriminatory practices are uncovered . The comment period on the
proposed guidelines ended in early September . The agencies are
currently reviewing the comments .

When this review has been com

pleted it is our expectation that the agencies will develop and adopt
final uniform guidelines .

Other FDIC Civil Rights Activities

In 1975 , for example , we received only 8 credit discrimination com
plaints .

Since that time the number of complaints has increased .

In 1976 we received 78 complaints and in 1977 we received 219 .

We

338

think this increase is due primarily to the Equal Credit Opportunity
Act notice .
The Equal Credit Opportunity Act notice , giving the name and

address of the creditor's Federal supervisory agency , has been of
considerable help in assisting consumers who wanted to register a
complaint of discriminatory lending practices .
developed and distributed several information brochures to assist

consumers in understanding fair lending laws and their rights under
these laws .
During the past year , we have distributed over 6 million
educational pamphlets on the antidiscrimination laws .

One of these

pamphlets briefly summarizes the Federal consumer protection statutes
applicable to banks , explains how to file a complaint , and provides a
form for filing an inquiry or complaint .

In addition , we attempt to

provide every consumer who inquires or complains to the FDIC about
credit discrimination with information on his or her rights under
laws .

We intend to expand our educational efforts with materials on

our fair housing enforcement activities , the Home Mortgage Disclosure

Act , the Community Reinvestment Act , and the steps involved in apply
ing for and obtaining a loan .
Monitoring consumer protection and civil rights compliance

statutes cannot be accomplished effectively , however , without well
trained examiners .

Each year our commitment of training resources to

compliance matters has increased .

In 1979 training hours in civil

rights , including the Fair Housing Act , the Equal Credit Opportunity
Act , Regulation B , the Home Mortgage Disclosure Act , the Community

Reinvestment Act , and the FDIC's Fair Housing regulations ( Part 338 )
will almost double with the introduction of a l -week civil rights

339

school for those examiners selected for the separate compliance
examination program .

Finally , in late 1977 the FDIC's Board of Directors established
a Civil Rights Branch within the Office of Consumer Affairs and Civil
Rights to provide leadership in the overall administration of the
FDIC's enforcement of civil rights laws and regulations .

In addition ,

Regional Office specialists assist the Civil Rights Branch in a
liaison capacity with the field examiner force .
Redlining

The term " redlining " has evolved to mean a financial institution's

restriction of credit , either wholly or partially , in the community
it serves based on the characteristics of the inhabitants of that
community , age of the housing stock , or location of the housing stock .
Urban decay has surely been aggravated by redlining practices ,

as has been pointed out in the Congressional hearings on the Home
Mortgage Disclosure Act and the Community Reinvestment Act . But
to consider redlining practices and urban decay as merely a cause

and effect situation is too simplistic .

Poverty , decline in city

services due to a deflated tax base , crime , unemployment , counter
productive subsidy programs , usury laws , rent control , and inflation
also contribute significantly to urban decay .

prohibit redlining discrimination conceivably would ensure more

equitable treatment of individual loan applicants .

Such regulations

can really only have a significant impact on urban decay in tandem
with a united partnership at the Federal , State , and local levels to

340

provide adequate public services and other forms of assistance to

solve urban problems .

The FDIC's Legal Division has advised us that we have the
authority to issue nondiscrimination regulations to prohibit red
lining . It is the Legal Division's view that the FDIC may prohibit
age and location of dwelling redlining practices on the grounds that
these practices are arbitrary and unnecessary , and that they conflict

with a bank's obligations under the provisions of the Community
Reinvestment Act and the Federal Deposit Insurance Act .
Specifically , the foregoing conclusion is based on the following :

( 1 ) that Congress found in enacting the Community Reinvestment Act
that financial institutions have a continuing obligation to meet

community credit needs ; ( 2 ) that the Senate Report on the Community
Reinvestment Act suggests that such an obligation has always existed
under the Corporation's statutory authority in the FDI Act relating

to application requirements ; ( 3 ) that the Corporation has statutory
authority under Section 9 of the FDI Act to promulgate regulations
to implement the provisions of the Act ; ( 4 ) that the purpose of the

Community Reinvestment Act is to revitalize communities ; ( 5 ) that the

national policy as noted in the Fair Housing Act promotes fair hous
ing ; ( 6 ) that lending discrimination based on the age or location of
a dwelling is inequitable and has adverse effects on community develop
ment ; and ( 7 ) that such an arbitrary practice can be eliminated without
undue hardship to banks .

judgments on the existence of redlining practices have proved diffi
cult .

The FDIC recently initiated a pilot project in Brooklyn , New

341

York , in response to this problem .

The study will attempt to :

( 1)

ascertain the cost of acquiring information useful in determining

the extent to which financial institutions are meeting the credit
needs of their communities ; ( 2 )

identify under served neighborhoods ;

and ( 3 ) evaluate supplementary data collection and analysis techniques
which might be used by examiners to assist in their review of a bank's
compliance with the Community Re investment Act ( CRA ) .
The agencies expect to publish the final CRA regulation no later
than October 6 , 1978 , to become effective November 6 , 1978.

It is

expected that under the regulations banks will be required to publish
a CRA statement no later than February 6 , 1979.

Generally speaking ,

the statement will include a delineation of the community and a list

of the community's credit needs the bank is prepared to serve .

A

notice that this statement is available for public comment will be

posted in the lobby of the bank so that the agencies will have the
benefit of the public's reaction to the bank's intentions as well as
its performance .

We are hopeful that banks will comply faithfully

with the spirit as well as the purpose of this Act .
FDIC's Fair Housing Regulation

Part 338 of FDIC's regulations establishes record keeping
requirements for insured State nonmember banks with respect to one
to - four family home loan inquiries and applications . In addition ,

each insured State nonmember bank having an office located in a
standard metropolitan statistical area and assets exceeding

$ 10 million is required to retain credit- related information for
home loan applications .

342

All insured State nonmember banks are required by Part 338 to
request from the applicant and to retain any information provided
on the name , address , race/national origin , sex , marital status , and

age of persons making inquiries about applications for home loans .
In addition , these banks are required to reguest and to retain informa
tion on the location of the property involved . If the inquirer refuses
to provide the information concerning race /national origin or sex , the

bank is required to note the information on the basis of observation
or surname .

All insured State nonmember banks are required to indicate

sex , race , age , and marital status for each inquiry and each applica
tion on a special log sheet .
During the course of compliance examinations and fair lending

complaint investigations , FDIC examiners will review the log sheets
and loan records in conjunction with a data collection and analysis
program for evidence of possible discriminatory practices concern
ing inquiries and applications for home loans .

Banks identified as

possibly engaging in such practices by the analysis system will be

subjected to a more detailed examination .

This data collection and

analysis system is presently under development and full implementa

tion of the program is not expected before early 1979.

While the

Fair Housing regulations are intended to assist in the detection of
discrimination against individuals on the basis of race , sex , age ,
or marital status , information required under the regulation on

location of property and age of structure could prove useful in
investigating redlining practices .

343

Home Mortgage Disclosure Act
In addition to using information retained by banks pursuant to
Part 338 of the FDIC regulations , FDIC examiners will employ Home

Mortgage Disclosure Act data as an auxiliary tool in examining banks
for evidence of redlining practices .

Information generated by the

requirements of this statute includes the total amount and census
tract locations of home mortgage and home improvement loans made by
a financial institution in the standard metropolitan statistical

area during the reporting period .

This information by itself ,

however , cannot confirm or disprove the existence of redlining
practices .

Possibly the most beneficial aspect of the Home Mortgage
Disclosure Act disclosure statement is that it shows the extent of
an institution's housing - related lending to specific geographic areas .

This provides the basis to those using the disclosure statement to
raise questions regarding an institution's policies in extending

housing credit to particular areas .

To some degree the data also help

to show the availability of housing credit in specific neighborhoods .

However , the usefulness of the Home Mortgage Disclosure Act data is
affected by basic conceptual difficulties .

Taken by themselves , the data are susceptible to misinterpre
tation because they reveal little about the actual demand for housing
credit in specific geographic areas . Furthermore , the disclosed data
cover only a portion of the total housing credit flows to a neighbor

hood or market area .

Institutions that are not subject to the Act can

be significant mortgage originators .

Credit flows within a particular

area will be understated to the extent that nondepository institutions

344

retain the mortgages they originate , or sell them to institutions
either located outside of the standard metropolitan statistical area

of origination or to institutions not covered by the Home Mortgage
Disclosure Act .

In addition , the exclusion of the secondary mortgage

market institutions such as FNMA and FHLMC from Home Mortgage Disclo
sure Act coverage will also cause housing credit flows to be
understated .

These conceptual and technical problems , as well as statutory
responsibilities for enforcing the Home Mortgage Disclosure Act and

for recommending improvements in the Act , prompted the FDIC and the
Federal Home Loan Bank Board to fund a comprehensive study of the

to respond to any questions you may have .

345
PREPARED STATEMENT OF CANTWELL F. MUCKENFUSS III, DEPUTY COMPTROLLER

I appreciate this opportunity to participate in the
Committee's oversight hearings on the enforcement of the Equal

Credit Opportunity Act and the Fair Housing Act .

These statutes

represent important steps taken by the Congress to assure that
all of the citizens of our country have fair access to credit .
The Comptroller's Office supported the enactment of these laws
and has made substantial efforts to assure that they are enforced .
A significant new law will soon be woven into the fabric

of our enforcement program in this area when the regulation
implementing the Community Reinvestment Act becomes effective
in November 1978 .

Thus , the problems of unlawful discrimination ,

redlining and disinvestment in certain neighborhoods will be

addressed in concert through the enforcement of the Fair Housing
Act , the Equal Credit Opportunity Act , the Home Mortgage Disclo

sure Act and the Community Reinvestment Act .

346

In your letter of August 16 , 1978 , you asked us to address

six groups of questions at this hearing :

redlining regulations ;

redlining monitoring ; recent enforcement ; future enforcement;
civil damages litigation ; and consumer information .
addressed each of these in this Statement .

We have

In addition , you

requested that we supply the answers to 34 additional questions
regarding our enforcement efforts with respect to the Equal
Credit Opportunity Act and the Fair Housing Act .

so under separate cover .

We have done

Before turning to the specific questions ,

it is appropriate to outline briefly the commitment of resources
which the Office has made to this important area to date and

to highlight for the Committee several new initiatives which
will contribute significantly to our efforts to assure both in
dividuals and communities of fair access to the credit provided
by national banks .

During 1973 a task force prepared recommendations for
the Comptroller as to how the Office could best fulfill its
obligations to consumers .

This resulted in the establishment

of a Consumer Affairs Division , which was announced in March ,

1974 and became operational later that year .

This initiative

was undertaken by the Office prior to the time it was mandated
by Congress .

Since that time several significant objectives have
been accomplished .

Consumer complaints and inquiries are

investigated and responded to in an expeditious manner , aa

347

consumer compliance examination procedure has been established
which enables the Comptroller's Office to perform comprehensive
on - site examinations , a dialogue has been undertaken with consumer
and public interest groups and industry , and meaningful inter
agency liaison has been established with other enforcement agencies
so that we can all perform our obligations more effectively .
We believe that we have made major strides in developing

an effective enforcement program in the fair lending area .

Our

commitment to the effort is illustrated by the resources we
have allocated to this area .

We now spend in excess of $ 4.5

million per year in consumer activities , of which $ 1.8 million
is allocated exclusively to ECOA and Fair Housing lending practices .
More than 25,000 person days per year are devoted by field examiners
to enforcing consumer laws .

It should be emphasized at the outset that we are not wedded
to existing approaches nor to our current organizational
structure .
new .

The laws we are discussing today are relatively

Even the Fair Housing Act is . a new mission for the agency

relative to other functions assigned by Congress .

It is therefore to be expected that there will be certain
differences of opinion and experimentation involved in the

implementation of these new missions .

Accordingly , we view these

oversight hearings as timely and constructive .

While we hope

they will be informative to the Congress and to the public ,
they also provide the opportunity for us to review and question
our own programs .

348

In the process of assessing the effectiveness of federal
laws and enforcement efforts to deal with the problems of

discrimination in lending , we believe that the Congress should
reexamine all of the laws in this area , including the

Community

Reinvestment Act and the Home Mortgage Disclosure Act with the
long - run goal of consolidating them into a simpler statute which
reflects the lessons we have learned and will learn in the coming
months .

Notwithstanding the difficulties always associated with the
implementation of new missions by governmental agencies , we
believe that the Comptroller of the Currency has made significant

strides in the past five years in these areas .

Moreover , we are

confident that new initiatives which are currently under way will
add significantly to our efforts to assure that every citizen
has fair access to national bank credit .
In conjunction with the reorganization of our customer

and community programs in Washington , the present consumer
positions in the regional office are being upgraded to Regional

Directors for Customer and Community Affairs .

This will enable

us to provide substantially more support for our field efforts .
Also , a separate career path is being devised for consumer
examiners which will provide incentives for them to remain in
the program .

In December , 1977 , the Comptroller's Office settled a Fair
Housing suit brought against it and other agencies by a number

349

of civil rights and public interest groups .

In the agreement

we reaffirmed our commitment to continue the several facets
of our enforcement program pertaining to civil rights .

One

additional significant undertaking was to establish a computer
based data collection and analysis system .

This is designed

to help target the regular Fair Housing portion of consumer
examination and make it more efficient and effective .

The

system is described more fully in response to the questions
submitted with this statement .
As a part of the reorganization of the Office of the
Comptroller of the Currency , approved by the Secretary of the
Treasury in February 1978 , a Civil Rights Division was created

which will have significant responsibilities with respect to
the Fair Housing Act and the Equal Credit Opportunity Act .

The

Civil Rights Division is one of three divisions comprising a

new Office of Customer and Community Programs .

The other two

divisions are a Consumer Programs Division and a Community
Development Division .

The new Civil Rights Division will be policy oriented ,
performing six distinct functions , including :
1.

Policy Formulation and Initiation .

This function includes

350

2.

Oversight and Monitoring . This office should in some
manner review the operational aspects of the Comptroller's
efforts in these areas . It should seek to determine
whether our efforts in this area are efficient , effective
and consistent .

3.

Regulatory Reform . Arising out of the office's oversight
function , it should be expected that it will propose ini
tiatives which would lead to more efficient and effective
enforcement of the civil rights laws . Many financial

institutions , especially small institutions , feel that
regulation in these areas is unduly costly and burdensome .
At the same time , civil rights and consumer groups be
lieve that we are not acting effectively . This suggests
that there is room for some significant improvement in
regulatory strategies in these areas . Offices such as
these which are outside day - to - day operations should be
expected to work with the operational people to effect
improvements in our systems .
4.

Outreach .

This office should be the principal link

5.

The existing Consumer Examinations Division will continue
to be responsible for examination and supervision of national
banks ' compliance with civil rights laws .
Finally , we believe that it is appropriate to inform you

of three other initiatives which , although not directly involved
in enforcement of the Fair Housing Act and the Equal Credit

1

1

351

Opportunity Act , are relevant to assuring non - discriminatory
access to national bank credit .

There is a growing recognition that the problems of

declining or disadvantaged communities cannot be solved by the
Federal Government alone .

Thus , President Carter called for a

" New Partnership to Conserve America's Communities " composed
of the Federal Government , the states , local governments ,
voluntary associations , neighborhoods and the private sector .

It was this same recognition which led House and Senate conferees
to conclude their discussion of the Community Reinvestment
Act with this statement :
In adopting the Senate provision the conferees recognize
the vital interconnection between successful community
and housing development and local private investment
activities . The effectiveness of the community develop

ment program , the housing assistance programs, and the
mortgage insurance programs , as amended by this conference

report depend in large part upon the availability of pri
vate capital , particularly as made available through
local lending and financial institutions . This title and
amendments contained in this bill are designed to encourage
more coordinated efforts between private investment and
federal grants and insurance in order to increase the

viability of our urban communities .
As a part of an agency -wide plan of reorganization , the
Comptroller of the Currency , with the approval of the Secretary
of the Treasury , has established the Office of Community

Development .

The purpose of this office will be to encourage

and facilitate commercial bank participation in the development
process in local communities and neighborhoods . In short , it is
the objective of this office to achieve the aims of the CRA
through non - regulatory means .

352

The following are among the functions which the Community
Development Office will perform seeking to advance that end :
The office will serve as a clearing-house for infor
mation as to the efforts of commercial banks and other financial
institutions in community reinvestment areas .

That is , the

office will act to inform banks and community groups of the
creative efforts of others around the country .
The office will catalogue and inform national banks
of government programs which might be employed in their efforts
in the community development area .
--

The office will integrate the knowledge gained through

the first two functions and develop model programs that banks
might employ in the community development area .

The office will provide the Comptroller liaison with
community and banking groups as a vehicle for encouraging the
partnership between commercial banks , community groups , and

government .

We are currently in the process of recruiting staff for this

office and will keep the Committee apprised of its progress .
Second , the President's Urban Message provided for the

creation of " Neighborhood Commercial Reinvestment Centers " :
This would expand the Urban Reinvestment Task Force
housing concept into the commercial credit area ,
These new " centers " would be local organizations

comprised of merchants , residents, government offi
cials , and commercial bankers .

The Comptroller of

353

the Currency would head a Task Force composed of
SBA , EDA , HUD , and perhaps the Federal Home Loan
Bank Board , FDIC , and the Federal Reserve Board .

In response to this charge the Comptroller convened a .
task force composed of those agencies and departments .. After
two meetings of the Task Force and a number of sessions of a
staff working group , the Task Force has agreed upon an immediate
strategy which will consist of two phases aimed at translating

the successful experience of the Urban Reinvestment Task Force
in housing into the commercial credit area through the establish
ment of Commercial Reinvestment Centers .

These centers will be

local organizations comprised of merchants , residents , government
officials , and private lending institutions .
The first of the two initial phases will involve the

application of the concept developed by the Urban Reinvestment
Task Force to projects now in progress .

These projects would

benefit significantly from increased lending institution

participation through the local partnership process developed
by the Urban Reinvestment Task Force .

The second phase of the

program , presently in the planning stage , involves the develop
ment of four entirely new , innovative neighborhood commercial

development projects geographically distributed in the Northeast ,
Southeast , Midwest and West .

Sites are now being selected for

both phases .
At this stage , we are pleased to report the exceptionally

high degree of cooperation that has existed among all of the

|

354

agencies involved and to compliment especially the splendid
efforts of the Director and staf of the Urban Reinvestment Task

Force in helping to get this effort launched .
Finally , the Comptroller's Office will review policies

and practices in order to make maximum use of our authority to
encourage community development and reinvestment efforts . An
example was our recent approval of the establishment of the

Community Development Corporation by North Carolina National
Bank , Charlotte , North Carolina .

This is the first time the

Comptroller has authorized a national bank to establish a
wholly - owned subsidiary to promote the revitalization of
inner - city residential neighborhoods .
I would like to turn now to the specific inquiries you
have directed to this Office .

355

1.

Redlining Regulations
a.

Is
in
is
in

there a problem of redlining discrimination
home lending by financial institutions , and
the problem of urban neighborhood decay due
any way to discriminatory practices in the

handling of individual loan inquiries and appli
cations by financial institutions ?

To answer the second of the two questions first :

certainly

the unavailability of credit is a factor in a downward spiral
of neighborhood decay , but it must be recognized that it
is only one among a number of mutually reenforcing factors .
To the degree that banks unreasonably decline to lend in an

area , that failure may well contribute to the community's
decay .

It is not reasonable or fair , however , to suggest

that the problems of neighborhood urban decay are entirely
or perhaps even predominantly the result of bank practices .

The answer to the question of whether there is a problem
in redlining discrimination in home lending by financial
institutions is difficult because the term " redlining"

precisely understood .

is not

In the mortgage lending industry , red

lining is commonly considered to be the refusal by financial

institutions to make mortgage or home improvement loans on
property in a certain geographical area .

It may also include

practices which are somewhat less obvious such as the require
ment of terms and conditions significantly more stringent

than are normally required .

356

At least part of the difficulty in defining redlining
arises from the fact that the term has been employed to

describe four conceptually distinct categories of phenomena ,
each of which has a somewhat different legal implication .
It is useful to outline these categories because they provide
a framework in which to analyze the legal and regulatory
implications of redlining .
First , the failure to lend or the imposition of more

stringent terms on loans made in a certain geographical area
may reflect a conscious decision to discriminate on a basis
prohibited under the Equal Credit Opportunity Act and the
Fair Housing Act .

Such conduct is , of course , clearly illegal

under these Acts .

Second , the failure to lend or imposition of more
stringent terms in a certain geographical area may have the
effect of discriminating against a class of people protected

under the Equal Credit Opportunity Act .

Such conduct may ,

depending on the circumstances , be illegal under the Equal
Credit Opportunity Act and Regulation B.
Third , failure to lend or the imposition of more stringent

terms on laosn in a geographical area may not be justified
in financial or economic terms and yet not involve either

directly or indirectly a prohibited discrimination under either
the Fair Housing Act or under the Equal Credit Opportunity
Although not illegal under either of these two statutes ,

Act .

such conduct is pernicious in that it may serve to deny credit

357

to a neighborhood or community deserving of it .

The Community

Reinvestment Act provides statutory and regulatory tools to deal
with this type of conduct .

Fourth , careful analysis on a block-by-block basis may
demonstrate that there are some areas in which the failure

to lend or imposition of more stringent terms is clearly
warranted by concrete economic factors and any other conduct
would constitute an unsound banking practice .

Although the unavailability of credit can serve to
further the decay of such an area , few have suggested financial
institutions should make such loans.

In these cases the

targeting of government subsidies and guarantees aimed at

changing the circumstances of the neighborhood combined with
private sector involvement are clearly warranted .

another of these categories seems to require an institution

by - institution analysis.

Broader studies have produced

generally inconclusive results .

We believe that Community

Reinvestment Act examinations and our new data collection
and analysis system , combined with our Fair Housing examinations ,
will facilitate such determination .

There have been numerous statistical studies of lending
patterns which suggest the existence of discriminatory

redlining in that they show a general absence of mortgage
lending by banks in certain neighborhoods .

Some studies

refine this analysis by showing that in such neighborhoods,

property transfers disproportionately are achieved through

358

noninstitutional financing .

Generally , however , these

studies have been inconclusive because they do not adequately
address the question of whether the absence of lending is
due to discriminatory or irrational lending decisions and

policies rather than reasonable decisions to avoid unsound
lending

In other words, these studies generally do not

answer the question of whether and how many potential creditworthy

applicants are being shut out by the policies and practices
In this regard , several studies have concluded

of banks .

that lack of demand from creditworthy persons may explain
the absence of lending in some neighborhoods .
One important type of evidence of the existence of

discriminatory redlining and appraisal practices is the
evidence gathered in conjunction with the Department of
Justice suit against two leading professional real estate

appraisal societies . This evidence indicate a pattern in
manuals and training materials of discriminatory consideration

of racial factors in evaluating neighborhoods and neighborhood
trends .

Probably the best evidence that some banks engage in
discriminatory or irrationally restrictive lending practices
based on neighborhood is that in cases where banks have
reviewed their underwriting criteria they have often found
that they have been able to revise their criteria in a
manner so as to increase substantially their lending in

historically mortgage - deficient neighborhoods , without
jeopardizing safety and soundness .

The voluntary efforts

of the banks in Philadelphia under the Philadelphia Mortgage
Plan is an important example .

359

b.

Would banking agency promulgation and enforcement
of nondiscrimination regulations explicitly prohib
iting redlining discrimination contribute materially

toward more equitable treatmentneighborhood
of individuals and
a reduction of the problem of

decay?

We believe provisions of the Equal Credit Opportunity Act
and Regulation B , taken together with the Community Reinvestment

Act , provide the agencies with powerful tools for dealing with
redlining which is either illegal or which indicates denial of
credit for reasons which cannot be rationally justified . It is
our current judgment that new regulations would add little to
this framework .

Moreover , given the need to implement our new

Community Reinvestment Act regulations , to ensure that our
implementation of the Community Reinvestment Act in the examin
ation and applications processes is effective , to establish a
new data collection and monitoring system to support our Fair

Housing examinations and adopting regulations to effect it , and
to upgrade our enforcement efforts generally , we do not believe
that priority should be given to the development of such a
regulation .

We will , however , follow closely the Federal Home Loan
Bank Board's experience and carefully consider our own experience
under the Community Reinvestment Act in order to determine
whether this judgment is correct .

We do not preclude the

possibility of issuing such regulations .
It should be noted that , quite apart from the body of the

360

federal statutes and regulations we are considering , a number
of states have adopted specific antiredlining statutes .

The

Comptroller has decided that national banks should be determined
to be subject to these statutes so long as they do not conflict
with federal law .

Accordingly , we have undertaken to cooperate

with state authorities with respect to the enforcement of these

statutes and to work with them in the development of implementing
regulations which may be meshed with the pattern of federal
statutes and regulations .
c.

Has the Comptroller sufficient statutory authority
to issue and enforce such nondiscrimination regula
tions , or does it plan to request legislation to
convey this authority ?

The principal statutory direction and authority to issue
regulations in this area seems rather clearly to have been vested

by the Congress in the Federal Reserve Board .

The Comptroller

could not issue regulations , for example , to implement the Equal
Credit Opportunity Act which would in any way be inconsistent
with , or attempt to supplant , the Board's authority .

Of course ,

the Comptroller may issue interpretive guidelines as distinguished

from substantive regulations with respect to statutes which the
Office enforces .
Finally , the extent of our general rulemaking authority
is now in litigation .

In order to clarify ambiguities in this

area , we have specifically requested legislative clarification
of our general rulemaking authority , and the current version
of the Financial Institutions Regulatory Act of 1978 contains
such clarification .

We have no present plans to request

361

authority beyond that provided by this bill .
d.

Has the Comptroller any plans to issue such
nondiscrimination regulations addressed at least
in part , to redlining discrimination ? If not , what
is the Comptroller's present approach to the

regulatory control of redlining discrimination ?
We do not at the present time intend to issue nondiscrim
ination regulations as it is our view that the Fair Housing Act ,
the Equal Credit Opportunity Act , the Community Reinvestment

Act and the Home Mortgage Dislosure Act ; Regulation B , our new
Community Reinvestment Act regulation ; our new Data Collection
and Analysis System ; and the other policies and procedures assoc

iated with our examination and complaint processes provide an
effective legal and regulatory framework for dealing with the

problem of discrimination , including redlining .

We believe

that what is needed is effective implementation and not another
regulation .

However , we have indicated that we will carefully

follow the Federal Home Loan Bank Board's experience and will
keep the adoption of such a regulation under consideration .
In assessing the current approach of this Office to the
problem of redlining , one should bear in mind that this approach
will change markedly upon the implementation of the Community

Reinvestment Act guidelines in November of this year and
again upon the implementation of our new data collection and

analysis system described in response to Question 2 .

362

As of this date , the approach of the Comptroller's Office

is to enforce the existing statutes and regulations related to
housing credit by means of bank examinations , follow -up
activities , resolution of complaints and various other means .

Examiner training is the initial step in our compliance
program .

We train our examiners to make them aware of current

law , specific discriminatory practices and the effects test .
Equipped with the basic principles of these concepts , examiners

should be able to detect actual or potential problems in national
banks .

Examiners attend two -week schools for instruction in

consumer laws and examination techniques .

Approximately 33

percent of instruction time is devoted to Fair Housing , ECOA
and Home Mortgage Disclosure Act .
The fair lending portion of the consumer bank examination
involves a review of individual loan files , analysis of the
bank's lending policies and lending criteria , and investigation

into whether the policies and lending criteria are applied
fairly to all applicants .

Sample loan files , both accepted

and declined , are scrutinized for any indication of discrimin
atory practices .

In reviewing the sample , the examiner checks

to see that no prohibited information has been requested or
considered and that appraisals are free of prohibited comments

on the applicant and his neighborhood .

Bank lending policies

are examined to determine whether there are lending criteria
which are inconsistent with the provisions of the laws .

It is

then necessary to ensure that the policies , if nondiscriminatory ,

363

are uniformly applied to all applicants to determine credit
worthiness .

Examiners are trained to look for indications of

prescreening , in which prospective applicants are discouraged
on a prohibited basis from applying for credit .

In addition ,

the examiner reviews the home mortgage disclosure data to detect
redlining practices ( see answer to Question 2c . ) .

It should

be emphasized that a major new addition to the examination
process will be specific procedures by examiners to assess banks '
records in accordance with the Community Reinvestment Act .
Enforcement of fair lending laws , including redlining ,
is also achieved through specialized Fair Housing examinations .
These examinations may be triggered by a complaint from a

community or public interest group or as a result of problems
discovered during a regular consumer examination which require
further investigation .

Six pilot fair housing examinations

were conducted by examiners from the Comptroller's Office and
observers from the Department of Justice , and the specialized
fair housing examination procedures were then developed from

these experiences .

The specialized examination contains a

large sample of loan files , and consists of a detailed review

of appraisal practices and HMDA data .

As an additional measure ,

the Comptroller established procedures for investigation of
fair housing complaints in August , 1977 which include on- site

investigations at the bank , as well as interviews with the com
plainant and bank personnel .
2.

Redlining Monitoring
a.

37-415 O

Has the Comptroller any plans to collect monitoring
information on home loan applications and inquiries

364

more detailed or covering more types of transactions
than is now required under the monitoring provisions

of Regulation B?

Will the required monitoring

information be similar in detail to the information
to be collected by the FDIC and the Federal Home
Loan Bank Board ? Will monitoring information be

required on applications for home improvement loans
or mortgage refinancings ? Will it be required on
inquiries for home loans ?

If not , why not?

The Comptroller's Office is developing a proposed regulation

which would require national banks to report specific items of
information on housing related loans made and denied . The infor
mation to be reported includes information on the characteristics

of the loan , applicant and property .

It is generally similar to

information to be collected by the FHLBB and FDIC , although just
as there are specific differences in detail between the programs
of the FHLBB and FDIC , the Comptroller's program is also expected
to vary in specific detail .

Information on mortgage loans on all

1 to 4 family owner occupied housing made and denied , including

refinancing , will be included .

Consideration is also being

given to including information on home improvement loan
applications .

Inclusion of limited information , such as race ,

sex and address of property , on in- person specific inquiries ,

is also being considered .
b.

How will this monitoring information be employed
to examine individual banks for evidence of redlining
discrimination ?

The purpose of our new data collection and analysis
system is to help target the examination process and make it
more efficient and effective .

At present examiners are

365

handicapped by not having available basic statistical informa

tion indicating the lending patterns of the bank .

In addition ,

in the absence of the data system , there is no way in which
an examiner can efficiently target in on the precise loan files
and denied loan files most in need of review .

The new data

collection and analysis system is designed to address directly
these problems .

We believe that it will substantially increase

our capacity to detect redlining and other discriminatory practices .

Prior to the regular Fair Housing examination of a national
bank , the information in the reporting system will be analyzed

by computer to identify specific disparities which may be indica
tive of possible discrimination .

We anticipate that for each

covered bank at least eight basic statistical tables will be
produced , with each table focusing on lending patterns in
relation to a different variable .

There would be separate

tables analyzing lending patterns by race , sex , percent of
household income earned by a woman , marital status , age of
borrower / applicant , income , age of property and neighborhood .
The tables analyzing lending patterns by age of property and
neighborhood directly relate to redlining .

In addition , the

table analyzing lending patterns by race will reflect the racial
impact of redlining practices .

We plan to utilize a large number of measures or indicators
of possible discrimination .

These indicators are designed to

identify possible discrimination in the accept - reject decision ,

in the terms of loans granted , in appraisal practices and by

366

prescreening .

By comparing these indicators across different

categories of the variable being focused on by the particular

table , it will be possible to identify , for example , disparities
between different racial groups , between different age of
property categories , and between different neighborhood groupings

or groupings of census tracts .
To illustrate further , the data might indicate that for a
given bank , there is a higher rejection rate on applications

for loans on older homes or in particular neighborhoods or the

data might indicate that a higher average interest rate or
a shorter average term to maturity is being imposed on older
homes or in certain neighborhoods .

Other data might suggest

that higher downpayment requirements are being imposed in certain

neighborhoods , or that higher than normal fees are being imposed .
Further , since our data base will include information on both
the appraised value and the selling price , we will be able to
identify instances where the appraised value is significantly

lower than the selling price .

While such instances certainly

could result from legitimate practices , if such instances

occur disproportionately in connection with older homes or in
certain neighborhoods , this could suggest the possibility of

discriminatory appraising .
Thus it can be seen that the data collection and analysis
system will enable us to identify very specific kinds of

disparities suggestive of possible discrimination .

In that we

will have identified disparities in a given bank so specifically ,

367
we will be able to target the examination in a way not now

possible .

Perhaps most significantly , in addition to identifying

the specific disparities , we will be able to use the data base

to identify specific loan files and denied loan files which

manifest these disparities . The examiner can then review these
specific files to ascertain whether the disparities are due to
legitimate considerations or whether they are due to discrimin
atory or needlessly restrictive considerations .

An additional important use of the new data system relates
to prescreening .

The concept of prescreening covers a broad

range of practices , including not only telephone and in-person
prescreening by the bank , but also situations where brokers
may be prescreening under instructions from the bank , and the

use of marketing methods which tend to exclude certain racial
groups or neighborhoods .

We anticipate that in several ways , the new data collection
and analysis system will be helpful in detecting possible
prescreening problems .

For example , even if there are no

disparities in denial rates or terms of loans granted , if the
loan volume to , say , a particular racial group is substantially
lower than would normally be expected , given demographic

characteristics of the population , this is an indication of a
possible prescreening problem . Particularly , if such a fact
pattern is combined with a relatively low overall denial rate
by the bank , this provides an indication that prescreening

· may be a problem .

368

If the data suggests that prescreening may be a problem
for a given bank , we intend to give extra attention to it during
the examination .
c.

How do you employ Home Mortgage Disclosure Act ( HMDA )

data toexamine individual banks for evidence of red
lining discrimination ?
The HMDA data are tools used by national bank examiners

in the fair lending portion of the regular consumer compliance
examination and in specialized Fair Housing examinations .

HMDA

has proven to be more useful in specialized Fair Housing exam
inations than in regular consumer examinations .
As previously noted , specialized Fair Housing examinations

are conducted either in response to a complaint from a community
or public interest group , or as a follow up to questionable
practices discovered during the regular consumer examination .

Review of the data is one of the initial steps of the examination
and can give the examiner some indication of possible problem
areas to explore further .

The HMDA data are extracted from the

disclosure statements and plotted by census tract on census maps
for the SMSA in which the bank is located .
Laying out the data in this manner enables the examiner
to visualize the bank's overall real estate lending pattern .

Areas which are void of mortgage lending activity or dispro
portionate to other areas are readily apparent from the maps .
The examiner continues the investigation by ascertaining the

369

reasons mortgage loans are not made in certain areas .

The

HMDA disclosures do not indicate the characteristics of an 'area ,

e.g. , whether it consists of all commercial buildings or whether
it is a low - income residential area .

However , use of the data

is valuable as an initial investigation procedure .
HMDA is used , to a lesser extent , in the regular consumer
examination for the purpose of examining for fair lending laws .

Our regional offices have taken varying approaches to HMDA data
use with regard to fair lending .

Several regions plot the data

on census tract maps , which are color- coded by race , income
level and other variables , and analyze the results only for
banks in large metropolitan SMSA's .

In at least one region ,

examiners are plotting the HMDA data in all covered banks as
a matter of course .

the entire data .

Examiners in other regions do not plot

They do , however , analyze the data on the

disclosure statements for evidence of redlining .

We may conclude

that thorough analysis of HMDA data in each regular consumer

examination is not efficient or necessary after we have
implemented the planned data collection and lending patterns .
As in the specialized Fair Housing examinations , the HMDA data
can serve as a preliminary indicator of redlining discrimination ,
but cannot be relied upon exclusively .
d.

Have you any suggestions for improvement of this
Act or of its implementing regulation , Regulation
C , to improve the usefulness of this data for
regulatory purposes ?

As this time we have no specific suggestions for improving

370

the Act or Regulation C.

It is important to keep in mind

that the Home Mortgage Disclosure Act was deliberately enacted

with a sunset provision , to require ' reevaluation before the
termination of its four -year life span .

We are now only at

the midpoint of this four-year period , and the jury is still
Several studies directly related to HMDA are in progress .

out .

The Federal Reserve Board was mandated by the Act to study

the feasibility of extending the Act to depository institutions
located outside the SMSA's .

In addition , the Federal Home

Loan Bank Board and the FDIC are jointly conducting a study
with HMDA data in three SMSA's .

Also , it should be noted that , since the passage of the
Act , additional related public policy initiatives have been

The financial regulatory agencies are substantially

undertaken .

increasing their enforcement efforts in the Fair Housing area .
New Fair Housing examination procedures have been instituted ,
and a new data collection and analysis system is being developed .
Also , the Community Reinvestment Act is another important

development .

Accordingly , ultimate evaluation of HMDA must

take into account its relationship to developments regarding the

Fair Housing Act and the Community Reinvestment Act .

To

evaluate HMDA's role in this evolving scheme , more experience
is needed .

Ultimately , we may conclude that initiatives in implementing
the Fair Housing Act and the Community Reinvestment Act supplant
the need for HMDA .

effective .

Or we may conclude that it is not cost

Alternatively , we may conclude that it is an

effective tool or that it could be effective if expanded in

certain ways .

More experience concerning HMDA and its relation

ship to implementation of the Fair Housing Act and Community
Reinvestment Act is needed before informed conclusions can
definitively be reached .

371

3.

Recent Enforcement
a.

How many and what types of violations of the Fair
Housing Act , the Equal Credit Opportunity Act or
Regulation B have your examiners found in national

banks in 1977 and 1978 ? What portion of these ·
violations were clear violations of the substance
and spirit of the laws prohibiting discrimination ?

What remedial or enforcement action have you taken
to correct these violations ?

The Comptroller's Office has a computer based system ,
the Consumer Examination Information System , which contains

data regarding violations of consumer and civil rights laws .
The violations are categorized by particular law and sections
within that statute or regulation .

We view some violations

as having a much more immediate impact on consumers than
others and , therefore , as " substantive "

rather than " technical . "

In essence , violations which may impair the consumer's
access to credit in the immediate transaction are deemed to
be substantive .

In evaluating the figures which follow, it

is important to bear in mind that , while we view all substantive

violations as serious , many are inadvertent .

Swift and

voluntary compliance is normally obtained in those instances .
Examinations of national banks conducted from July 1977

through June 1978 revealed substantial numbers of violations
of Regulation B.

Of the more than 2,000 banks examined

during this time period , the examination results of 1,682 of

372

these banks have been entered into our computer system .
Patterns of violation of one or more provisions of Regulation
B were found in 89.3%

of the banks examined .

35.9%

of these

banks had at least one pattern of violation relating to
mortgage credit .

If the analysis is confined to substantive

violations , 66.2%

of the banks examined were found to have a

pattern of violation of one or more provisions .

22.5%

of

the banks reviewed had at least one pattern of substantive
violations in mortgage credit .

patterns of violations .

( Based on these figures , when all

banks examined during the July 1977 - June 1978 time period
have been entered in the data base , we anticipate that the

number of separate patterns of substantive violations will
exceed 4,000 . )

Of these patterns of substantive violations ,

64.6 % involve a violation of one of the provisions of section
202.5 " Rules Concerning Applications ." 29.5% of the patterns
of substantive violations concern a violation of some provision
of section 202.7 ( d)

concerning " signature of spouse or other

person . "
With respect to mortgage credit , we found 517 patterns
of substantive violations .

( When all banks examined in the

one -year period have been entered , we anticipate that this
number will be approximately 650. )

of these 517 patterns of

substantive violations , 117 involve patterns of violations
of section 202.5 ( a ) which prohibits the discouraging of
applications on a prohibited basis , 170 involve impermissible

373

requests for information about marital status in violation

of section 202.5 ( d ) ( 8 ) , 13 involve some other violation of
section 202.5 , 186 involve some violation of section 202.7 ( d)

income is derived from part - time employment , a retirement

benefit , or alimony , child support or maintenance , 2 involve
violations of section 202.6 concerning evaluation of applications,
and 6 involve violations of section 202.7 ( a) which prohibits
the refusal to grant an individual account to a creditworthy

applicant on a prohibited basis .

Act .

At present , banks are required to prevent recurrences

of discovered violations by altering their policies , procedures
or forms .

Corrective action for violations in which customers

have been substantially harmed , will be ordered , at a minimum

in accordance with the uniform enforcement guidelines currently
being considered by the financial institution regulatory

374

agencies .

Examples of the types of remedial action we have

ordered include reappraisal of property when the initial
appraisal was deemed inadequate, reevaluation of an application
when it was rejected on a prohibited basis , and release of a
spouse's signature when it was not required .

b.

Were there any instances of repeat violations in
which the bank was found to be continuing to

engage in discriminatory practices after having

previously been told to stop ? What enforcement
actions have you taken in these cases of repeat
violations ?

As of June 30 , 1978 , 92 banks had received a second

consumer examination , although the results of most of these
examinations were not entered into our data system . Twelve

of these banks ( 13% ) had at least one repeat violation of a
provision found in violation in the first examination . We are
attaching a schedule of the provisions with repeat violations .
As indicated in the schedule, the great majority of the
repeat violations involved continued use of old application

forms which requested marital status in the wrong terms and
other income without making proper disclosure . Several
of these violations were found where the new forms obtained

by the bank as a result of the first examination were still
found to be in violation .

Also , in a couple of instances

a bank properly obtained new forms, but some of the old forms

375

were used in error .

Considering these circumstances , we feel

that the number of repeat violations has been small and in

dicative of the effectiveness of our consumer examination .
It should be noted that banks , as well as enforcement

agencies , are going through a learning process with respect
to a substantial amount of recently enacted consumer and
civil rights legislation .

One of the great benefits of the

examination process is that it provides an effective vehicle
for educating banks as to their obligation . In most instances ,
compliance is voluntary .

This point is critical given

limited regulatory and judicial resources .

we have thus far been able to achieve corrective action after
discovery of a violation the second time through routine
supervisory procedures which involve presentation of examina

tion reports to the Board of Directors seekiřig a positive
program to effect correction .

Corrective action has already

been effected in ten of these banks and is in process at the
remaining two .

376

REPEAT VIOLATIONS

Section of 12 CFR 202 in Violation
Bank

5 ( a)

5 ( c)

5 ( d) 1

x

7 ( a) 5

X
х
X

х

X
х

X
X

X

х

x
x

X

х

X

х

x

2
3
4
5
6
7
8
9
10
11

x

5 ( a) 3

XX

1

5 ( a) 2

12

X

GENERAL DESCRIPTION OF SECTION IN VIOLATION

Section 202.5 ( a )

Discouraging applications on a prohibited
basis .

Section 202.5 ( c ) -

Requesting information about a non- applicant
.

Section 202.5 ( d ) ( 3 )

Section 202.7 ( d ) 5

Requesting the sex of an applicant , using
terms in an application form that are not
neutral as to sex , or requesting applicant
to designate a title ( such as Ms. , Miss , Mr. ,
or Mrs. ) without disclosing that the designation
of such title is optional .
Requiring the applicant's spouse to be a

party to the credit , as co-signer , guarantor ,
or the like .

377

4.

Future Enforcement : How will you deal in the future with
cases of repeat violations of the Fair Housing Act , the

Equal Credit Opportunity Act , or Regulation B , where a
bank is found on the second or third examination to have

failed to correct conditions found on a previous examination ?
Depending on the circumstances , violations involving special

to outline the corrective action routinely employed for initial
violations to contrast the measures available when violations

are found to persist in subsequent examinations .

the examiner will assist the bank in planning corrective action

to avoid recurrences of the violation .

The proposed Regulation B

uniform enforcement guidelines incorporate this approach , re
quiring creditors found to have committed substantive violations
to adopt a nondiscriminatory written loan policy and develop a
compliance plan to avoid future violations .

It is expected that

the vast majority of such banks will implement proper compliance
plans to insure future compliance .
Beyond taking steps to avoid future violations , banks with
specific substantive violations will be required to institute

remedial action to correct conditions resulting from the violations .
The guidelines are intended to outline action required to be
taken to make customers whole following such violations .

378

extent that particular customers are found to have suffered harm
not specifically addressed in the guidelines , further administra
tive action may be in order .

The guidelines represent minimum

standards , and we intend to take appropriate action to fully
protect the interests of bank customers .

ers whole for damages resulting from substantive violations ,

and adopt procedures to avoid future compliance problems .

If

a bank is found to have persisted in violating the law in sub
sequent examinations , a different approach will be in order .
There are several possible tools available for these contingencies ,
as more fully described in a . ) , b . ) , and c . )

below .

We will

approach these problems on a case by case basis , and take the

action we feel is most likely to achieve quick remedy .

a.

In the case of repeat violations will you inform ,
or require a bank to inform , the victims of lend
ing discrimination that unlawful discrimination
has been found in the institution's handling of

a previous application or inquiry from them?
Violations will be addressed in accordance with proposed
uniform corrective action guidelines for the enforcement of the

Equal Credit Opportunity Act , which were recently issued for
public comment by the five federal financial regulatory agencies .
When it is discovered that individuals have been adversely
affected by an unlawful discriminatory policy or practice it is
contemplated the financial institution will be required by the

379

appropriate agency to reevaluate - according to a written ,

nondiscriminatory loan policy - all affected credit applications
and solicit new applications from applicants who were rejected
on a discriminatory basis .

When the same violations are dis

covered in subsequent examinations , use of the full range of
enforcement options will be considered , including notification

of borrowers .

Under what circumstances will you release publicly the
names of institutions that have refused or failed to
eliminate discriminatory practices ?

Among the administrative remedies which may be used to
require compliance by recalcitrant institutions are cease and

desist proceedings which , while normally private , can be public
when the Comptroller finds that a public proceeding is necessary
to protect the public interest .

A public proceeding may be

particularly appropriate with respect to this type of violation
when an institution is recalcitrant or unresponsive to other
supervisory requests for correction
c.

Under what circumstances will you seek criminal prose
cution of or other punitive action against banks or
their officers who fail to eliminate discriminatory
practices ?

We believe that we can attain corrective action through
agency supervisory enforcement tools .

If we decided punitive

action were desirable in a given situation , referrals could be

made to the Department of Justice under authority of Section 706
of ECOA so that that agency might bring action which would
include requests for punitive damages .

37-415 O - 79

25

380

5.

Civil Damages Litigation
a.

What is your view about the effectiveness and proper role
of civil damages litigation by private individuals in
bringing about general compliance with the laws against
credit discrimination ?

It is our belief that the examination and administrative

procedures of this office are the more effective method of accom
plishing systematic compliance with both the substantive and
technical requirements of credit discrimination laws .

However ,

litigation by private individuals is a potentially effective
means of enforcing these laws .

Very few cases have been brought

by individuals against financial institutions under the Fair

Housing Act , although some of these have been significant and
precedent setting .

We were able to find only one reported case

thus far under the Equal Credit Opportunity Act .

b.

What steps does your office take to inform consumers

Upon receipt of a complaint alleging a violation of the
Fair Housing or Equal Credit Opportunity Acts , if we are unable
to resolve the matter , the complainant is informed that he or
she has certain rights under the Act and may want to contact an
attorney to seek redress through the courts . Loan applicants
or potential applicants have not been informed of the civil
damages provisions of the fair lending laws on a uniform basis .
We are reviewing our policy and are actively considering advising
complainants of such rights .

381

6.

Consumer Information
What other consumer information and education activities
does your office conduct to inform the general public

about the laws against credit discrimination ?

Do you have

any plans to expand these activities ?
The effectiveness of laws against credit discrimination

increases as the level of consumer awareness regarding these
laws is raised . Consumer education is a primary prerequisite
to full implementation of the spirit and intent of legislation

protecting the public against credit discrimination .

Recognizing

these imperatives , the Comptroller's Office has been involved
with educational efforts for the benefit of the public and has

maintained active communication with groups representing various
public interests .

Our consumer representatives have lectured

or taught before students at high schools , colleges , and
universities , informing them about consumer and civil rights
legislation , as it pertains to credit .

The Comptroller's

Handbook for Consumer Examinations has been disseminated to

public libraries , state consumer agencies , and is available to
the public for a nominal charge .

Consumers registering com

plaints are provided information regarding their rights , with
copies of laws and regulations often given to them as supple

mentary information .

Representatives of consumer groups have

been invited , and have attended , OCC Consumer Affairs Training

Schools , and meetings between OCC and such groups for the purpose

of discussing laws against credit discrimination continue to be
held .

These groups are encouraged to , and do , provide the general

public with educational material dealing with credit discrimination .

382
Additionally , we have recently made an effort to better

inform the public by issuance of a consumer complaint pamphlet .
This pamphlet contains basic information on all consumer laws ,
including the Fair Housing Act and the Equal Credit Opportunity
Act , and provides a form and convenient postage paid envelope

for filing a complaint with this Office .

We have distributed

approximately 1 million pamphlets to date , and have requested
banks to make them available to the public in their lobbies .

educational program will be necessary to accomplish this and
a program of this magnitude is frankly beyond the capacities
of any of the agencies charged with enforcing these laws .

program of this type should include , at a minimum , development
and dissemination of teachers ' guides and student texts at the
high school level , and public service messages in the popular
media .

We are exploring the development of this sort of

effort as a joint project by the federal regulatory agencies

and consumer groups to develop materials for consumer education
programs .

[ Whereupon, at 11:43 a.m., the subcommittee adjourned, to recon
vene subject to the call of the Chair.]

APPENDIXES

APPENDIX 1. - STATUTES AND AGENCY REGULATIONS
Fair Housing Act
Public Law 90-284

April 11 , 1968

TITLE VIII – FAIR HOUSING
POLICY

Sec. 801. It is the policy of the United States to provide, within
constitutional limitations, for fair housing throughout the United
States.

( 383 )

1

384

Pub .. Law 90-284

385

April 11, 1968

- 11-

Pub . Law 90-284

82 STAT , 83

DISCRIMINATION IN THE SALE OR RENTAL OF HOUSING

Sec. 804. As made applicable by section 803 and except as exempted
by sections 803 ( b) and 807, it shall be unlawful

DISCRIMINATION IN THE FINANCING OF HOUSING

SEC. 805. After December 31, 1968, it shall be unlawful for any
bank , building and loan association, insurance company or other cor
poration , association, firm or enterprise whose business consists in
whole or in part in the making of commercial real estate loans, to deny

' a loan or other financial assistance to a person applying therefor for
the purpose of purchasing, constructing, improving,repairing, or
maintaining a dwelling, or to discriminate against him in the fixing of
the amount, interest rate, duration, or other terms or conditions of
such loan or other financial assistance, because of the race, color, re
ligion, or national origin of such person or of any person associated
with him in connection with such loan or other financial assistance or
the purposes of such loan or other financial assistance, orof the present

or prospective owners, lessees, tenants, or occupants of the dwelling or
dwellings in relation to which such loan or other financial assistance
is to bemade or given : Provided, That nothing contained in this sec

1

386

Pub . Law 90-284
82 STAT . 84

DISCRIMINATION IN THE PROVISION OF BROKERAGE SERVICES

Sec. 806. After December 31 , 1968, it shall be unlawfulto deny any
person access to or membership or participation in any multiple- listing
service, real estate brokers' organization or other service, organization ,
or facility relating to the business of selling or renting dwellings, or
to discriminate against him in the terms or conditions of such access,
membership , or participation, on account of race, color, religion, or
national origin .

ADMINISTRATION
Authority and
responsibility .
Assistant Secre
tary .

42 USC 3533 .
42 USC 3535 .
Delegation of
authority .

80 Stat . 415 ,
528 ,

Sec. 808. ( a ) The authority and responsibility for administering
this Act shall be in the Secretary of Housing and Urban Development.

387

April 11 , 1968

. 13 .

Pub . Law 90-284
82 STAT , 85

in a manner affirmatively to further the purposes of this title and
shall cooperate with the Secretary to further such purposes.
( e) The Secretary of Housing and Urban Development shall

EDUCATION AND CONCILIATION

Sec. 809. Immediately after the enactment of this titlethe Secretary
shall commence such educational and conciliatory activities as in his

judgment will further the purposes of thistitle. He shall call confer
ences of persons in the housing industry and other interested parties to
acquaint them with the provisions of this title and his suggested means

of implementing it, and shall endeavor with their advice to work out
programs of voluntary compliance and of enforcement. He may pay
per diem , travel, and transportation expenses for persons attending
such conferences as provided in section 5703 of title 5 of the United
States Code. He shall consult with State and local officials and other 80 Stat . 499 .

interested parties to learn the extent , if any , to which housing dis
crimination exists in their State or locality, and whether and how State

or local enforcement programs might be utilized to combat such dis
crimination in connection with or in place of, the Secretary's enforce
ment of this title. The Secretary shall issue reports on such conferences Reports on

and consultations as he deems appropriate.
ENFORCEMENT

Sec. 810. ( a) Any person who claims to have been injured by a complaints.
discriminatory housing practice or who believes thathe will be irrev- Procedure for
ocably injured by a discriminatory, housing practicethat is about to filing.
occur ( hereafter“ person aggrieved ” ) mayfile a complaint with the
Secretary. Complaints shall be in writing and shall contain such infor
mation and be in such form as the Secretary requires. Upon receipt of
such a complaint the Secretary shall furnish a copy of the same to the
person or persons who allegedly committed or are about to commit the

alleged discriminatory housing practice. Within thirty days after re

ceiving a complaint, or within thirty days after the expiration of any
period of reference under subsection ( c ) , the Secretary shall investi
gate the complaint and give notice in writing to the person aggrieved
whether he intends to resolve it. If the Secretary decides to resolve the
complaint, he shall proceed to try to eliminate or correct the alleged

discriminatory housing practice by informal methods of conference,
conciliation, and persuasion. Nothingsaid or done in the course of such
informal endeavors may be made public or used as evidence in a sub

388

Pub . Law 90-284
82 STAT . 86
Penalty .

Commencement of
civil actions .

389

April 11 , 1968

390

Pub , Law 90-284

- 16 -

Sec. 812. ( a ) The rights granted by sections 803, 804, 805, and 806

may be enforced by civil actions in appropriate United States district
courts without regard to the amount in controversyand in appropriate
State or local courts of general jurisdiction. A civil action shall be
commenced within one hundred and eighty days after the alleged dis

criminatory housing practice occurred : Provided, however, That the
court shall continue such civil case brought pursuant to this section or

section 810 ( d ) from time to time before bringing it to trial if the
court believes that the conciliation efforts of the Secretary or a State
orlocal agency are likely to result in satisfactory settlement of the dis
criminatory housing practice complained of in the complaint made to
the Secretary or to the local or State agency and which practice forms
the basis for the action in court : And provided, however, That any

sale, encumbrance, or rental consummated prior to the issuance of any
court order issued under the authority of this Act, and involving a
bona fide purchaser, encumbrancer, or tenant without actual notice of
the existence of the filing of a complaint or civil action under the

provisions of this Act shall not be affected.
Civil action
without fees ,

etc.

Damages, limi
tation .

ENFORCEMENT BY THE ATTORNEY GENERAL

Sec. 813. ( a ) Whenever the Attorney General has reasonable cause
to believe thatany person or group of persons is engaged in a patter
or practice of resistance to the full enjoyment of any of the rights

granted by this title, or that any group of persons has been denied any
of the rights granted by this title and such denial raises an issue of

general public importance, he may bring a civil action in any appro
priate United States district court by filing with it a complaint setting
forth the facts and requesting such preventive relief, including an

application for a permanentor temporary injunction,restraining
ord or other order against the personor persons responsible for such
pattern or practice ordenial of rights, as he deemsnecessary to insure
the full enjoyment of the rights granted by this title.
EXPEDITION OF PROCEEDINGS

Sec. 814. Any court in which a proceeding is instituted under section
812 or 813 of this title shall assign the case for hearing at the earliest

practicabledateandcausethe case to be in every wayexpedited.

1

391

April 11 , 1968

COOPERATION WITII STATE AND LOCAL AGENCIES ADMINISTERIXG FAIR

APPROPRIATIONS

Sec. 818. There are hereby authorized to be appropriated such sums
as are necessary to carry out the purposes of this title.
SEPARABILITY OF PROVISIONS

Sec. 819. If any provision of this title or the application thereof to
any person or circumstances is held invalid, the remainder of the title

and the application of the provision to other persons not similarly
situated or to other circumstances shall not be affected thereby.

392

§ 701. Prohibited discrimination; reasons for ad
verse action *

Equal Credit Opportunity Act ( as amended

TITLE V-PUBLIC LAW 93–495
Sec.
502. Findings and purpose .
503. Amendment to the Consumer Credit Pro

§

502. Findings and purpose

§ 503. Amendment to the Consumer Credit Pro
tection Act

TITLE VII — EQUAL CREDIT OPPORTUNITY
Sec.
701. Prohibited discrimination; reasons for ad

* Effective date for amendments to section 701 is
March 23, 1977. All other amendments are effective upon
enactment.

1

393

( 3) any special purpose credit program of
fered by a profitmaking organization to meet
special social needs which meets standards pre

requested. Such term does not include a refusal
to extend additional credit under an existing
credit arrangement where the applicant is delin

quent or otherwise in default, or where such
additional credit would exceed a previously estab
lished credit limit.

§ 702. Definitions

394

or household purposes, if the Board makes an
express finding that the application of such provi
sion or provisions would not contribute substan

tially to carrying out the purposes of this title.
Such regulations shall be prescribed as soon as
possible after the date of enactment of this Act,
but in no event later than the effective date of
this Act.

$ 704. Administrative enforcement

( 4 ) The Acts to regulate commerce, by the In
terstate Commerce Commission with respect to
any common carrier subject to those Acts.

395

under that Act. All of the functions and powers
of the Federal Trade Commission under the Fed
eral Trade Commission Act are available to the
Commission to enforce compliance by any person
with the requirements imposed under this title,

irrespective of whether that person is engaged in
commerce or meets any other jurisdictional tests

bring a legal action to recover monetary dam
ages either under this title or under such State
law, but not both . This election of remedies shall

not apply to court actions in which the relief
sought does not include monetary damages or to
administrative actions.

in the Federal Trade Commission Act, including
the power to enforce any Federal Reserve Board
regulation promulgated under this title in the
same manner as if the violation had been a viola

tion of a Federal Trade Commission trade regu
lation rule.

§

705. Relation to State laws

8 706. Civil liability

1

37-415 O - 79 - 26

396

failures of compliance by the creditor, the re
sources of the creditor, the number of persons ad
versely affected, and the extent to which the
creditor's failure of compliance was intentional .

unable to obtain compliance with section 701 , are

authorized to refer the matter to the Attorney

General with a recommendation that an appro
priate civil action be instituted .

397

BOARD OF GOVERNORS

of the

FEDERAL RESERVE SYSTEM

EQUAL CREDIT OPPORTUNITY

REGULATION B

( 12 CFR 202)

Effective March 23, 1977

( Amended March 13 and April 21 , 1978 )

ARD

COVE

RNOR

S

THE

SYSTEM

•OBO

OF

FED

ERA

L

398

CONTENTS

Page

Page

13

Sec. 202.9 — NOTIFICATIONS

Sec. 202.2 — DEFINITIONS AND RULES OF
4

Sec. 202.10 — FURNISHING OF CREDIT INFOR
16

Sec. 202.3 - SPECIAL TREATMENT FOR CER
7

SEC. 202.11_RELATION TO State Law ....

17

Sec. 202.12 — RECORD RETENTION

18

..

Sec. 202.13—INFORMATION FOR MONITOR

Sec. 202.4 – GENERAL RULE PROHIBITING
8

19

Sec. 202.5—RULES CONCERNING APPLICA
8

Sec. 202.6 — RULES CONCERNING EVALUA

Sec. 202.7-RULES

CONCERNING

EXTEN
11

STATUTORY AUTHORITY

This regulation is based upon and issued pursuant to provisions of section 703 of the Equal Credit Op
portunity Act, U.S.C., Title 15, sec. 1691 et seq .

399

REGULATION B

( 12 CFR 202)
Effective March 23, 1977

( Amended March 13 and April 21 , 1978 )

EQUAL CREDIT OPPORTUNITY

SECTION 202.1 - AUTHORITY, SCOPE ,

posed under the Act and this Part will be en

ENFORCEMENT, PENALTIES AND
LIABILITIES, INTERPRETATIONS

forced by the Federal Trade Commission.

( a) Authority and scope. This Part 1 comprises
the regulations issued by the Board of Governors
of the Federal Reserve System pursuant to Title
VII ( Equal Credit Opportunity Act) of the Con

sumer Credit Protection Act, as amended ( 15
U.S.C.

1601 et seq. ) . Except as otherwise pro

vided herein, this Part applies to all persons who
are creditors, as defined in section 202.2 ( 1) .

1 As usedherein, the words " this Part” mean Regula
tion B, 12 CFR 202.
3

400

§

REGULATION B

202.2

( 3) Any request for public comment on an

( 3 ) As provided in section 706 ( f) , a civil
action under the Act or this part may be brought

official staff interpretation of this part must be in
writing and addressed to the Secretary, Board of
Governors of the Federal Reserve System, Wash
ington, D.C. 20551 , and postmarked or received

in the appropriate United States district court
without regard to the amount in controversy or
in any other court of competent jurisdiction with
in two years after the date of the occurrence of

by the Secretary's office within 30 days of the in

terpretation's publication in the Federal Register.
The request must contain a statement setting forth

the violation or within one year after the com
mencement of an administrative enforcement
proceeding or a civil action brought by the At

the reasons why the person making the request
believes that public comment would be appro
priate.

torney General within two years after the al
leged violation .

SECTION 202.2 — DEFINITIONS

AND RULES OF CONSTRUCTION
For the purposes of this part, unless the con
text indicates otherwise, the following definitions

and rules of construction shall apply : 2

4

401

$

REGULATION B

202.2

( i) a refusal to grant credit in substantially the
amount or on substantially the terms requested in

does not include the use of an account or line of
credit to obtain an amount of credit that does

an application unless the creditor offers to grant
credit other than in substantially the amount or on
substantially the terms requested by the applicant

not exceed a previously established credit limit.
A completed application for credit means an ap

and the applicant uses or expressly accepts the
credit offered; or

received all the information that the creditor
regularly obtains and considers in evaluating ap
plications for the amount and type of credit re
quested ( including, but not limited to, credit re
ports, any additional information requested from
the applicant, and any approvals or reports by
governmental agencies or other persons that are
necessary to guarantee, insure, or provide security
for the credit or collateral ) ; provided, however,
that the creditor has exercised reasonable dili
gence in obtaining such information . Where an

plication in connection with which a creditor has

application is incomplete respecting matters that

the applicant can complete, a creditor shall make
a reasonable effort to notify the applicant of the
incompleteness and shall allow the applicant a
reasonable opportunity to complete the applica
tion .

( 3) An action that falls within the definition of
both subsections ( c) ( 1) and ( c) ( 2) shall be governed
by the provisions of subsection ( c) ( 2) .

1

402

REGULATION B

§ 202.2

statistical principles and is adjusted as necessary
to maintain its predictive ability.

tion in a credit transaction involves honoring a
credit card.

6

403

REGULATION B

§ 202.3
need. The term includes, but is not limited to,
Aid to Families with Dependent Children , food
stamps, rent and mortgage supplement or assist

are not classified as elderly applicants and are
most favored by a creditor on the basis of age.

ance programs, Social Security and Supplemental
Security Income, and unemployment compensa
tion.

SECTION 202.3 — SPECIAL TREATMENT
FOR CERTAIN CLASSES OF

( a) Classes of transactions afforded special treat

ment. Pursuant to section 703( a) of the Act, the
following classes of transactions are afforded
specialized treatment:

7

404

§

REGULATION B

202.4

credit primarily for agricultural purposes, but ex

( 4) section 202.5( d) ( 3) concerning information

cluding extensions of credit of the types described
in subsections ( a) ( 1) and ( 2) ; and

about the sex of an applicant to the extent neces
sary for medical records or similar purposes ;

SECTION 202.4 — GENERAL RULE

PROHIBITING DISCRIMINATION
A creditor shall not discriminate against an
applicant on a prohibited basis regarding any
aspect of a credit transaction.

SECTION 202.5 — RULES CONCERNING

( a) Discouraging applications. A creditor shall

not make any oral or written statement, in adver
8

405

REGULATION B
§

tising or otherwise, to applicants or prospective
applicants that would discourage on a prohibited

202.5

( v) the applicant is relying on alimony, child
support, or separate maintenance payments from

basis a reasonable person from making or pur

a spouse or former spouse as a basis for repay

suing an application.

ment of the credit requested.

5 This provision does not preclude requesting relevant
information that may indirectly disclose marital status,

such as asking about liability to pay alimony, child sup
port, or separate maintenance; the source of income to be
used as a basis for the repayment of the credit requested,
which may disclose that it is a spouse's income; whether
any obligation disclosed by the applicant has a co -obligor,

4 This subsection is not intended to limit or abrogate
any Federal or State law regarding privacy, privileged

information, credit reporting limitations, or similar re

which may disclose that the co -obligor is a spouse or

strictions on obtainable information. Furthermore, permis
sion to request information should not be confused with
how it may be utilized , which is governed by section
202.6 ( rules concerning evaluation of applications ) .

former spouse; or the ownership of assets, which may
disclose the interest of a spouse , when such assets are
relied upon in extending the credit. Such inquiries are
allowed by the general rule of subsection ( b ) ( 1 ) .

9

406

$

202.6

mony, child support, or separate maintenance
payments.

REGULATION B

in accordance with the provisions of clauses ( 2 )
or ( 3) of the preceding sentence or the instruc
tions to Appendix B, that creditor shall be deemed
to be acting in compliance with the provisions of
subsections ( c) and ( d) .

SECTION 202.6 — RULES CONCERNING

( a) General rule concerning use of information.
Except as otherwise provided in the Act and this

Part, a creditor may consider in evaluating an ap
plication any information that the creditor obtains,
so long as the information is not used to dis

criminate against an applicant on a prohibited
basis.

7 The legislative history of the Act indicates that the
Congress intended an " effects test ” concept, as outlined
in the employment field by the Supreme Court in the

cases of Griggs v. Duke Power Co., 401 U.S. 424 ( 1971 ) ,

and Albemarle Paper Co. v. Moody, 422 U.S. 405 ( 1975) ,
to be applicable to a creditor's determination of credit
worthiness. See SenateReport to accompany H.R. 6516 ,
No. 94-589, pp. 4-5; House Report to accompany H.R.
6516 , No. 94-210, p. 5.

G A creditor also may continue to use any application
form that complies with the requirements of the October
28, 1975 version of Regulation B until its present stock
of those forms is exhausted or until March 23, 1978,

whichever occurs first. The provisions of this part shall
not determine and are not evidence of the meaning of
the requirements of the previous version of Regulation B.

1

407

REGULATION B

§

202.7

but are not limited to , whether the payments are
received pursuant to a written agreement or court
decree; the length of time that the payments have
been received ; the regularity of receipt; the avail
ability of procedures to compel payment; and the
creditworthiness of the payor, including the credit

for the purpose of determining a pertinent ele
ment of creditworthiness.

history of the payor where available to the credi
tor under the Fair Credit Reporting Act or other
applicable laws.

9 Concerning income derived from a public assistance
program, a creditor may consider, for example, the length
of time an applicant has been receiving such income;
whether an applicant intends to continue to reside in the

jurisdiction in relation to residency requirements for
benefits; and the status of an applicant's dependents to
ascertain whether benefits that the applicant is presently
receiving will continue.

SECTION 202.7—RULES CONCERNING

( a) Individual accounts. A creditor shall not
refuse to grant an individual account to a credit
worthy applicant on the basis of sex, marital
status, or any other prohibited basis.

11

§

408

REGULATION B

202.7

an account in a birth-given first name and a surname that is the applicant's birth -given surname,
the spouse's surname, or a combined surname.

creditor to be necessary, under applicable State
law to make the community property available to
satisfy the debt in the event of default if :

12

409

REGULATION B

§ 202.8

SECTION 202.84SPECIAL PURPOSE

from a public assistance program, or good faith
exercise of any right under the Consumer Credit
Protection Act or any State law upon which an
exemption has been granted therefrom by the
Board; except that all program participants may
be required to share one or more of those char
acteristics so long as the program was not estab
lished and is not administered with the purpose of

( a) Standards for programs. Subject to the pro
visions of subsection ( b) , the Act and this Part are
not violated if a creditor refuses to extend credit
to an applicant solely because the applicant does
not qualify under the special requirements that
define eligibility for the following types of special
purpose credit programs :

evading the requirements of the Act or this part.

SECTION 202.9 — NOTIFICATIONS
( a ) Notification of action taken, ECOA notice,
and statement of specific reasons.
13

410

§

202.9

REGULATION B

( 1 ) Notification of action taken . A creditor shall
notify an applicant of action taken within :

creditor and either no credit is offered or the

applicant does not expressly accept or use any
credit offered , then each creditor taking adverse
action must comply with this section. The re

quired notification may be provided indirectly
through a third party, which may be one of the
creditors, provided that the identity of each cred
itor taking adverse action is disclosed. When
ever the notification is to be provided through a
third party, a creditor shall not be liable for any
act or omission of the third party that constitutes
a violation of this section if the creditor accu
rately and in a timely manner provided the third
party with the information necessary for the
notification and was maintaining procedures rea
sonably adapted to avoid any such violation.

The Federal Equal Credit Opportunity Act pro
hibits creditors from discriminating against credit
applicants on the basis of race, color, religion , na
tional origin, sex, marital status, age ( provided
that the applicant has the capacity to enter into
a binding contract) ; because all or part of the
applicant's income derives from any public assist
ance program ; or because the applicant has in
good faith exercised any right underthe Consumer
Credit Protection Act . The Federal agency that

administers compliance with this law concerning
this creditor is ( name and address as specified by

the appropriate agency listed in Appendix A) .

14

411

REGULATION B

§

icies or that the applicant failed to achieve the

Street address :

qualifying score on the creditor's credit scoring
system are insufficient.

Telephone number:

202.9

Information obtained from an outside source

STATEMENT OF CREDIT DENIAL,

other than a consumer reporting agency.
Under the Fair Credit Reporting Act, you
have the right to make a written request,
within 60 days of receipt of this notice, for
disclosure of the nature of the adverse in

DATE

Applicant's Name :
Applicant's Address:

formation.

Creditor's name :
Creditor's address :

Description of Account, Transaction , or Requested
Credit:

Description of Adverse Action Taken :

Creditor's telephone number :
[ Add ECOA Notice]
( 3 ) Other information. The notification re
quired by subsection ( a ) ( 1 ) may include other
information so long as it does not detract from
the required content. This notification also may
be combined with any disclosures required under
other titles of the Consumer Credit Protection Act
or any other law, provided that all requirements
for clarity and placement are satisfied ; and it may

PRINCIPAL REASON( S) FOR ADVERSE

appear on either or both sides of the paper if
there is a clear reference on the front to any
information on the back.

DISCLOSURE OF USE OF INFORMATION
OBTAINED FROM AN OUTSIDE SOURCE

15

37-415 0 - 79 - 27

§

412

REGULATION B

202.10

ered or mailed to the applicant's last known ad-

( ii ) designate any such account to reflect
the fact of participation of both spouses; 13 and

dress or, in the case of an oral notification , when
the creditor communicates with the applicant.

12 If a creditor learns that new parties have under
taken payment on an account, then the subsequent his

16

413

REGULATION B

§ 202.13

( B ) the statement of specific reasons for
adverse action ; and

that receives an application for consumer credit
relating to the purchase of residential real prop
erty, where the extension of credit is to be secured

by a lien on such property, shall request as part
of any written application for such credit the

following information regarding the applicant and
joint applicant ( if any) :

SECTION 202.13 — INFORMATION FOR

19 See footnote 18 .

19

414

[ Reproduced with permission of the publishers from Equal
Öpportunity in Housing, Copyright 1978 by Prentice-HaTT,
Englewood Cliffs

Inc.

New Jersey 07632 ]

6-14-78

FEDERAL HOME LOAN BANK BOARD

0

[

4081 ]

..........

Og [ f 4081.1]

8 528.1 Definitions. As used in this Part 528—

0

8 528.la Supplementary guidelines.- The Board's $ 531.8 policy

[ 1 4081.1a]

statement supplements, and should be read together with, Part 528. Refer also to
12 CFR 202, Federal Reserve Regulation B.

0

[ 1 4081.2]

8528.2 Nondiscrimination in lending and other services .— ( See

also , $ 531.8 ( b) and ( c) . )

1|

415

Federal Regulations

4082

( 4) the present or prospective owners, lessees, tenants, or occupants of other
dwellings in the vicinity of the dwelling ( s ) for which such loan or other service is
to be made or given .

[ 1 4081.2a ]

8 528.2a Nondiscriminatory appraisal and underwriting- ( See

also, § 531.8 ( b ) , ( c ) ( 6 ) , and ( c ) ( 7 ) . )

0

[ f4081.3 ]

8528.3 Nondiscrimination in applications.- ( See also, $ 531.8 ( a)

through ( d) . )

0
[ 1 4081.4] § 528.4 Nondiscriminatory advertising . — No member institution
maydirectly or indirectly engage in any form of advertising which implies or sug .
gests a policy of discrimination or exclusion in violation of Title VIII of the Civil
Rights Act of 1968, the Equal Credit Opportunity Act, or this part. Advertisements
other than for savings shall include a facsimile of the following logotype and legend

( except that the legend " Equal Opportunity Lender " may be substituted for the
legend " Equal Housing Lender " ) :

07 [ f4081.5 ]

8 528.5 Equal Housing Lender Poster.- ( a )

Each member in

stitution shall post and maintain one or more Equal Housing Lender Posters, the
text of which is prescribed in paragraph ( b ) of this section , in the lobby of each of

its offices in a prominent place or places readily apparent to all persons seeking
loans. The poster shall be at least 11 by 14 inches in size, and the text shall be

easily legible. It is recommended that member institutions post a Spanish language
version of the poster in offices serving areas with a substantial Spanish -speaking
population.

416

5-31-78

HLBB Nondiscrimination Requirements

4083

the legend " Equal Opportunity Lender" may be substituted for the legend " Equal
Housing Lender " ) :

EQUAL HOUSING

LENDER
WE DO BUSINESS IN ACCORDANCE WITH THE FEDERAL
FAIR HOUSING LAW AND THE EQUAL CREDIT OPPORTUNITY ACT
IT IS ILLEGAL TO :

DISCOURAGE a loan inquiry or refuse to accept a written loan application ;

[ 1 4081.6]
8528.6 Monitoring information.- ( a ) Information to be requested.
( 1 ) Each member institution which receives an in-person or written application from

a natural person for a loan related to a dwelling shall request, but not require, either
on the application form or a form referring to the application, the following informa
tion regarding the applicant and joint applicant ( if any ) :
©

1978 P-H Inc. EOH - See Cross Reference Table for latest developments

9 4081.6

417
Federal Regulations

4084

( i ) race /national origin, using the categories American Indian or Alaskan
Native; Asian or Pacific Islander ; Black ; White; Hispanic ; Other ( specify ) ;

( d)

0

[ 1 4081.7 ]

8528.7 Nondiscrimination in employment.- ( a )

No member in

stitution shall, because of an individual's race, color, religion, sex, or national
origin :
( 1)

Fail or refuse to hire such individual;

( 2)

Discharge such individual;

-

6-11-78

LOAN
FINAL
TERMS

TEFS

LOAN
PROP
TO
ERTY
VALUE
BUILT
:
RATIO

BY APPLICANT

TERM

ITHDRAWI

AMOUNT

PENIEL

418

HLBB Nondiscrimination Guidelines

AVY LOAN 277

YEAR
INTEREST

CHANCZO /
OT ACCENTI

AGE

DISPOSITION

ASY LOAN TEIX
CHUANO /
ACCLITLD

RACE

LINDER

SEX

DESIGKATED

-APTI.ICANT
CO

YARITAL
STATUS

AGE

UNDER

RACE

STATUS

CENSUS
TRACT

TYLINA

APPLICATION LOAN
NUMBER

DESIGNATED

APPLICANT

SEX

© 1978 P-H Inc. EOH -See Cross Reference Table for latest developments

ASSOWIATION
OR
S
,S
Almik
AMD
NAME

APPLICATION
REGISTER

LOAN

4084 - A

9 4083.7

419

4084 - B

O

FEDERAL HOME LOAN BANK BOARD
[ 1 4083 ]

!

420

6-14-78

HLBB Nondiscrimination Guidelines

( 7)

© 1978 P-H Inc. EOH-See Cross Reference Table for latest developments

9 4083.8

421

4084 - D

Federal Regulations

such as parks and recreation areas, availability of public utilities and municipal
services, and exposure to flooding and land faults. However, arbitrary decisions
based on age or location are prohibited , since many older, soundly constructed
homes provide housing opportunities which may be precluded by an arbitrary
lending policy.

422

FDIC
OFFICE

OF

THE

FEDERAL DEPOSIT INSURANCE CORPORATION , Washington, D.C. 20429

CHAIRMAN

BL - 25-78

April 5, 1978

TO THE CHIEF EXECUTIVE OFFICERS OF INSURED STATE NONMEMBER BANKS :
SUBJECT : Fair Housing Regulations ( Part 338 ) and Enforcement Program

This letter transmits a copy of the Federal Deposit Insurance Corporation's Fair Housing Regulations
( Part 338 ) adopted by the Corporation's Board of Directors on March 14, 1978, and published in
the Federal Register on March 20, 1978 ( 43 Fed. Reg. 11564) .
The provisions of Part 338 become effective on May 19, 1978, and will require insured State
nonmember banks to ( 1 ) display a new Fair Housing Lender Poster, ( 2) observe rules regarding non
discriminatory advertising, and ( 3) keep records on home loans.
These regulations are intended to provide a basis for a more effective FDIC fair housing lending
enforcement program under the Fair Housing Act and the Equal Credit Opportunity Act. The infor
mation which the regulations require the banks to obtain and record is necessary for the execution
of this program.
As defined in the regulations, a home loan means any extension of credit relating to the purchase,

construction, refinancing, improvement, repair, or maintenance of a dwelling which : ( 1 ) is or will be
comprised of one to four residential units, at least one of which the applicant intends to occupy as a
principal residence ; and ( 2 ) secures or will secure the extension of credit.
The new regulations establish recordkeeping requirements for insured State nonmember banks with
respect to home loan inquiries and applications. An inquiry is defined to mean a written or an oral
in -person request by an individual for information about the terms of a home loan which is received
on a bank's premises by a bank employee who is authorized to receive such requests. An application

is a written or an oral in-person request by an individual for a home loan which is received in the
same fashion Neither definition includes telephone requests.
All insured State nonmember banks will be required to request and retain information on the name,
address, race/national origin, sex, marital status, and age of persons making inquiries about the
applications for home loans. In addition, these banks will be required to request and retain infor
mation on the location of the property involved. If the applicant or inquirer refuses to provide the
information concerning race/national origin or sex, the bank is required to note the information on
the basis of observation or surname.
Each insured State nonmember bank having an office located in a Standard Metropolitan Statistical
Area ( SMSA) and assets exceeding $ 10 million will also be required to request and retain credit
related information for home loan applications. This information will be substantially similar to the
information requested on the model residential loan application form contained in Appendix B of
( FRB ) Regulation B and may be recorded on one or more forms presently being used by the banks.

423

Further, each such bank will be required to maintain a log-sheet on applicant and inquirer informa
tion. The banks will be required to log :

о Reorge A. Le nainstre
George A. LeMaistre

Distribution : Insured State nonmember Banks ( main and branch offices ) .

424

TITLE 12

Banks and Banking

FEDERAL DEPOSIT INSURANCE CORPORATION

CHAPTER III

Part 338 -- Fair Housing

Fair Housing Advertising , Poster , and

AGENCY :

Federal Deposit Insurance Corporation

ACTION :

Final rules .

SUMMARY : The Federal Deposit Insurance Corporation ( " FDIC " )
adopts a new Part 338 to its Rules and Regulations which : ( 1 )

incorporates an amended version of the advertising and poster
requirements contained in the FDIC's policy statement on fair
housing entitled " Nondiscrimination in Real Estate Loan Activi

ties , " ana ( 2 ) establishes recordkeeping requirements for monitoring
insured State nonmember bank compliance with the Federal fair
housing laws . The regulations are intended to provide a basis

for a more effective FDIC fair housing enforcement program .
EFFECTIVE DATE :

Sixty ( 60 ) days from date of publication .

FOR FURTHER INFORMATION CONTACT :

Jerry L. Langley , Attorney ,

Federal Deposit Insurance Corporation , 550 17th Street , N.W. ,
Washington , D.C.

20429 , telephone ( 202 )

SUPPLEMENTARY INFORMATION :

389-4237 .

On October 7 , 1977 , the FDIC published

proposed fair housing regulations ( 42 Fed . Reg . 54566 ) pertaining
to the home loan practices of insured State nonmember banks . The

regulations were proposed by the FDIC under its responsibility to
require and enforce insured State nonmember bank compliance with
the Fair Housing Act ( 42 U.S.C. S 3601 , et seq . ) and the Equal
Creäit Opportunity Act ( 15 U.S.C. S 1691 , et seq . ) . Comments on

the proposed regulations were solicited from the public .

After

a careful review of all comments received , the Board of Directors

nas decided to adopt the regulations as originally proposed ,
with the following modifications :

425

( 2 ) Section 338.2 concerning nondiscriminatory advertising
was changed to state more completely the manner in which a

bank may satisfy the Equal Housing Lender notice requirement
specified in the section .

( b ) The recordkeeping requirements were changed for

rural banks ( i.e. , banks located outside of SMSAS ) and banks
with $ 10 million or less in total assets . These banks are not
required to request the extensive credit - related information

outlined in the proposed regulations with respect to applications ;
nor are they required to keep log - sheets on applicant and inquirer
information . However , the banks located within SMSAS and with

total assets exceeding $ 10 million will be required to request
the credit - related information from home loan applicants and to
maintain log - sheets on applicant and inquirer information .

( a ) The separate recordkeeping requirements and sample

loan forms for home mortgage loans and home improvement loans
were eliminated . One set of requirements was established for
both types of loans .

426

( e ) New Collection of Data paragraphs ( SS 338.4 ( a ) ( 1 ) ( ii )

and 338.4 ( a ) ( 2 ) ( iii ) ) were added to provide guidance to the banks
concerning when the information is to be collected and what the
bank is required to do in the event the requested information is
not provided by an applicant or inquirer .

of the 188 comments received , the vast majority were from
insured State nonmember banks ( or their representatives ) which
generally opposed the issuance of the recordkeeping portion of
the regulations on the ground that it would impose an unwarranted
burden on their institutions . Accordingly , they suggested that
this part of the regulations should not be adopted . The FDIC
believes that the recordkeeping component of the regulations is
essential for an effective fair housing enforcement program because
it requires the compilation of records necessary for monitoring

compliance with the fair housing laws . While it recognizes that
the provisions will place some additional burden on the banks ,
it does not believe that the burden is so significant as to

warrant the elimination of those provisions. As was noted by
the American Bankers Association in its comments , virtually all
of the information required to be requested by the proposed

regulations is already maintained by most banks.

The FDIC has

made every effort to impose the minimum administrative burden on
the banks consistent with its need to carry out its monitoring
aná enforcement responsibilities under the Fair Housing Act and

the Equal Credit Opportunity Act . The FDIC will review the
recordkeeping requirements periodically for the purpose of
assessing their effectiveness .

Among the other suggestions which were not adopted are
the following :

427

( 2)

It was suggested that the provision directing banks to

make race and sex notations about inquirers and applicants on
the basis of visual observations should be eliminated because
it requires an unwarranted invasion of personal privacy . The

FDIC does not believe that the requirement involves a question
of invasion of personal privacy since it merely requires a bank
officer to record for FDIC's enforcement program that information
which the bank officer has observed and will generally possess in
any event . The observation requirement has been included in order to
maximize the amount of information collected for monitoring purposes .

PART 338 - FAIR HOUSING
Sec .

338.1

Definitions .

338.2

Nondiscriminatory Advertising..

338.3

Equal Housing Lender Poster .

338.4

Recordkeeping Requirements .

338.5

Mortgage Lending of a Controlled Entity .

AUTHORITY :

Sec . 2 , Pub . L. 86-671 , 74 Stat . 547 , 12 u.s.c. 1817 ;

sec . 8 , Pub . L. 797 , 64 Stat . 879 , as amended by sec . 202 , 204 ,

Pub . L. 89-695 , 80 Stat . 1046 , 1054 and sec . 110 , Pub . L. 93-495 ,
88 Stat . 1506 , 12 U.S.c. 1818 ; sec . 9 , Pub . L. 797 , 64 Stat . 881 ,
as amended by sec . 205 , Pub . L. 89-695 , 80 Stat . 1055 , 12 U.S.C.
1819 ; sec . 203 , Pub . L. 89-695 , 80 Stat , 1053 , 12 u.s.c. 1920 ( b ) ;
sec . 805 , Pub . L. 90-284 , 82 Stat . 83 , 84 , as amended by sec . 808
Pub . L. 93-383 , 88 Stat . 729 , 42 U.S.C. 3605 , 3608 ; sec . 501 ,
Pub . L. 93-495 , 88 Stat . 1521 , as amended by sec . 2 , Pub . L.
94-239 , 90 Stat . 251 , 15 U.s.c. 1691 , et seq .; 40 F.R. 49306 ,

12 C.F.R. 202 ; 37 F.R. 3429 , 24 C.F.R. T10 .

37-415 0 - 79 - 28

428

§

338.1 Definitions .

( e)

" Dwelling " means any building , structure ( including

a mobile home ) , or portion thereof which is occupied as , or
designed or intended for occupancy as , a residence by one or
more natural persons and any vacant land which is offered for
sale or lease for the construction or location thereon of any
such building , structure or portion thereof .
( f ) " Home loan " means any extension of credit relating to :

( 2 ) the improvement , repair or maintenance of a dwelling
which is comprised of one to four residential units , at least
one of which the applicant intends to occupy as a principal

residence , and which secures or will secure the extension of
credit .

( 9)

" Inquirer " means a natural person who makes an inquiry .

*/ Telephone communications are excluded .

429

S 338.2 Nondiscriminatory Advertising .

( a ) Any bank which directly or through third parties engages
in any form of advertising of loans for the purpose of purchasing ,

constructing , improving , repairing , or maintaining a dwelling shall
prominently indicate in such advertisement , in a manner appropriate

to the advertising medium and format utilized , that the bank makes
such loans without regard to race , color , religion , sex or national
origin .

( 3 ) When an oral advertisement is used in conjunction
with a written or visual advertisement , the use of either of the

methods specified in subparagraphs ( 1 ) and ( 2 ) will satisfy the
requirements of this paragraph ( a ) .

§ 338.3 Equal Housing Lender Poster .

* / Telephone communications are excluded .

430

EQUAL HOUSING

IT IS ALSO ILLEGAL UNDER THE

431

( c ) The Equal Housing Lender Poster specified in this
section was adopted under section 110.25 ( b) of the United States
Department of Housing and Urban Development's Rules and

Regulations as an authorized substitution for the poster
required in section 110.25 ( a ) of those rules and regulations .
It replaces the poster required by FDIC's 1972 policy statement
on fair housing entitled " Nondiscrimination in Real Estate Loan
Activities . "
$

338.4 Recordkeeping Requirements .
( a)

Records to be Retained .

( 1 ) A bank which has no office located in a Standard

metropolitan Statistical Area ( " SMSA" ) , as defined by the Federal
Office of Management and Budget , or which had total assets as of
December 31 of the preceding calendar year of $ 10 million or less
shall request and retain the following information :
( i)

Data on Home Loan Inquirers and Applicants .
( A)

Name .

( B ) Address .
( C)

Race /national origin , using the categories

( D)

Sex .

( E ) Marital status, using the categories
( F)

Age .

( G ) Location ( street address , city , state ,

* / These records are to be retained for the purpose of monitoring

432

( ii ) Collection of Data .

No bank shall engage

in any activity which discourages an applicant or inquirer
from providing the information in subparagraph ( a ) ( 1 ) ( i ) .

Each bank shall attempt to collect the information in the
subparagraph during the initial contact with the inquirer or
applicant . If the applicant or inquirer refuses to furnish
all or part of this information , the bank shall note the fact or
have the applicant or inquirer note the fact on the form used for

recoraing the information . If the information regarding the race
and sex is not voluntarily furnished , the bank shall , on the basis
of visual observations or surnames, separately note the information
on the form or an attached document .

( i ) Data on Home Loan Inquirers and Applicants.
( A)

Name .

( B)

Adaress .

( C)

Race /national origin , using the categories

( D)

Sex .

( E ) Marital Status , using the categories married ,
( F)

Age .

( G ) Location ( street address , city , state , and

Except for census tract information in subparagraph ( a ) ( 2 )
( ii ) ( B ) ( 5 ) , all information is listed on the Residential Loan
Application Form contained in Appendix B of Regulation B of

the Board of Governors of the Federal Reserve System ( 12 C.F.R.
202 , Appendix B ) . The information may be recorded on the
Regulation B model Residential Loan Application Form or on
one or more existing form or forms used by the bank .

433

( ii)

Additional Data on Applications for Home Loans .

( 1 ) Employment .

( a ) Number of years employed in present
( b ) Self -employed

Yes or No.

( c ) Years on Present Job -- ( Number of

( a ) Base Employment Income . ( Enter only

( 0 ) Other Income . ( Average per month .

If

( Each dependent should be counted

only once .

The applicant and any

co- applicant ( s ) should be excluded . )

434
( 4)

Total Assets .
( a ) Liquid assets . ( Include all cash

nd

( b ) All other assets .
( 5)

Total Liabilities .

Exclude any liabilities which will result
from the approval of the application and
list the following :

( a ) Liabilities which will be satisfied

( b ) All other outstanding liabilities .
( 6)

Total Monthly Payments on Liabilities.

( a ) Payments on liabilities which will be

( 7)

( B)

Customer ( s )

of Bank -- Yes or No.

Characteristics of Subject Property .
( 1)

Year Built .

( 2 ) Purchase Price or Approximate Current

435

( 3 ) Value of Land ( Construction Loan Only ) .
( 4 ) StreetAddress ,City , County , State , Zip Code .
( 5)

Census Tract .

( 6 ) Number of Residential Units .
( C)

Characteristics of Loan Request .

( 1)

Purpose of Loan .

( a ) Purchase of existing dwelling .
( b ) Refinancing of existing home loan .

( c ) Construction loan only .
( d ) Construction- Permanent .

( e ) Other , including loan for improvement ,
( 2)

Type Mortgage .

( a ) Conventional .
( b)

VA .

( c)

FHA .

( d ) Other ( specify ) .
( 3)

Amount of Loan .

( 4)

Interest Rate .

( 5 ) Months to Maturity .
( For short - term , renewable mortgages or
those with some other provision for varying

rates , a brief explanation of the provisions
should be appended to the application form . )

436

( 6)

Monthly Payment , Principal and Interest .

( 7 ) Estimated Total closing costs.

( iii )

( 8)

Estimated closing costs Paid by Seller .

( 9)

Estimated Real Estate Taxes and Insurance .

Collection of Data .

( A ) Each bank shall attempt to collect that information
in subparagraph ( a ) ( 2 ) ( i ) during the initial contact with the
inquirer or applicant . If the applicant or inquirer refuses to
furnish all or part of this information , the bank shall note the
fact or have the applicant or inquirer note the fact on the form
used for recording the information . If the information regarding
race and sex is not voluntarily furnished , the bank shall , on the

basis of visual observations or surnames , separately note the
information on the form or an attached document .

( B ) No bank shall engage in any activity which
discourages an applicant or inquirer from providing the information
in subparagraphs ( a ) ( 2 ) ( i ) and ( a ) ( 2 ) ( ii ) . If the bank is unable to
obtain any part of the information requested of the applicant
under subparagraph ( a ) ( 2 ) ( ii ) , it shall note the reason in the
application file . Also , if the bank rejects an application before

it has had the opportunity to collect all of the information
under subparagraph ( a ) ( 2 ) ( ii ) , it shall note the reason for the
rejection in the application file and need not obtain the remain
ing information .

( iv ) Log - Sheet . In addition to the other recordkeeping
requirements specified in this subparagraph ( a ) ( 2 ) , each bank
covered by the provision shall keep a log - sheet on its home loan
inquiries and applications by bank office . The log - sheet shall
contain the information reflected on the sample form in Appendix A.
The bank shall be able to trace each entry on the log - sheet to the
relevant inquiry or application file , using the name of the inqui
rer or applicant or a unique case number assigned by the bank .
( b ) Disclosure to Applicant or Inquirer .

The bank shall advise an applicant or inquirer that :

1

437

is being requested to enable the Federal Deposit Insurance
Corporation to monitor compliance with the Federal Fair Housing

and Equal Credit Opportunity Acts which prohibit creditors from
discriminating against applicants or inquirers on these bases ;
( 2 ) the Federal Deposit Insurance Corporation encourages
the applicant or inquirer to provide the information requested ;
( 3)

if the applicant or inquirer refuses to provide the

information concerning race /national origin or sex , the bank is
required , where possible , to note the information on the basis
of visual observations or surnames .
( c ) Record Retention .

( d ) Substitute System .

The recordkeeping provisions of section 338.4 constitute
a substitute monitoring program adopted under section 202.13 ( d )

of Regulation B of the Board of Governors of the Federal Reserve
System ( 12 C.F.R. S 202.13 ( d ) ) . A bank collecting the data in
compliance with section 338.4 will be in compliance with the
recordkeeping requirements of section 202.13 of Regulation B.
( e ) Review of Records .
Each bank shall make all information collected under

paragraph ( a ) available to FDIC examiners for review upon request .
§ 338.5

Mortgage Lending of a Controlled Entity .

Any bank which refers any applicants or inquirers to a
controlled entity and which purchases any home loans originated

438

by the controlled entity , as a condition to transacting any
business with the controlled entity , shall require the controlled

entity to enter into a written agreement with the bank .

The

written agreement shall provide that the controlled entity
( a ) shall comply with the requirements of SS 338.2 , 338.3 and
338.4 ; ( b ) shall open its books and records to examination by
the Federal Deposit Insurance Corporation , and ( c ) shall comply

with all instructions and orders issued by the Federal Deposit
Insurance Corporation with respect to its home loan practices .

By order of the Board of Directors , Merck 147 ,

1978 .

FEDERAL DEPOSIT INSURANCE CORPORATION

Alar R

Miller

Executive Secretary

( SEAL )

439

FDIC REGIONAL OFFICES

ATLANTA REGIONAL OFFICE
Mr. Lewis C. Beasley

Regional Director
Federal Deposit Insurance Corporation
233 Peachtree Street, N.E., Suite 2400
Atlanta, Georgia 30303
BOSTON REGIONAL OFFICE
Mr. Edwin B. Burr
Regional Director

FTS 2426631
COML ( 404) 221-6631
Alabama
Florida
Georgia

MEMPHIS REGIONAL OFFICE
Mr. Roy E. Jackson
Regional Director
Federal Deposit Insurance Corporation
1 Commerce Square, Suite 1800
Memphis, Tennessee 38103

FTS 222-3872
COML ( 901) 521-3872

FTS 223-6420
COML ( 617) 223-6420

MINNEAPOLIS REGIONAL OFFICE
Mr. Anthony S. Scalzi

FTS 725-2046

Regional Director

Federal Deposit Insurance Corporation
60 State Street, 17th Floor
Boston , Massachusetts 02109
CHICAGO REGIONAL OFFICE
Mr. James A. Davis
Regional Director

Federal Deposit Insurance Corporation
730 Second Avenue South , Suite 266
Minneapolis, Minnesota 55402
FTS 353-2600
COML ( 312) 353-2600

Regional Director

Federal Deposit Insurance Corporation

Federal Deposit Insurance Corporation
345 Park Avenue, 21st Floor
New York, New York 10022

233 S. Wacker Drive , Suite 6116
Chicago, Illinois 60606
COLUMBUS REGIONAL OFFICE
Mr. John R. Curtis

NEW YORK REGIONAL OFFICE
Mr. Claude C. Phillippe

FTS 943-7301
COML ( 614) 469-7301

OMAHA REGIONAL OFFICE
Mr. Burton L. Blasingame

COML ( 612) 725-2046
Minnesota , Montana
North Dakota

South Dakota
Wyoming
FTS 656-4762
COML ( 212) 826-4762
New Jersey
New York
Puerto Rico
Virgin Islands
FTS 864-3366
COML ( 402) 221-3366

Regional Director

Regional Director

Iowa

Federal Deposit Insurance Corporation
1 Nationwide Plaza , Suite 2600
Columbus, Ohio 43215

Federal Deposit Insurance Corporation
1700 Farnarn Street, Suite 1200
Omaha, Nebraska 68102

Nebraska

DALLAS REGIONAL OFFICE
Mr. Quinton Thompson
Regional Director
Federal Deposit Insurance Corporation
300 North Ervay Street, Suite 3300
Dallas, Texas 75201

FTS 749-7691
COML ( 214) 749-7691
Colorado
New Mexico
Oklahoma

Texas

KANSAS CITY REGIONAL OFFICE
Mr. Robert V. Shumway

FTS 758-2851
COML ( 816) 374-2851

Regional Director

Kansas
Missouri

Federal Deposit Insurance Corporation
2345 Grand Avenue, Suite 1500

Mr. Bernard J. McKeon
Regional Director

Federal Deposit Insurance Corporation
1 South Pinckney Street, Room 813
Madison , Wisconsin 53703

Mr. Frank T. Locki
Regional Director

Federal Deposit Insurance Corporation
5 Penn Center Plaza , Suite 2901
Philadelphia, Pennsylvania 19103
RICHMOND REGIONAL OFFICE
Mr. John Stathos
Regional Director

FTS 364-5226
COML ( 608 ) 252-5226

FTS 597-2295
COML ( 215) 597-2295
Delaware
Maryland

Pennsylvania
FTS 925-2403
COML ( 804) 643-6716

Federal Deposit Insurance Corporation

District of Columbia
North Carolina

908 E. Main Street, Suite 435

South Carolina

Richmond , Virginia 23219

Kansas City, Missouri 64108

MADISON REGIONAL OFFICE

PHILADELPHIA REGIONAL OFFICE

Virginia

SAN FRANCISCO REGIONAL OFFICE

FTS 556-2736

Mr. Charles E. Doster

COML ( 415) 556-2736
Alaska, Arizona,
California , Guam ,
Hawaii, Idaho,

Regional Director
Federal Deposit Insurance Corporation
44 Montgomery Street, Suite 3600
San Francisco, California 94 104

Nevada, Oregon ,

Utah , Washington

FEDERAL DEPOSIT INSURANCE CORPORATION , 550 17th Street, N.W., Washington, D.C. 20429

Name
Bank

LENDING
HOUSING
FAIR

Branch
Office
or

APPLICATION
AND
INQUIRY
LOAN
HOME

Number
FDIC

Other
Designation
listed
:Uobservation
INSTRUCTIONS
codes
se
columns
appropriate
in
(*)i.Ibelow
asterisk
an
by
fndicate
officer's
bank
isthe
recorded
information
bor
than
rather

3

4

6

7

8

8

9

10
11
12

13

14
15

16
17
(3-78
6500/70
)FDIC

440

APPENDIX

5

1

441

Definition of " Application "

( Federal Reserve Board staff interpretation )
No. 8
Section

202.2 ( f )

Application "
by a creditor

.

procedures established

April 20 , 1978

This responds to your ... letter requesting a staff
interpretation of the definition of application ( particularly the
phrase " made in accordance with procedures established by a creditor

The Equal Credit Opportunity Act and Regulation B prohibit
discrimination against credit applicants on nine specific bases .
Unless a lender's policies or procedures discriminate against an
applicant on a prohibited basis or have that effect , the lender may

adopt any policies or procedures that it wishes ( consistent with any
other applicable laws ) . For that reason ſ 202.2 ( f ) defines an appli
cation as a request " made in accordance with procedures established
by a creditor for the type of credit requested .

The focus , however , is on a lender's actual practices , not
its stated policies , governing each phase of the application process .
For example , even though a real estate lender's stated policy is to
require all applications to be in writing , if the lender makes a credit

decision based on an oral request , then an application has been " made

442

in accordance with procedures established by ( that ) creditor .
The question of whether a credit decision has been made is one of fact

and turns , in the staff's opinion , on whether the lender has received
sufficient information about the applicant or the collateral on which

to base a credit decision ( again , considering its actual practices )
and whether the lender takes any action to reject the request or to
discourage its further pursuit .

The following examples illustrate the staff's views on when

an application has been received for Regulation B purposes in the con
text of residential real estate financing .

Each example assumes that

the lender has a stated policy of considering applications only when
they are in writing .

Example A : Shopping Inquiry
A woman telephones or meets with a loan officer and states
that she is purchasing a home in the area and needs a loan . She asks
about the lender's loan terms .

The loan officer quotes the lender's

current finance charge , maximum loan- to-value ratio , maximum maturity ,
and maximum loan amount . Since the finance charge may vary with the

amount of the downpayment or mortgage insurance may be required , the
loan officer asks the purchase price of the house and the amount of

the contemplated downpayment in order to provide the correct loan ·
term information . The woman supplies the requested information , writes
down the loan terms , and concludes the conversation . Has an " appli
cation " come into being ?
No. Although the lender has received some
information regarding the woman ( the amount of the downpayment that
she has available ) and the property ( the purchase price ) , it has not
made any decision based upon that information .

Example B :

Application is Made

As sume the same facts as in example A , except the woman ,
after learning the loan terms, asks for a 95% loan or states her
income and asks whether she qualifies for a loan from the lender .
The loan officer , for whatever reason , says no or indicates that
there is little point in the woman's applying for a loan . Has an
" application" for credit been made? Yes . The loan officer's
willingness to reject or discourage the woman's loan request indi
cates that the request was made in accordance with the application

process used by the lender .
Note that , although an application has been received , the

lender may not have taken adverse action as defined in
202.2 ( c ) of
Regulation B if applicable law prohibits the lender from making the
requested loan or the lender does not extend residential mortgage

443

credit .

Otherwise , adverse action has been taken , and the notification

and record retention provisions of the regulation apply . If the application
is conveyed via telephone and adverse action is taken , then the lender
must request the applicant's name and address . If the applicant refuses
to provide that information , then the lender , of course , has no further
notification obligation .

Example C : No Application Made

No , because the loan request was not made in " accordance

with procedures established by the creditor for the type of credit
requested . "

The lender insists uniformly on written applications

before making any judgments . No evaluation has been made at this
point , and the lender's procedure for taking a " request for an
extension of credit" has been fully disclosed to the potential appli
cant .
If the loan officer had made even a preliminary judgment and
communicated it to the potential applicant ( as in example B ) , then
the request would have to be treated as an application since , by
that action , the lender would be using an application process that
involves an evaluation of oral requests for credit .
Example D :

Application Is Made

A woman telephones a financial institution and asks about
obtaining a loan . The person answering the phone asks about the
woman

37-415 0 - 79 - 29

444

No Application Made

Example E :

A woman visits a financial institution and asks about

obtaining a loan .

The interviewing loan officer does not ask the

woman about her income, but she volunteers the information anyway .
The loan officer , instead of calculating the loan payment -to - income
ratio , provides the woman with a simple explanation of the lender's
policy on housing expense -to - income and debt - to - income ratios and

invites the woman to submit an application if she wishes .

No " appli

cation" has been submitted up to this point . Although a request for
credit has been made , the application process used by the lender
requires applications to be in writing. This fact has been communicated
to the potential applicant , who has been invited to submit an
application in the manner required of all applicants .

Example F :

Application is Made

A real estate broker telephones a loan officer at a financial
institution and asks if the lender will make a loan to a couple to finance
the purchase of a particular piece of property . The broker outlines
the couple's financial situation and the terms of the sale's contract .
The lender has maintained a relationship with the broker for a number

of years and regularly gives a preliminary indication as to whether it
will make loans to the broker's clients . Has an " application" been made ?
Yes , the couple's request for credit was communicated to the lender
by the broker . The fact that the lender was willing to evaluate the
the information provided and made a preliminary credit decision at that
point is evidence that the request is an application for purposes of
Regulation B.

As the examples above illustrate , the " procedures established

by a creditor for the type of credit requested " are those procedures
that are , in fact , employed . Lenders may not avoid their responsibi
lities under the Equal Credit Opportunity Act and Regulation B by invoking
formal standards not consistently applied to all requests for credit .

I trust that this response clarifies when an application

exists for purposes of Regulation B.

If I can be of further assistance ,

please let me know .

Very truly yours ,

Nathaniel E. Butler
Associate Director

APPENDIX 2.—ENFORCEMENT GUIDELINES
RNOR

FEDERAL

FED

SYSTEM

BO

AR

D

GOVE
OF

ERA ESERVE
RL

press

RESERVE

release

June 27 , 1978
For immediate release
NOTE : This release has been issued on behalf of the following

Comptroller of the Currency

Federal Deposit Insurance Corporation
Federal Home Loan Bank Board
National Credit Union Administration
Federal Reserve Board

Proposed guidelines for the enforcement of the Equal Credit
Opportunity Act , its implementing Regulation B , and the Fair Housing Act
were today issued for public comment by the five Federal agencies that
regulate banks , thrift institutions and credit unions .
Comment should be sent by September 1 , 1978 to Equal Credit
Opportunity Guidelines , Room B - 4107 , Washington , D.C. 20551 .

This was the second set of uniform guidelines worked out jointly
by the Federal regulators for enforcement of a major consumer credit
protection statute and proposed for comment .

The agencies are currently

considering the first set , which was for the enforcenent of Truth - in
Lending and its implementing Regulation Z.

The Equal Credit Opportunity Act prohibits discrimination against
an applicant for credit on the basis of age , sex , marital status , race ,
color , religion or national origin .

Other " prohibited bases " include

receipt of public assistance or good faith exercise of rights under the
Federal consumer credit protection laws .

The Act also requires written

notice of credit denials .

The Fair Housing Act prohibits discrimination in residential
lending on the basis of race , color , religion , national origin or sex .
( 445 )

446

The roual Credit Opportunity guidelines define " corrective action "
as

a " course of conduct to be undertaken by a creditor at the direction of

an enforcing agency to correct the conditions resulting from violations of
the Act . "

In an accompanying general enforcement policy statement the five
agencies said :
" The objectives of the agencies ' enforcement policy are to

require corrective action for violations of the Act and to ensure compliance
in the future . The enforcing agencies will encourage voluntary correction
and compliance with the Act . Whenever substantive violations are discovered ,
however , a creditor that has not previously adopted a written loan policy
which is consistent with the Act will be required to adopt one and to formu
late a compliance plan to implement that policy .

ter of the violation , the condition of the creditor and the cost and
effectiveness of the corrective action -- and will make whatever modifi
cations it deems appropriate.

If violations remain uncorrected , the

enforcing agency will take administrative action by appropriate means ,
such as a cease and desist order , to insure correction ."
The statement also said that corrective action would not preclude

the enforcing agencies from referring cases involving a pattern or practice
of discrimination to the Attorney General.
The draft guidelines include the following remedies for specific
violations of the Equal Credit Opportunity Act , Regulation B and the Fair
Housing Act .

The proposal was accompanied by comments to illustrate

Implementation of these suggested ranadies .

447

1.

If applications have been discouraged on a prohibited basis ,

the creditor would be required to solicit credit applications from the

discouraged class through affirmative advertising subject to review by
the enforcing agency .

The creditor may also be required to inform

interested parties that it pursues a nondiscriminatory lending policy .

tion systems , the creditor would be required to reevaluate--according to
a written , nondiscriminatory loan policy--all credit applications rejected

during a period of time to be determined by the enforcement agencies and
to send letters soliciting new applications from individuals rejected on

a discriminatory basis . Any application fees previously paid by these
applicants would be refunded , and no new application fees would be
charged prior to the acceptance of an offer .
3. Where .a creditor has charged a higher rate of interest on
a prohibited basis or required insurance in violation of the Fair Housing

Act or the relevant section of Regulation B , corrective action would be

taken in the form of reimbursement or adjustment . In other cases where
more onerous terms have been imposed , such as a discriminatory down

payment , the creditor would be required to notify applicants of their
right to renegotiate the credit extention .

The creditor would also be

required to offer to release the applicant from such illegally required
terms , and to reimburse the applicant for illegally required payments .
4.

If a cosigner has been required on a prohibited basis ,

creditors would be required to offer to release any unnecessary cosigner

from liability , or to substitute a new cosigner if the applicant's
choice had been restricted on a prohibited basis .

448

5.

Creditors failing to provide appropriate notices of adverse

action must send such notices to all applicants denied credit within 25
months of the date of the compliance examination .

6. Creditors failing to maintain and report separate credit
histories for married persons would be required to obtain such information ,
to reflect the participation of both spouses on joint accounts , and to
properly report information .

They must also notify joint account holders

that either spouse may want to reapply for credit denied since January 1 ,
1978 , on the basis of insufficient credit history .
Specific sanctions were also proposed for failure to collect
information for monitoring purposes and for termination of accounts on
a prohibited basis .

Such accounts would be returned to their previous

condition , unless an evaluation justified other action .
The draft guidelines are attached .

-0

1

449

FEDERAL RESERVE SYSTEM

[ Reg . B ]
Equal Credit Opportunity

Joint Notice of Proposed Enforcement Guidelines
AGENCIES :

The Board of Governors of the Federal Reserve System , the

Comptroller of the Currency , the Federal Deposit Insurance Corporation ,
the Federal Home Loan Bank Board , and the National Credit Union
Administration .

Proposed uniform guidelines for administrative enforcement
of Regulation B , Equal Credit Opportunity , and the Fair Housing Act .
This document sets forth the guidelines which the Board of
Governors of the Federal Reserve System , the Comptroller of the

Currency , the Federal Deposit Insurance Corporation , the Federal Home
Loan Bank Board and the National Credit Union Administration propose
to follow in order to correct the conditions resulting from violations
of Regulation B or the Fair Housing Act .

The agencies believe that the

adoption of guidelines will promote uniform enforcement of the Equal
Credit Opportunity Act and Fair Housing Act .

DATES :

Comments must be received on or before

( 60 days from publication in the Federal Register . )
ADDRESSES :

Written comments should be addressed to :
Equal Credit Opportunity Guidelines
Room B - 4107
Washington , D.C.

20551

450

FOR FUTHER INFORMATION CONTACT :

William Resnik , Comptroller of the

Currency , 202-447-1600 ; Anne Geary , Federal Reserve Board , 202-452-2761 ;

Karl Seif , Federal Deposit Insurance Corporation , 202-389-4422 ; Frank
Passarelli , Federal Home Loan Bank Board , 202-377-6525 ; Edward Dobranski ,
National Credit Union Administration , 202-632-4870 .

SUPPLEMENTARY INFORMATION :

This document sets forth the guidelines the

federal financial regulatory agencies propose to follow when violations
of the Equal Credit Opportunity Act or Fair Housing Act are discovered
in the course of examinations or through investigation of complaints .

The agencies believe that coordination among the agencies will promote
uniform enforcement of the law .

The guidelines indicate what corrective action creditors
will be required to take when substantive violations are discovered .
It should be noted that creditors will be required to correct all
violations , including such matters as an error on an application form .
The guidelines will neither preclude the use of any other

administrative authority that any of the agencies possess to
enforce these laws , nor limit the agencies ' discretion to take other
action to correct conditions resulting from violations of these laws .

The

agencies retain discretion to consider the suitability of the prescribed
remedy under the circumstances of each case .
The guidelines will not preclude the enforcing agencies
from referring to the Attorney General cases involving a pattern

or practice of discrimination nor will the guidelines foreclosure a
custouer's right to bring a civil action under the Equal Credit
Opportunity or Fair Housing Acts .

451
To aid the agencies in consideration of this matter , interested
persons are invited to submit relevant comments or data .

Any such

material should be submitted in writing to :
Equal Credit Opportunity Guidelines
Room B -4107
Washington , D.C. 20551

The comments will be made available for inspection and copying upon request ,

except as provided in

261.6 ( a ) of the Board's Rules Regarding Availability

of Information ( 12 C.F.R. Part 261.6 ( a ) ) .

AUTHORITY

These guidelines are proposed pursuant to the enforcing
agencies ' authority under the Equal Credit Opportunity Act ( ECOA )
( 15 V.S.C. 1691 , et seq . ) and under Section 8 ( b ) of the Federal
Deposit Insurance Act ( 12 U.S.c. 1818 ( b ) ) for the Board of Governors
of the Federal Reserve System , the Comptroller of the Currency, and the
Federal Deposit Insurance Corporation ; the Home Owners Loan Act of
1933 ( 12 U.S.C. 1464 ( d ) ) and the National Housing Act ( 12 U.S.C. 1730 )
for the Federal Home Loan Bank Board ; and the federal Credit Union
Act ( 12 U.S.c. 1786 ( e ) ( 1 ) )

for the National Credit Union Administration .

DRAFTING INFORMATION

The principal drafters of this document were Roberta Boylan ,
Comptroller of the Currency ; Karl Seif , Federal Deposit Insurance

Corporation ; Anne Geary , Federal Reserve Board ; James Kristufek , Federal
Home Loan Bank Board and Edward Dobranski , National Credit Union
Administration .

452

PROPOSED STATEMENT

In consideration of the foregoing , the agencies propose
the following guidelines :

STATEMENT OF ENFORCEMENT POLCIY

DEFINITIONS

1.

" Act " means the Equal Credit Opportunity Act ( 15 U.S.c. 1691 ,

et seq . ) , Regulation B ( 12 C.F.R. 202 ) , and the Fair Housing Act
9

( 42 U.S.C. 3601 , et seq. ) .
" Applicant " means " applicant " as defined in section 202.2 ( e ) of
Regulation B.

3.

" Corrective action " means a course of conduct to be undertaken

by a creditor at the direction of an enforcing agency to correct
the conditions resulting from violations of the Act .
4.

" Creditor " means " creditor " as defined in section 202.2 ( 1 ) of

Regulation B.

5.

" Enforcing agency " means the Board of Governors of the Federal

Reserve System , the Comptroller of the Currency , the Federal Home
Loan Bank Board , the Federal Deposit Insurance Corporation , and the
National Credit Union Administration .

GENERAL ENFORCEMENT POLICY

The objectives of the agencies ' enforcement policy are to
require corrective action for violations and to assure compliance

453

in the future .

The enforcing agencies will encourage voluntary

correction and compliance with the Act .

Whenever substantive

violations are discovered , however , a creditor that has not previ
ously adopted a written loan policy which is consistent with the

Act will be required to adopt one and to formulate a compliance plan
to implement that policy .

In addition , the enforcing agency will

take action as indicated in these guidelines to correct the conditions
resulting from the violations .

In all cases , the enforcing agency will

consider the suitability of the prescribed remedy for the circumstances for example , the character of the violation , the condition of the

creditor and the cost and effectiveness of the corrective action - and

will make whatever modifications it deems appropriate .

If violations

remain uncorrected , the enforcing agency will take administrative action

by appropriate means , such as a cease and desist order , to insure
correction .

Corrective action under these guidelines will not preclude
the enforcing agencies from referring cases involving a pattern or
practice of discrimination to the Attorney General , nor does corrective
action cut off the rights of individuals under $ 706 of the ECOA .
These guidelines should not be considered all inclusive of
possible enforcement action by the agencies .

SPECIFIC VIOLATIONS

I.

DISCOURAGING APPLICATIONS ON A PROHIBITED BASIS IN VIOLATION OF
SECTION 202.5 ( a ) OF REGULATION B

454

The creditor will be required to solicit credit applications

from the discouraged class through affirmative advertising , and all
advertising will be subject to review by the enforcing agency .

The

content as well as the medium of advertising should relate to the
discouraged class .

The creditor may be required to advise agents ,

dealers , community groups , and brokers that it pursues a non -discrimina
tory lending policy .

COMMENT:
feasible .

Identifying the actual victims of pre-screening may not be
Therefore , requiring the solicitation of applications from

the discouraged class through affirmative advertising may be the only
expedient means of correcting this violation .

For example , if a creditor

advertises only for deposits in minority areas but directs loan advertising
only to white neighborhoods , it would be required to extend similar loan

advertising to the minority areas .

Or , if a creditor discourages appli

cations from women , future advertising for particular type ( s ) of credit over
a specific period would have to affirmatively solicit that group .

In

ruling on the adequacy and timing of the proposed affirmative advertising ,
the enforcing agency will consider the extent of the violation , the resources
of the creditor , the type and cost of past advertising , as well as the
efficacy of the advertising in reaching the discouraged class .

II .

USING DISCRIMINATORY ELEMENTS IN CREDIT EVALUATION SYSTEMS IN
VIOLATION OF THE FAIR HOUSING ACT AND SECTIONS 202.6 ( a ) AND 202.7 OF
REGULATION B
The creditor will be required to re-evaluate , in accordance

with a non-discriminatory written loan policy , all credit applications

455

rejected during a period of time to be determined by the agency .
The creditor will be required to send letters soliciting new applications
from individuals discriminatorily rejected .

These individuals must be

refunded any fees or costs paid by them in connection with their original
applications .

Any individuals who make a new application as a result

of such solicitation shall not be required to pay any fee , including
but not limited to an application fee , appraisal fee or fee for a
credit check , prior to the acceptance of an offer of credit by the
creditor .

If such application is approved , and the applicant accepts

the credit , the creditor shall reimburse the applicant for any penalty

incurred in connection with the prepayment of any exisiting loan which
was obtained in lieu of the discriminatorily denied credit .
COMMENT :

The past period for which a creditor will be required to

re-evaluate applications will be determined by an assessment of the
nature of the violation and the type of credit involved .

The standards

of creditworthiness used to re-evaluate applications shall not be more
stringent than those in effect at the time the applicant was denied
credit .

III .

IMPOSING MORE ONEROUS TERMS ON A PROHIBITED BASIS IN VIOLATION OF

Where a creditor has charged a higher rate or required
insurance in violation of the Act , corrective action will be taken in
the form of reimbursement or adjustment .

Where other more onerous terms ,

such as a higher downpayment , were required in violation of the Act , the

456

creditor must notify those applicants that they may renegotiate the

extension of credit on terms for which they qualified at the time credit
was originally granted . Furthermore , the creditor must offer to release
the applicant from any other term illegally required , and to reimburse the

applicant for any other money illegally required .
The procedures for correcting violations such as charging a
higher rate or requiring credit insurance will be those adopted by the
agencies for correcting violations of Regulation z .

( See proposed

enforcement guidelines for Regulation 2 , 42 Federal Register 55786 ,
October 18 , 1977. )

IV .

REQUIRING CO- SIGNERS ON A PROHIBITED BASIS IN VIOLATION OF THE
FAIR HOUSING ACT AND SECTION 202.7 ( d ) OF REGULATION B

Where a co- signer is required in violation of the Act , the
creditor must offer to release any unnecessary co- signer from liability .
where a co- signer is necessary to support the extension of credit but
the creditor has restricted the applicant's choice of co-signer on a
prohibited basis , the creditor must notify the applicant that another
financially responsible co- signer may be substituted .

V.

FAILING TO COLLECT MONITORING INFORMATION IN VIOLATION OF SECTION

If a creditor has failed to collect and retain required monitoring
information , it must solicit such information from all who have applied
for real estate loans since March 23 , 1977 , or the previous examination ,
whichever is later .

457

COMMENT: Agencies with substitute monitoring programs may use other
forms of corrective action .

VI .

FAILING TO PROVIDE NOTICES OF ADVERSE ACTION IN VIOLATION OF

Appropriate notices of adverse action must be sent to all
applicants denied credit within 25 months of the date of the examination .

VII .

FAILING TO MAINTAIN AND REPORT SEPARATE CREDIT HISTORIES FOR
MARRIED PERSONS IN VIOLATION OF SECTION 202.10 OF REGULATION B
If the creditor has failed to obtain sufficient information

to report credit information in accordance with the requirements of
Section 202.10 of Regulation B for accounts held by married persons ,
the creditor will be required to obtain all the necessary information it
Thereafter , the creditor shall properly report the credit
information .

Whenever the creditor has failed to report credit information
in accordance with the requirements of Section 202.10 of Regulation B
on accounts held by married persons but has sufficient information
to do so , it will be required to designate joint accounts to reflect
the participation of both spouses .

Thereafter , the creditor shall

properly report the credit information .
In addition , where the creditor has failed to report a

separate credit history as required , each account must also receive a
statement advising the account holders that if either spouse has been

458

refused credit since January 1 , 1978 , on the basis of insufficient
credit history , he or she may want to reapply for that crdit since

the denial may have been caused by the creditor's failure to report all
credit information .

VIII .

TERMINATING OR CHANGING THE TERMS OF EXISTING OPEN END ACCOUNTS

Where a creditor has violated the Act by terminating an account
or making a change in terms which is less favorable to the borrower ,

the creditor will be required to return the account to its previous
condition , unless an evaluation of the creditworthiness of the affected

parties justifies other action .
Dated :

June 22 , 1978

ili

William
G. William Miller

Chairman , Board of Governors of
the Federal Reserve System
3

Home

Pobat kimli
Robert H. McKinney
Chairman , Federal Home Loan
Bank Board

H

mm e /

Acting omptrollet of

an
Lawrence Connell, Jr.
Administrator , National Credit

the Credency

Union Administration

H. oe Selby

Maistre

George A. LeMaistre
Chairman , Federal Deposit
Insurance Corporation

459

FEDERAL HOME LOAN BANK BOARD
OFFICE OF EXAMINATIONS AND SUPERVISION

MEMORANDUM
From :

James W. McBride

To :

Supervisory Agents and
District Directors
SYNOPSIS :

#SP- 15

May 25 , 1978
Violations of Part 528 and

Section 531.8 of the Bank
System Regulations

GENERAL ENFORCEMENT POLICY FOR HANDLING VIOLATIONS
OF THE NONDISCRIMINATION REGULATIONS

INTRODUCTION

The objectives of this enforcement policy are to secure member compliance

and correction of conditions resulting from violations of the regulations.
The Bank Board encourages voluntary correction and compliance ; however ,

if violations remain uncorrected , the Bank Board will issue cease and

desist orders to ensure correction . Whenever violations are discovered ,
members that have not previously adopted adequate nondiscrimination
written underwriting standards will be required to adopt them , pake
them available to the public, and formulate a compliance plan to imple

GENERAL

Three basic types of corrective action will be considered in connection
with any violation of the regulations as follows :
1.

2.

Action to correct the violation and ensure that it is not repeated .
Action to inform the public that the unlawful practice has been
discontinued .

3.

Affirmative action to correct conditions resulting from the violation
with respect to identifiable individuals or classes of individuals
or areas .

SPECIFIC ACTIONS REQUIRED - ADDITIONAL ACTIONS TO BE CONSIDERED

Using its existing supervisory procedures , the Board will take action

and consider additional action , based on the circumstances , in accordance
with the following :

37-415 O - 79 - 30

460

1.

Action to correct the violation and ensure that it is not repeated .
A.

Mandatory
Obtain written assurance that the violation will not recur .

Obtain a written description of action taken or to be taken
to ensure nonrecurrence .
Ensure , through the regular examination process , that the
violation has been corrected .
B.

Discretionary

Ensure , through more frequent special limited examinations ,
that the violation has been corrected .
2.

Action to inform the public that the unlawful practice has been
discontinued .

A.

Mandatory
Determine whether additional action is needed to prevent perpet

uation of the effect of the violation after its correction ,
e.g. , due to reluctance to submit applications by the affected
group or traditional loan sources .
B.

Additional ( if the determination in 2A is affirmative )
Require the member to inform the public of its current
nondiscrimination lending practices by :

Advertising aimed at the class or area which was adversely
affected , which will be effective in reaching the class
or area .
Notifying sources of loans , such as real estate brokers ,
and community groups of its new policies and/ or practices .
Informing real estate brokers or others who accept appli
cations , of the correct procedures to follow to prevent

perpetuation of the effects of the violation , if appropriate .

.
3

Affirmative action to correct conditions resulting from violation
of regulations .

A.

Mandatory
Identify affected individuals .
Require the member to solicit new loan applications from
individuals who have been unlawfully denied loans .

461

Require the member to refund any fees , costs , etc. , and
prepayment penalties , paid by the applicant in connection
with or as a result of a denied application .

Require the member to offer to correct onerous terms and
to refund to the borrower any overcharges acquired by the
member .

Give the member the option to notify the affected individuals
of the unlawful practice employed and that their rights

may have been violated , specifying the particular regulatory
provision involved . This option will be given with the
understanding that if the association does not notify the

affected individuals , the Board will consider instituting
C & D proceedings to require that affected and identifiable

persons be notified by the member .
ILLUSTRATIVE EXAMPLE

To illustrate how the foregoing policy would be implemented , assume
a determination is made that a member has been denying loans or making
loans on more onerous terms , in a certain neighborhood or on properties

over a certain age , in violation of the regulations .

The following

actions would be taken :
1.

A written statement would be obtained from the member containing
assurances that such activity has ceased and describing the actions
taken or to be taken to ensure nonrecurrence of the violation .
This could be obtained by the examiner at the time the violation

was first observed , in correspondence with the Supervisory Agent ,

or , if necessary , in response to a cease and desist order.
2.

The circumstances resulting in the violation and its correction

would be reviewed .

In all cases other than isolated incidents

which have been corrected , a special limited examination would
be conducted within an appropriate time period after the member's
assurance of correction .

3
.

Public awareness of the member's practice would be estimated by
review of the factors surrounding the violation . If the practice
of the member is long - standing , it would be assumed that traditional

loan suppliers and sources would not submit applications on properties
in certain areas or over a certain age to the member . The member
would be required to notify community groups , brokers , and other

loan sources , including residents of the neighborhood , of its new
policy However , if the violation occurred due to the actions
of one of the member's employees over a brief period of time , it

would ordinarily be assumed that no public perception existed that
a loan application on a property in a certain neighborhood or over
a certain age would be denied , and corrective action outside the

member's operation would not be required .

In any case , this deter

mination would be based on evaluation of all the circumstances

462

surrounding the violation . If necessary to resolve doubt , brokers
and other loan sources would be interviewed by Board representatives .
In any case , a written determination will be made by the examiner ,
the Supervisory Agent , or the Bank Board as to whether notification

to loan sources need be made .
4.

1

A review would be made of the member's files to identify specific
applicants who were disadvantaged by the practice . If the member
appeared to be acting in good faith to correct the violation , the
applications or loans would be identified by the member's staff
and a spot check conducted by Bank Board examiners . If the member
appeared not to be acting in good faith , the examiners would identify

the affected persons .

The member would be required to take the

following actions with respect to affected persons .
A.

Regarding those denied a loan in violation of the regulations .

Ref und application , appraisal , credit and similar fees .
offer to consider a new application and pay any prepayment
penalties , under terms offered by the member at the time
the application was made .
Inform the applicant that the loan was denied in violation
of the regulations .
B.

Borrowers granted a loan at a higher rate , lower amount , or
less favorable terms ( privaté mortgage insurance , short term ) .
Offer to consider an application for an additional loan
at initial interest rate ( if appropriate ) .
offer to reduce rate , extend term , or drop private mortgage
insurance , as applicable .

Reimburse borrower for private mortgage

insurance premiums

if private mortgage insurance was unlawfully required .

Inform the borrower the loan was made on a more onerous
basis contrary to the regulations .

Actual actions taken in connection with any violation could vary from
the foregoing as appropriate , based on the facts of the case .
Enforcement guidelines for violations of Regulation B will be the subject
of a later memorandum .
Office of Examinations and Supervision

focr
by

wombude

APPENDIX 3.—1977 ANNUAL REPORT TO CONGRESS ON THE EQUAL CREDIT
ANNUAL REPORT TO CONGRESS
ON

THE EQUAL CREDIT OPPORTUNITY ACT

FOR THE YEAR 1977

Board of Governors of the Federal Reserve System

January 26 , 1978
( 463 )

464

The Board of Governors of the Federal Reserve System is
pleased to submit to Congress this second Annual Report on the Equal

Credit Opportunity Act ( ECOA) . This Report describes the highlights
of the year , including extensive amendments to the act , outlines the
Federal Reserve System's enforcement activities , and provides the
Board's assessment of the extent of compliance on the part of State

member banks . The Report also discusses the compliance and enforce
ment efforts of other agencies assigned administrative responsibilities
under Section 704 of the act and their assessment of compliance on the
part of creditors that they supervise .
The Report does not contain recommendations for statutory

amendments . Such recommendations, if any , will be made in the Board's
Annual Report to the Congress .

The amendments to the ECOA and the regulations implementing
the amended act became effective in March 1977 .

In an effort to mit

igate many of the compliance problems that creditors had experienced
under the original Regulation B , the Board published several model

application forms . As to the substantive requirements of Regulation
B , the chief problem for banks seems to be understanding and comply
ing with Regulation B's limits on requests for the signature of an
applicant's spouse .

The Board's advisory visit program was developed

to explain this provision and other provisions of the regulation to
member banks .

465

TABLE OF CONTENTS

I.

ENFORCEMENT AND ASSESSMENT OF COMPLIANCE
A.

Federal Reserve System

1.
2.
3.
4.

B.
II .

III .

N

Page

2

Examination
Advisory Visit Program

2
4

Model Forms

4

Consumer Complaints

5

5.

7

Other Agencies

7

CONSUMER ADVISORY COUNCIL

15

ADMINISTRATIVE FUNCTIONS

15

A.

Amendments and Interpretations of Regulation B
1. Board Interpretations
2.
3.

B.

APPENDIX

Official Staff Interpretations
Amendments

Education

Consumer Advisory Council Members

15
15

16
17
18

466

The Board issued four interpretations of Regulation B
and the Board's staff issued seven official staff interpretations to
clarify technical ambiguities in the regulation .
Few lawsuits , to the Board's knowledge , were filed under

the act either by private parties or by the Department of Justice .
I.

ENFORCEMENT AND ASSESSMENT OF COMPLIANCE

As described below , the Board and the other Federal agen
cies substantially increased their enforcement efforts in 1977 .
A.

Federal Reserve System
1.

Examination

Examination of banks is the primary means by which the
Federal Reserve System enforces the act . To improve enforcement of

Regulation B , the Board developed new examiner manuals , checklists ,
instructions and report forms .

The Board also initiated a program

of special compliance examinations aimed specifically at consumer

credit regulations , including Regulation B. Since the implementation
of this program approximately 400 member banks have undergone the
special compliance examination .

By April 1 , 1978 , 1 year after the

revised Regulation B became effective , nearly all member banks will
have been examined for compliance with the regulation .

A copy of

the examination report is reviewed by the Board's Division of Consumer

Affairs to determine the individual bank's compliance and to evaluate
and improve the examination program .
To ensure that its examiners are thoroughly versed in
Regulation B , the Board conducted three 2-week training institutes
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467

in 1977.

Ninety- six System examiners and several representatives

of other Federal and State agencies attended these schools .

more schools are planned for 1978.

In response to a General Account

ing Office recommendation , joint consumer regulation schools were
initiated by the Board , the Federal Deposit Insurance Corporation

( FDIC ) , and the Comptroller of the Currency to supplement their
respective training programs .

Two sessions , attended by 64 partici

pants from the three agencies , were held .

Another joint school was

scheduled for early 1978 .

The Board's figures indicate that while 73 per cent of
the banks that have received special consumer examinations were not
in full compliance with Regulation B , the overwhelming majority of
violations relate to the use of outdated credit applications and
forms .

Most other violations involve the unlawful request for the

signature of a nonapplicant spouse , the notification requirements of
Regulation B , and the failure to request information for monitoring
purposes .

During the course of consumer examinations , Reserve Bank
examiners explain the nature of any violations discovered and outline
the prospective corrective action necessary for compliance .

A11 State

member banks are either in compliance at the conclusion of the examin

ation or have agreed to establish policies and procedures designed to
prevent recurrence of violations .

Continuing emphasis on the special

consumer examination program , in conjunction with the Board's advisory

visit program , should aid achievement of full compliance for all
State member banks .
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468

2. Advisory Visit Program
The Board's examination experience indicates that a

lack of familiarity with Regulation B's requirements is the single
most significant obstacle to full compliance with the regulation .

This is particularly true of smaller banks , which often do not possess
either the personnel or resources to study the regulation and develop
procedures for compliance .

In response to this need and in an effort

to improve compliance , the Board initiated a voluntary advisory visit
program , consisting of both group meetings and individual visits , for
all interested member banks .

In half-day or full-day meetings with

bank management , Federal Reserve Bank personnel review the bank's

forms , procedures , and policies , as well as discuss any problems or
questions that the management and operating staff may have concerning
compliance.

Approximately 770 such visits were made during 1977 ; the

total number of banks that received assistance was higher , approxi
mately 900 , since certain meetings were attended by several banks .
This program has been well received by member banks .
3.

Model Forms
Prior to the revision of Regulation B , many creditors

experienced difficulty in adapting their credit application forms to
the regulation's restrictions on permissible questions .

To alleviate

this problem , the Board developed five model forms for the following
types of credit :

open end , unsecured consumer credit transactions ;

closed end , secured transactions ; closed end transations , whether

unsecured or secured ; credit in community property States ; and
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469

residential real estate mortgage transactions .

The model forms

appear in an appendix to the regulation . While their use is optional ,
proper usage by a creditor assures compliance with the requirements
of Regulation B relating to application forms .

These model forms not

only should promote compliance but should reduce the cost of compli
ance .

4.

Consumer Complaints

Another method by which the Federal Reserve System

enforces compliance with the act is the investigation of consumer
complaints .

In the course of an investigation , an attempt is made

to resolve the problem of the individual complainant .

The Board has

developed a Systemwide computerized complaint control procedure to
monitor the handling of complaints and to aid in their resolution .
From January 1 , 1977 , through October 31 , 1977 , the
Federal Reserve System received 731 complaints involving the act or
Regulation B , of which approximately 40 per cent were related to State
member banks and 60 per cent to other creditors .

The latter group

was handled either by referring them to the appropriate agency or by

supplying information or an explanation to the complainant .
With respect to the 293 complaints regarding State mem
ber banks , 132 investigations have been completed , 69 are still under
investigation , and 92 were handled by furnishing information or an

explanation . The 132 completed investigations yielded the following
the bank was determined to be legally correct in 83 cases ; was

results :

found to be legally correct but nevertheless reached an accommodation
-5

470

with the complainant in 28 cases ; was found to have made an error ,
which has since been corrected , in 13 cases ; was involved in a pos
sible violation , which has since been resolved in 6 cases ; and was

involved in a possible violation , which is still unresolved , in 2
cases .

The most common complaint ( 574 out of a total of 731 )
Not

was unfair denial , termination , or change in terms of credit .

all of these 574 , however , claimed discrimination on one of the bases
prohibited in the act .

For example , 159 complainants believed that

the reason for the adverse action was their credit history .

Level of

income was cited by 68 as the perceived reason for the denial .

On

the other hand , 42 complainants felt that marital status was the rea

son for the creditor's adverse action , 41 cited discrimination because
of sex , and 16 because of race , color , or national origin .
In an effort to evaluate consumer satisfaction with
the Federal Reserve's handling of complaints , the Board has sent a

followup questionnaire to those persons whose complaints were received
subsequent to April 1 , 1977 .

The questionnaire is sent to complain

ants shortly after the investigation is completed . The questionnaire
deals with the acceptability of the resolution , the clarity of the
explanation , the amount of time in which the complaint was handled ,
the courteousness of System staff , and whether or not the consumer
would contact the Federal Reserve in the event of a future problem .

The Board is reviewing returns from the followup letter and the
entire procedure to determine if any changes should be made to improve
this service to the public .
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471

5. Other Compliance Activities
The Board is currently conducting a survey of selected
major creditors that extend open end credit to determine the extent

to which consumers are exercising their rights to a credit history
reported separately from that of a spouse and to a notification of
specific reasons for the denial of credit .

The results should assist

the Board in evaluating the effectiveness of these requirements as
well as in determining the cost of compliance .
The Board and the other financial institution regula

tory agencies are working on a uniform set of guidelines for enforce
ment of Regulation B , specifying corrective action that will be taken
by the appropriate agency when certain violations are discovered .
guidelines are intended to promote better and more uniform enforcement
among all Federally regulated financial institutions .

B.

Other Agencies
1.

Comptroller of the Currency

The Comptroller of the Currency , who is responsible for
enforcing the act for national banks , instituted in October 1976 a pro
gram of consumer affairs examinations .
have undergone such examinations.

To date , 2,859 national banks

The examinations are conducted by

specially trained examiners who have completed a 2 -week consumer
school .

Six such schools have been conducted .

Enforcement of Regulation B also occurs through the

resolution of consumer complaints .

From January 1 , 1977 , through

-7

472

November 30 , 1977 , the Comptroller received 451 complaints , the

majority of which alleged discrimination on the basis of sex or mar
ital status .

When a violation is discovered through investigation ,

the bank not only must take corrective action in the applicant's case
but is required to establish policies and procedures to prevent future
violations .

The Comptroller's examinations reveal that 97 per cent

of all national banks were in violation of the act to some extent . How
ever , 86 per cent of the violations appear to be technical in nature ,
that is , attributable to the use of obsolete credit applications and
other forms .

Most ( 86 per cent ) of the substantive violations involve

the unlawful request for the signature of a nonapplicant spouse and

the denial of separate credit to married applicants . All national
banks have taken or have promised to take prospective corrective

action when the examination has disclosed violations .

The Comptroller

believes that substantial compliance is achieved by national banks

after a consumer examination has occurred and the directed corrective
action taken .
2.

Federal Deposit Insurance Corporation
The FDIC , which enforces the act for insured nonmember

banks , initiated in May 1977 a program of separate compliance exam
inations , conducted by specially trained examiners, to determine
compliance with consumer protection laws and regulations .

Under this

program , the FDIC expects to examine each insured nonmember bank at

least once every 15 months .
-8

473

From October 1 , 1976 , through September 30 , 1977 , 26.6

per cent of the compliance examination reports indicated apparent

violations , which related primarily to the notification requirements
of Regulation B and to the provisions concerning applications , partic
ularly the conditions governing permissible terminology on application
forms and permissible requests for information .
During the same period , the FDIC received 291 consumer
complaints alleging ECOA violations .

Sex or marital status discrimi

nation comprised the largest category , followed by consumer disagree
ment with the bank's reasons for taking adverse action .

A thorough

inquiry is conducted to determine the merits of all discrimination
complaints .

Should violations be found , the FDIC takes appropriate

action to bring the bank into compliance.
From October 1 , 1976 , through September 30 , 1977 , the

FDIC's Board approved six cease- and-desist orders involving equal
credit opportunity .
In assessing the extent of compliance with the ECOA ,

the FDIC reports that the majority of violations discovered thus far
relate to form and procedure rather than substantive discrimination .
3.

Federal Home Loan Bank Board

The Federal Home Loan Bank Board ( FHLBB ) , which enforces
the act for Federally chartered savings and loan associations , con

ducts regular examinations to determine compliance with Regulation B.
During late 1976 and early 1977 , the FHLBB conducted 2-1 / 2 day train
ing sessions in consumer law for all of its examiners .
-9

474

In July 1977 , the FHLBB instituted a new consumer

complaint procedure . During the first 11 weeks of operation , 48 dis
crimination complaints were received .

Redlining was the most common

type of complaint , followed by discrimination on the bases of race or
national origin and sex and marital status .

As of December 5 , 1977 ,

discrimination complaints received numbered approximately 200 .

Each

complaint is investigated to determine whether a violation has
occurred and the complainant is notified of the result of the inves

tigation .
The FHLBB believes that most savings and loan associa

tions wish to comply , but that confusion on procedural matters as

well as extremely literal interpretations on the part of association
staff often defeat the act's purpose .

Thus , most noncompliance de

rives from " technical violations " and compliance is promptly obtained .
4.

National Credit Union Administration
The National Credit Union Administration ( NCUA)

the act for Federally chartered credit unions .

enforces

Enforcement activities ,

like those of the other financial regulatory agencies , include examiner
training , specialized examination procedures , and , if a violation is
discovered , appropriate followup with credit union officials .

Approx

imately 90 per cent of the 12,800 Federal credit unions were examined
by the year- end .

The NCUA conducts a field investigation of all written
consumer complaints and , when necessary , institutes corrective action .
The agency has received 30 complaints or requests for information , with

the largest group pertaining to discrimination of the basis of race or
-10

475

national origin .

The next most common complaint alleged discrimina

tion due to factors not prohibited by existing law , followed by dis

crimination alleged to be based on marital status . Eight complaints
are still under investigation , but of the remainder , only two were
substantiated by objective review of the facts .

In both of those

cases , corrective action was undertaken promptly and in several other

instances , subsequent loan applications by complainants were approved
as a result of improved understanding between the parties .
NCUA's preliminary results indicate that 83 per cent
of the credit unions examined were in compliance at the conclusion of
the examination and the remainder had agreed to take prompt corrective
actions .
5.

Federal Trade Commission
The Federal Trade Commission ( FTC )

enforces the act

for all creditors not subject to the jurisdiction of any of the other

enforcement agencies .

Potential violators of the act are identified

through several sources of information , including consumer complaints ,
consumer and civil rights organizations , and other enforcement agen
cies .

When there is evidence that a violation may have occurred ,

informal inquiry is made , followed by a full investigation when war
ranted .

During 1977 the FTC staff initiated a number of investiga

tions , which are expected to result in formal action in the near
future .

During the first 10 months of 1977 , the FTC received 6,500

complaints and inquiries concerning equal credit opportunity . The
-11

37-415 O - 79 - 31

476
1

agency states that many complaints allege discrimination on the basis

of sex and marital status while a significant number of complaints
claim discrimination on the basis of race and age .

The FTC believes that creditors are making a good faith
effort to comply with the act and are achieving a substantial degree

of compliance .

However , some evidence indicates that smaller credi

tors may be less familiar with the requirements of the act and with

Regulation B than major national creditors . The FTC hopes that this
problem will be alleviated by increased creditor and consumer educa
tion efforts and by the deterrent effect of litigation and adminis
trative enforcement actions .
6.

Civil Aeronautics Board

The Civil Aeronautics Board ( CAB ) , which enforces the
act for domestic and foreign air carriers , continues to monitor in
dustry practices through the resolution of consumer complaints , none
of which , to date , have been considered valid .

Enforcement measures

include contacting the carrier or supplying information to the con
sumer .

On the basis of complaints received , the CAB believes that

compliance within the industry is relatively good .
7.

Interstate Commerce Commission
The Interstate Commerce Commission ( ICC )

act for regulated common carriers .

enforces the

In its view , common carriers are

forbidden to discriminate in the granting of credit by Section 3 ( 1 )
of the Interstate Commerce Act and by several ICC credit regulations .
Thus , the ICC believes that the ECOA does not have a significant

impact on the surface transportation industry .
-12

477

8. Department of Agriculture
The U.s. Department of Agriculture ( USDA ) includes agen
cies with responsibilities under the act .

The Packers and Stockyards

Administration enforces the act for creditors under its jurisdiction .

Since the livestock industry characteristically operates on a cash
basis , the agency's monitoring is handled on a complaints received
basis , and in the event of a violation , remedial action will be ini

tiated .

As no complaints have been received to date , the Packers

and Stockyards Administration assumes there is substantial compliance
within the industry .
The Farmers Home Administration , itself a creditor ,

is under the enforcement authority of the FTC . During 1977, 140 com
plaints against this organization concerning the denial of loans were

received by the USDA's Office of Equal Opportunity .
9.

Small Business Administration

The Small Business Administration ( SBA ) enforces the

act for small business investment companies and , through a letter of
understanding with the FTC , with regard to other recipients of SBA
assistance and with regard to SBA program offices .

During fiscal

year 1977 , seven SBA program offices were reviewed and 15,954 recip
ient businesses were monitored for compliance , with 844 being
subjected to on- site reviews .
Six complaints were received alleging sex discrimina
tion when applying for loans from SBA program offices , but investiga

tions revealed that the complaints were unsubstantiated .
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478

complaints alleging discrimination were received from customers or
clients of recipients of SBA assistance .

Due to the general nature of SBA recipients ( small
businesses ) and the lack of consumer complaints received , the SBA
believes creditors subject to its authority to be in adequate compli
ance .

10 .

Securities and Exchange Commission
The Securities and Exchange Commission ( SEC ) enforces

the act for securities brokers and dealers .

The SEC reports having

received no complaints during 1977 that alleged discrimination in
securities credit transactions and states that creditors subject to

its jurisdiction appear to be complying with the act and Regulation B.
11 .

Farm Credit Administration
The Farm Credit Administration ( FCA )

enforces the

act for Federal land hanks , Federal land bank associations , Federal
intermediate credit banks , and production credit associations . FCA's

enforcement activities include regular examinations, conducted every
12 to 18 months .

Such examinations in the current year have not dis

closed significant problems in the area of discrimination .

In 1977 approximately a dozen complaints were received
by the agency and reviewed for appropriate followup.

In none of the

nine complaints resolved thus far was evidence disclosed of intent to
discriminate and no known complaints have resulted in litigation .
The FCA concludes that the record of compliance by farm credit insti

tutions appears to be good .
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479

II .

CONSUMER ADVISORY COUNCIL

The Consumer Advisory Council , established in late 1976
to advise and consult with the Board on matters relating to consumer
credit , held four meetings in 1977 .

The Council considered such

topics as consumer education and the survey of consumers ( both men
tioned below ) .
Those members of the Council appointed to l-year terms in
1976 were reappointed to 3 - year terms in 1977 , and three members
resigned during the year . A list of current Council members appears
below as an appendix .

III .

ADMINISTRATIVE FUNCTIONS

Amendments and Interpretations of Regulation B
1.

Board Interpretations

On April 28 , 1977 , the Board adopted two interpretations
of revised Regulation B , both concerning the possible inconsistency of
California law with the act and the regulation . One interpretation ,
designated 202.1101 , states that a law requiring delivery of a notice

explaining the obligations of a cosigner only when the signers of a
consumer credit contract are not married to each other is not incon

sistent with Regulation B.

The other interpretation , designated

202.1102 , states that a law requiring translation of certain consumer
credit documents into Spanish but not into other languages is not
inconsistent with Regulation B.
-15

480

On July 8 , 1977 , the Board adopted an interpretation

of Regulation B , designated 202.1103 , determining that State laws
making contracts enforceable against married persons at a younger
age than against unmarried persons are not inconsistent with the act .
On August 4 , 1977 , the Board issued an interpretation ,
designated 202.801 , dealing with special - purpose credit programs
under Section 202.8 of the regulation .

The interpretation states that

a credit program is to be considered " expressly authorized by Federal
or State law , " as required for programs seeking to qualify under Sec
tion 202.8 ( a ) ( 1 ) , if it is authorized either by the terms of a Federal
or State statute , or by a regulation lawfully promulgated by the
agency administering the program .

The interpretation further states

that participating creditors will not violate Regulation B by comply
ing with regulations that implement the program .

Finally , the Board

stated that determinations on another of the criteria for qualifica

tion under Section 202.8 ( a ) ( 1 ) , namely , whether particular programs

benefit an " economically disadvantaged class of persons , " should be
made by the agency administering the program , not by the Board .
2.

Official Staff Interpretations
Regulation B was amended during 1976 to implement the

provisions of the 1976 amendments to the act , which authorized the
Board to empower staff members to issue interpretations of Regula

tion B. or the act .

Creditors can rely on such interpretations to the

same extent as on formal Board interpretations .

During 1977 seven

official staff interpretations of Regulation B were issued . Their
-16

481

subject matter includes names in which accounts may be carried , the

effect of Regulation B on State loan -splitting laws , the scope of the

real estate credit -monitoring requirements , use of credit-scoring
systems in combination with judgmental credit evaluation methods , the
application of notification and record retention requirements to busi
ness credit , information gathering by creditors for noncredit purposes ,
and whether or not adverse action can occur at the point of sale .

Two official staff interpretations , designated EC-0007 and
EC- 0008 ,

were taken

under reconsideration at the request of the

FTC and the Department of Justice .

On October 3 , 1977 , the Board

issued alternative proposed amendments to Regulation B , which would
cover the same issue as interpretation EC-0008 , whether or not
adverse action occurs at the point of sale .

These are discussed

in greater detail in the following section of this Report .
The FTC and Justice also petitioned the Board for a

change in the procedures by which official staff interpretations are
issued .

They urged the Board to allow opportunity for public comment

before official staff interpretations are issued in final form .

This

matter is currently under consideration .
3.

Amendments

In order to resolve the questions raised by the

requests for reconsideration of EC-0008 , the Board issued alterna
tive proposed amendments to Regulation B.

Under the regulation , a

creditor , in each instance of adverse action , must either provide a

written explanation to the customer of the reason for the adverse
-17

482

action or advise the customer of the right to obtain an explanation
upon request .

action . "

Each proposal would amend the definition of " adverse

The first would generally result in an affirmation of

EC -0008 ; in general , adverse action commonly would not occur when use

of an open end credit account is denied at the point of sale .

The

other proposal would generally adopt the position of the FTC and the
Justice Department ; adverse action would occur at the point of sale
in many instances .

Approximately 200 comments on the proposed amend

ments have been received , and the matter is still under consideration .
B.

Education

The past year has seen increased educational activity on
the part of both the Federal Reserve System and the other agencies
responsible for Regulation B compliance .
Within the Federal Reserve System , educational efforts
included speeches and seminars involving consumers , creditors , school

groups , professional associations , and others .

Nearly 350 of these

presentations were made by staff members of the Federal Reserve Banks
during 1977 and about 60 by Board staff during the first 8 months of

the year . In addition , Board and Reserve Bank staff on several occa

sions participated in radio and television programs relating to equal
credit opportunity .
During 1977 the Board published two pamphlets to inform
consumers of their rights under Regulation B. One deals with rights
of women under the regulation and the other with credit discrimination
-18

1

483

on the basis of age . Approximately 4.4 million copies of the former,
and 2.9 million copies of the latter have been distributed .

The Board

also published a pamphlet summarizing Regulation B requirements appli
cable to small businesses and professionals who extend credit with

no finance charge imposed .

Approximately 1 million copies of this

pamphlet have been distributed .

Current plans include a pamphlet on

housing credit and a filmstrip explaining consumer protection laws ,
including equal credit opportunity .
During 1977 a nationwide survey of consumers was conducted

for the Board in an effort to ascertain the extent of consumer know

ledge of credit and consumer credit legislation . The results are
currently being analyzed .
A number of the other enforcement agencies report similar

educational efforts including slide presentations , consumer pamphlets ,
journal articles , seminars , and speeches .
-19

484

APPENDIX

CONSUMER ADVISORY COUNCIL

Leonor K. Sullivan
Chairman

Joseph F. Holt , III
Oxnard , California

St. Louis , Missouri

12-31-78

12-31-78

Edna DeCoursey Johnson

William

D. Warren

Vice Chairman

Baltimore , Maryland
12-31-79

Los Angeles , California
12-31-80
Roland E. Brandel

Robert J. Klein
New York , New York
12-31-80

San Francisco , California
12-31-80

Percy W. Loy
Portland , Oregon

Agnes H. Bryant

12-31-79

Detroit , Michigan
12-31-78
John G.

R. C. Morgan
El Paso , Texas
Bull

12-31-80

Fort Lauderdale , Florida
12-31-79
Robert V.

Reece A. Overcash , Jr.
Dallas , Texas
Bullock

12-31-78

Frankfort , Kentucky
12-31-80

Raymond J. Saulnier
New York , New York
Linda M. Cohen

12-31-79

Washington , D. C.
12-31-78

E. G. Schuhart

Dalhart , Texas
Robert R. Dockson

12-31-80

Los Angeles , California
12-31-80

Anne G. Draper
Washington , D. C.
12-31-78

James E. Sutton .

Dallas , Texas
12-31-78

Anne Gary Taylor

Alexandria , Virginia
Carl Felsenfeld

12-31-79

New York , New York
12-31-79

Marcia A. Hakala

Richard D. Wagner
Simsbury , Connecticut
12-31-80

Omaha, Nebraska
12-31-80

Richard L. Wheatley , Jr.
Stillwater , Oklahoma
12-31-78

Dates indicate expiration of term

APPENDIX 4.–FAIR HOUSING LAW SUIT BY NATIONAL URBAN LEAGUE,
AMENDED COMPLAINT ( July 1976 )

National Urban League, et al . , v . Office
of the Comptroller of the Currency., et al .

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

NATIONAL URBAN LEAGUE

)
NATIONAL COMMITTEE AGAINST DISCRIMINATION
)
)

NATIONAL ASSOCIATION FOR THE ADVANCEMENT

Civil Action No. 76-0718

HOUSING ASSOCIATION OF DELAWARE VALLEY
)

)
)
)

LEADERSHIP COUNCIL FOR METROPOLITAN
)

METROPOLITAN WASHINGTON PLANNING AND

Plaintiffs
v.

( 485 )

486

OFFICE OF THE COMPTROLLER OF THE CURRENCY
)

)

JAMES E .. SMITH , Individually , as Comptroller ?

THE BOARD OF GOVERNORS OF THE FEDERAL
RESERVE SYSTEM

and

487

GRADY PERRY , JR . , Individually and as a )

Defendants .

AMENDED COMPLAINT FOR DECLARATORY , INJUNCTIVE AND OTHER RELIEF

INTRODUCTION

1. This is an action for declaratory and injunctive relief
against the four federal agencies which supervise and regulate the vast

majority of the Nation's home mortgage lending institutions . The action
is brought to remedy the continuing failure and refusal of these agencies
to take action to end discriminatory mortgage lending practices by

institutions which they regulate and to which they provide substantial
federal benefits .

This failure and refusal has persisted despite the

accumulation of evidence , including evidence in the files of the defendant

agencies , that such practices are widespread among regulated lending
institutions ; despite efforts of other federal agencies , including the
United States Department of Justice , the Department of Housing and Urban
Development , and the United States Commission on Civil Rights, to induce
the defendant agencies to institute effective enforcement procedures ;
and despite the fact that such practices violate the Constitution and
laws of the United States ( most notably Title VIII of the Civil Rights
Act of 1968) , artifically restrict credit opportunities of borrowers and

business opportunities of lenders , and subject discriminating institutions
to the risk of substantial civil liability .

488

2. Plaintiffs are eleven organizations whose activities are devoted

to aiding and assisting all Americans in securing equal housing opportunity;
whose membership and clientele have suffered damage from the failure and
refusal of the defendants to act against discriminatory lending practices
of institutions which they regulate ; and whose membership and clientele
willi continue to suffer damage from such practices unless the defendants

act to prevent them . In 1971 ten of the plaintiffs filed rule making

petitions with the four defendant agencies, which these agencies entertained
but which they have not made any formal disposition of in the five years
since .

This action is brought in the conviction that only court intervention

will induce the defendant agencies to carry out their duty to enforce
non -discrimination among the institutions whose lending practices they
supervise and regulate . :
3. This action arises under the Fifth Amendment to the United

States Constitution Title VI of the Civil Rights Act of 1964 , 42 U.S.C.

: 2000 ( d) et seq .; Title VIII of the Civil Rights Act of 1968 , 42 U.S.C.
3601 et seq .; the Civil Rights Acts of 1870 and 1866 , 42 U.S.C. 1981 ,
1982; the Financial Institutions Supervisory Act , 12 U.S.C. 1730 , 1818 ;

12 U.S.c. 1464 ( a) 1437 ; Section 2 of the Housing Act of 1949 , 42 U.S.C.
1441, 1441a ; Section 527 of the National Housing Act, as amended , 12
U.S.C. 1735f - 5 ; and the Administrative Procedure Act , 5 U.S.C. 555. The
matter ' in contoversy exceeds, exclusive of interest and costs , the sum
of value of $ 10,000 .

4. This court has jurisdiction under 28 U.S.C. 1331, 1337 , 1343 ,
1346 , 1361, 2201 , 2202 , 5 U.S.C. 701-706 , 12 U.S.C. 1819 , and 42 U.S.C.
3612 , 3617 .

PLAINTIFFS

5. The National Urban League is a non -profit corporation organized
under New York law , with headquarters at 500 E. 62nd Street , New York ,

489

New York . The League and it's predecessors have been in existence for
more than 65 years ; currently it has 104 affiliated Leagues located in

cities throughout the United States . Its general purposes are , among
others to improve the living and working conditions of blacks and other

similarly disadvantaged minorities and to foster better race relations
and increased understanding among all persons . In furtherance of these
purposes it develops , organizes and carries out , and assists its affiliates

in conducting action programs in such fields as housing and employment .
.:

Specifically , through its " Operation Equality " , the League and its
affiliates seek to assist black residents of low income , deteriorating

neighborhoods to find and finance standard housing outside such areas .
It conducts studies and provides information concerning discriminatory
practices of real estate and mortgage lending firms, and organizes
communities to combat such practices . As part of its efforts to eliminate
discriminatory mortgage lending practices , it filed a petition for rule
making with the defendants in this action in 1971 .

In their efforts to

• find and finance hames outside ghetto areas , the clientele served by the
League and its affiliates , as well as members of the League and of its
affiliates , suffer and continue to suffer from the discriminatory practices

listed in Paragraph 25 of this complaint , engaged in by lending institutions
regulated and supervised by the defendants . Accordingly , the League ,
its affiliates , their members and clientele , are directly and adversely

affected by the failure and refusal of the defendants to act to end such
discriminatory practices by institutions which they regulate . Such
discrimination also interferes with the League's efforts to aid and
assist its members and other minority persons in securing their right to

equal housing opportunity . In addition , the defendants ' failure injures
the League and its affiliates in that it compels them to expend funds ,

staff time , and other resources in combating such practices which they
would not be compelled to expend were the defendants to take action as

prayed in this complaint .

490

6. The National Committee Against Discrimination in Housing ( NCDH )
is a non - profit corporation organized under the laws of the District of

Columbia and located at 1425 H Street , N.W. , Washington , D.C. A principal
objective of NCDH is to assist minority group persons in securing the
right to equal housing opportunities guaranteed under Title VIII of the
Civil Rights Act of 1968 and other fair housing laws . In carrying out
this objective , NCDH engages in fair housing litigation on behalf of
minority group hameseekers challenging , among other discriminatory
housing practices, discrimination in mortgage lending . ACDH also aids
and assists minority group homeseekers by representing them in admini

strative proceedings before such executive agencies as the Department of
Housing and Urban Development. Further , NCDH participated in a petition
for rule making submitted to the defendants in this action , as part of
its effort to eliminate discrimination in mortgage lending as a barrier
to equal housing opportunity . The failure and refusal of the defendants

to take action necessary to correct the discriminatory practices of
lending institutions which they regulate , alleged in Paragraph 25 of the
complaint, causes injury to the clientele served by NCDH and interferes
with NCDH's efforts to assist its clientele in securing their right to
equal housing opportunity . Such failure and refusal also injures NCDH
by requiring it to spend funds, staff , and other resources , to eliminate
discriminatory practices in mortgage lending. But for the failure and
refusal of the defendants to remedy these discriminatory practices , NCDH

would not be forced to deplete its scarce resources to seek compliance

with the nondiscrimination requirements of federal law in mortgage
lending.

7. The National Association for the Advancement of Colored People
( NAACP ) , organized as a non - profit corporation under New York law in
.

1909, and with headquarters at 1790 Broadway , New York , New York , is the
oldest and largest civil rights organization in the country .

membership of 450,000 persons , most of them black , and 1,700 branches in
all 50 states and the District of Columbia . A principal objective of
the organization is to assist minority group persons , both NAACP members
and others, in securing rights guaranteed under various

491

civil rights laws , including Title VIII of the Civil Rights Act of 1968 .

The organization endeavors to remove all barriers of racial discrimination,
including barriers to equal housing opportunity resulting from discriminatory
practices in mortgage lending , through the enforcement of legal rights

for the benefit of its members and other persons seeking its assistance .

Throughout its existence the NAACP has actively sought to achieve fair
housing for minority Americans through such means as litigation , administrative
actions , including a petition for rule making submitted to the defendants
in this action , and through efforts to resolve complaints from minority

citizens, both members of the NAACP and others who seek its assistance .
NAACP members have suffered and continue to suffer discrimination in
their efforts to secure mortgage loans from lending institutions supervised

by the defendants in this action . The continuation of such discrimination
directly and adversely affects the NAACP and its members , and interferes
with the organization's efforts to aid and assist its members and other
minority persons in securing their right to equal housing opportunity .
The failure and refusal of the defendants to take action necessary to
eliminate the discriminatory practices alleged in Paragraph 25 of this

. complaint have caused and continue to cause injury to the NAACP , to its
members , and other persons to whom it provides assistance .

The American Friends Service Committee ( AFSC ) is a non - profit
corporation organized under Delaware law and with headquarters at 1501

Cherry Street , Philadelphia, Pennsylvania .

It has been actively concerned

with the denial of equal housing opportunity for over 25 years .

Comunity Relations Division , with a staff of 100 in 32 states administers
programs for the benefit of the poor , minority group persons , and other
disadvantaged persons , in the fields of housing , jobs and income , education ,

health and the administration of justice .

In past years it has operated

specific action programs in Chicago , San Francisco , Philadelphia , Atlanta ,
Washington , D.C. and Richmond, Indiana , designed to assist minority
group and other disadvantaged persons confronted with housing discrimination ,
through direct assistance to individuals and by seeking changes in
institutional discriminatory policies and practices in the real estate

37-415 O - 79 - 32

492

industry . As part of this effort , it petitioned the defendants in this
action to exercise their regulatory authority over mortgage lending
institutions so as to end discriminatory hame finance practices .

The

clientele served by AFSC . has suffered injuries from the discriminatory

practices of lending institutions which the defendants regulate , listed
in Paragraph 25 of this complaint , and will continue to suffer such
injuries unless the defendants take action to end such practices .

The

failure of defendants to act to end discriminatory mortgage lending

practices interferes with AFCS's efforts to assist minorities in securing
their right to equal housing opportunity and causes it to expend funds,
staff and other resources which it would not be compelled to expend were
the defendants to take effective action as prayed in this complaint.

The League of Women Voters of the United States is a non
partisan , non - profit District of Columbia Membership Corporation with

its principal office at 1730 M Street , N.W. , Washington , D.C. Its
general purpose is to encourage the informed and active participation of
all citizens in the processes of government. It has a membership of
150,000 , mostly women , in more than 1300 state and local Leagues in all

50 states , the District of Columbia, the Commonwealth of Puerto Rico and
the Virgin Islands .

Since 1964 , it has given concerted attention to

efforts at securing equal opportunity , without regard to sex or race , in
housing, jobs, transportation and recreation . In furtherance of its

efforts to secure fair housing , it distributes educational literature to
state and local Leagues and individual members informing them of methods
for monitoring compliance with federal fair housing laws and regulations
and for challenging restrictive housing and land -use practices . The
League , state and local Leagues , and individual members have been active
in such monitoring and enforcement activities, and have participated
directly or as amicus curiae in lawsuits and other activities ( including
a rule making petition to these defendants ) designed to end housing
discrimination ,

and to secure housing opportunities for the poor and

minority groups in the suburbs . Members of the League have

493

suffered discrimination on the basis of their sex in seeking mortgage

loans and have been otherwise injured by the discriminatory practices of
lending institutions which the defendants regulate , listed in Paragraph
25 of this complaint . They will continue to suffer these injuries
unless the defendants take action to end these practices as sought in
this action .

10. National Neighbors is a non - profit corporation organized under
Missouri law , with headquarters at 17 Maplewood Mall, Philadelphia ,
Pennsylvania . Its purpose is to encourage the development and maintenance
of stable multi - racial residential communities throughout the United
States . Approximately 100 local organizations with similar purposes are
members of National Neighbors . The national organization provides
information , advice and technical assistance to these and other community

groups to assist them in achieving and stabilizing integrated neighborhoods
and in combating forces which inhibit the development and stabilization

of such neighborhoods . Among these forces are mortgage lending practices,
including practices listed in Paragraph 25 of this complaint , engaged in
.by lending institutions supervised and regulated by the defendants in
this action . National Neighbors and its members accordingly are directly
injured by the defendants ' failure to take action to end such practices
by institutions which they supervise and regulate , since this failure

interferes with the achievement of the purposes of National Neighbors
and its members to aid and assist its members and others to secure the

right to equal housing opportunity and causes these organizations to

spend money, staff time and other resources combating practices which
would not occur were the defendants to take such enforcement action .

In

addition , individual members of National Neighbors ' constituent organizations ,
who desire to live in multi - racial neighborhoods , are injured by defendants '
failure to act against mortgage lending practices engaged in by lending
institutions regulated by them which make financing of homes in such

494

neighborhoods more difficult and which tend to destabilize such neighborhoods .

1. The Housing Association of Delaware Valley is a non - profit
corporation organized under the laws of Pennsylvania with headquarters

at 1317 Filbert Street , Philadelphia, Pennsylvania . It is devoted to
the goals of a decent home and decent living environment within the

means of every family , freedom of housing choice , and equality of housing
opportunity .

The Association studies and reports on the extent of

discrimination in both private and government housing agencies and

programs , acts as a clearinghouse for housing information of importance
to conmunities throughout the Delaware Valley , prepares publications and
proposals which offer alternative solutions to housing problems , and

upon request , assists community groups in solving redlining and other
housing problems in their communities throughout the Delaware Valley .
Its activities have included testifying before local and national

governmental and administrative bodies concerned with housing and housing
discrimination , and the filing of rule making petiticns with the defendants

in this action . The Association has over 400 members , both individuals
and organizations.

Individuals who are members of the Association or of

its organizational members have been injured and continue to be injured
by mortgage lending practices of lending institutions regulated by the

defendants and listed in Paragraph 25 of this complaint , and such injuries
will continue unless the defendants act to correct such practices as
prayed herein .

Further , these practices interfere with the Association's

efforts to aid and assist others in securing the right to equal housing
opportunity .

The Association has been compelled to expend funds , staff

time and other resources in combatting redlining and other discriminatory

practices which it would not have had to expend had the defendants acted
to end such practices .
The Leadership Council for Metropolitan Open Cammunities is a

non - profit corporation organized under Illinois law for the purpose of

securing equal housing opportunity for all. . Its office

495

is at 407 South Dearborn Street , Chicago , Illinois .

It has filed more

than 120 suits under the 1968 and 1866 Civil Rights Acts and engaged in

other action designed to achieve its corporate purpose , including the
filing of a rule making petition with the defendants in this action . The
Council has been particularly concerned with discrimination by banks in

mortgage lending; and the failure and refusal of the defendants in this
action to take action to end discriminatory practices by regulated
lending institutions has caused , and continues to cause , the Council to

expend money , staff time and other resources combatting such practices
which it would not be compelled to expend were the defendants to take

action as prayed in this complaint.

1

organized in 1935 under the name Washington Committee on Housing, Inc. ,

with its office at 1225 K Street , N.W. , Washington , D.C. It has approximately
125 members , including those of the former Housing. Opportunites Council
of Metropolitan Washington , which merged with MNPHA in 1975.

The Association's

purpose is to promote improved housing conditions for all throughout the
metropolitan Washington area through planning , educational and other
activities .

In particular , its efforts are directed at assuring black

people equal access to housing for low and moderate income families
throughout the metropolitan area .

On behalf of members and other minority

residents seeking its assistance or referred to it , it has sought to
resolve complaints of housing and home finance discrimination against

Washington area real estate and lending institutions. Its members and
others whom it serves have suffered and continue to suffer from the

discriminatory practices of lending institutions regulated by the defendants ,
listed in Paragraph 25 of this complaint. These practices also interfere

with MPHA's efforts to aid and assist in securing equal housing opportunities

for its members and other minority individuals. For this reason , MWPHA

496

joined in petitioning the defendants in this action . The failure of
the defendants to take such action continues to cause injury to MYPHA'S
members and other whom it serves ; continues to interfere with its
efforts to secure equal housing opportunities in the Washington Metropolitan

area ; and further injures MWPHA by compelling it to expend money , staff
time and other resources to resolve mortgage lending discrimination
complaints which would not occur were the defendants to take the actions

· sought in this suit .
14. The Rural Housing Alliance ( RHA ) , formed in 1966 as the International
Self -Help Housing Association , is a non - profit , educational organization ,

incorporated under the laws of the District of Columbia with offices at
1346 Connecticut Avenue , N.W. , Washington , D.C.

It provides technical

and advisory services to individuals and groups .seeking to provide homes
for low - income families in rural areas . RHA has approximately 500
members and is supported by individual contributions as well as grants

from foundations and the government . The majority of RHA's clientele ,
the beneficiaries of its services, are black or from other minority
groups in rural areas . RHA's purpose is to see that this clientele is
adequately sheltered in decent and sanitary housing , using as a vehicle

its educational and technical services . The achievement of RHA's goals
is made more difficult by the discriminatory practices listed in Paragraph
25 of this complaint , and for that reason RHA petitioned the defendants
in this action to use their regulatory and enforcement powers to end
such practices among lending institutions which they supervise .

Moreover ,

RHA's members and clientele are injured by these practices , directly and
by interfering with their efforts to aid and assist minority families in
securing their right to equal housing opportunity , and therefore by the
defendants ' failure and refusal to end them through regulatory and
enforcement action .

founded in 1947 , is organized under the laws of the State of Michigan ,
and is located at 1028 Vermont Avenue , N.W. , Washington , D.C.

Its

497

principal function is to serve the needs of the nation's minority real
estate brokers , sales persons , and allied professionals .

It has 2,600

members , engaged in real estate and related business , in 31 states .

goal of NAREB is to increase housing opportunities for minority homeseekers.
The members of NAREB deal mainly with minority clientele and operate
principally in areas and neighborhoods where minority families reside in
disproportionate numbers .

NAREB members assist minority families in

securing equal housing opportunities, including the right to reside in
neighborhoods in which few such families currently reside .

and refusal of the defendants to take action necessary to correct discriminatory
practices of lending institutions regulated by them , listed in Paragraph
25 of this complaint , 'have caused injury to NAREB, to its members and to

its members ' clients . The continuation of such discriminatory practices ,
unchecked by the defendants , severely restricts business opportunities
for NAREB members by imposing undue burdens on their minority clientele

in securing mortgage loans and by making it more difficult to finance
the purchase of homes in minority neighborhoods, where NAREB members

principally operate . The failure and refusal of the defendants to end
such discriminatory practices among lending institutions which they
supervise also injures NAREB and its members by interfering with their
efforts to assist minority familites in securing their rights to equal
housing opportunity , regardless of the racial character of the neighborhood .

498

DEFENDANTS AND INSTITUTIONS WHICH THEY REGULATE
16.

Defendant Office of the Comptroller of the Currency is an agency

within the United States Department of the Treasury. Defendant James E. Smith
is the Comptroller of the Currency . The Office of the Comptroller of the Cur
rency approves the issuance of federal charters to National banks , specifies
the terms and conditions of such issuance , and supervises and regulates the
activities of such National banks .
!

17. National banks receive the benefits associated with federal charters ,

including exclusive right among commercial banks to use the word " National "
in their title. By law they are members of the Federal Reserve System and

their deposits are insured by the Federal Deposit Insurance Corporation ( FDIC ) ;
thus they are accorded the benefits and privileges of such membership and

insurance . They represent 33 percent of the nation's commercial banks, but
hold in the aggregate 58 percent of all commercial bank resources . As of 1974 ,

18.

Defendant Board of Governors of the Federal Reserve System ( here

after Federal Reserve Board ) is an agency of the United States. Defendant
Arthur Burns is Chairman of the Federal Reserve Board . Defendants Philip E.
Caldwell , Stephen Gardner , Robert C. Holland , Philip Jackson , J. Charles Partee ,
and Henry C. Wallich , are members of the Federal Reserve Board .

1/

All figures based on 1-4 family residential properties.

The Federal

499

Reserve Board admits state -chartered commercial banks as members of the
Federal Reserve System , specifies the terms and conditions of such membership ,
and supervises and regulates the activities of such state - chartered member
banks .
19.

State - chartered Federal Reserve member banks ( like National banks)

receive the benefits of membership in the Federal Reserve System , including
use of Federal Reserve clearinghouse facilities and access to loans from
Federal Reserve banks . Deposits of state - chartered Federal Reserve member
banks by law are also FDIC - insured , thereby according such banks the benefits
of such insurance .

State - chartered member banks represent 11 percent of the

nation's state - chartered commercial banks , but hold 46 percent of the re
sources of such banks .

As of 1974 , state - chartered member banks held $ 11 bil

lion in non - farm residential mortgages .

20. Defendant Federal Deposit Insurance Corporation ( FDIC ) is an agency
of the United States . Defendant Robert E. Barnett: is Chairman of FDIC . De
fendants George A. LeMaistre and James E. Smith are members of the Board of
Directors of FDIC .

FDIC admits state -chartered , non -Federal Reserve member

commercial banks and mutual savings banks as members of FDIC , specifies the
terms and conditions of such membership , insures deposits at such institutions ,

and supervises and regulates their activities.

21. Ninety -eight percent of the nation's comercial banks ( all National
banks, all state - chartered Federal Reserve member banks , and 8,436 of the
8,685 state - chartered , non -member banks ) are members of FDIC and hold 99 per

cent of all commercial bank resources . Sixty - seven percent of the nation's
mutual savings banks are members of FDIC and hold 87 percent of the resources

of all mutual savings banks. FDIC member commercial and mutual savings banks
receive the benefits of insurance of deposits by FDIC .

As of 1974 , FDIC member

commercial and mutual savings banks held $ 115 billion in non - farm residential

mortgage loans, constituting 94 percent of all such outstanding loans of com
mercial and mutual savings banks . FDIC insurance is essential to the pros
perity and growth of commercial and mutual savings banks .

500

22.

Defendant Federal Home Loan Bank Board ( hereafter FHLBB ) is an ·

agency of the United States . Defendant Garth Marston is Acting Chairman of
the FHLBB .

Defendant Grady Perry , Jr. is a member of the FHLBB .

The FHLBB

issues federal charters to Federal savings and loan associations and speci
fies the terms and conditions of such charters; admits state - chartered sav

ings and loan associations as members of the Federal Home Loan Bank System
( hereafter FHLBS ) and specifies the terms and conditions of such membership ;
directs the activities of the Federal Savings and Loan Insurance Corporation
( hereafter FSLIC ) , admits state - chartered savings and loan associations as
members of FSLIC, and specifies the terms and conditions of such membership .
The FHLBB supervises and regulates the activities of all Federal savings and
loan associations and all state - chartered savings and loan ' associations which

are members of the FHLBS and /or FSLIC .
23. Savings and loan associations engage almost exclusively in residen
tial loans.

Forty percent of all savings and loan associations , holding 57

percent of all savings and loan resources , operate under federal charters is
sued by the FHLBB , and receive the benefits associated with federal charters,
including the exclusive right among savings and loan associations to use the
word " Federal" in their title .

By law Federal savings and loan associations

are members of the FHLBS and their deposits are FSLIC - insured , thereby accord
ing them the benefits and privileges of such membership and insurance .

Eighty

four percent of all savings and loan associations , holding 98 percent of all
savings and loan resources , are members of the FHLBS and receive the benefits
of such membership , including the right to secure advances, in the form of

loans, from Federal Home Loan banks. Eight -one percent of all savings and
loan associations , holding 98 percent of all savings and loan resources , are
· members of the FSI.IC and receive the benefits of FSLIC insurance of their ac
counts .

As of 1974 , the aggregate of FSLIC - insured savings and loan associa

tions held $ 195 billion in non - farm residential mortgage loans , 97 percent

of the non -farm residential mortgage loans held by all savings and loan associa
tions. FHLBS Membership and FSLIC insurance are essential to the prosperity
and growth of savings and loan associations .

501

24. As of 1974 , the total amount of residential mortgage loans held

by federally regulated commercial and mutual savings banks and savings and
loan associations was $ 310 billion , 75 percent of outstanding non - farm
residential mortgage loans .

RACE AND SEX DISCRIMINATION IN HOME

MORTGAGE LENDING BY REGULATED INSTITUTIONS

25. Mortgage lending institutions supervised , regulated and benefitted
by the defendant federal agencies maintain discriminatory policies and prac
tices, in violation of federal laws, including the following:

( a ) They deny loans to otherwise qualified non -white families
because of their race;

( c) They refuse to make loans to otherwise qualified non - white

families for the purchase of homes in residential areas occupied by white
families ;

( a ) They refuse to make mortgage loans to otherwise qualified

female - headed families because of the family' head's sex ;
( e ) They inpose more stringent terms and conditions on loans to

otherwise qualified female -headed families because of the family head's sex ;
( f) They discount all or a substantial part of a wife's income,
because of her sex , in determining the eligibility of families for mortgage
loans .

Since a higher proportion of wives in black families than in white

families work , this practice also discriminates against black borrowers;
( g) They refuse to make loans to otherwise qualified families ,
white and non -white, for the purchase of homes in . racially integrated or
predominantly non - white neighborhoods, because of the racial composition of
such neighborhoods;

502

( h ) They impose more stringent terms and conditions on loans to
families, white and non -white , for the purchase of homes in racially in

tegrated or predominantly non - white neighborhoods, because of the racial
composition of such neighborhoods;

ly in central city areas , that are racially integrated or predominantly non
white'as ineligible for any mortgage loans ;

( j ) They refuse to lend to married women in their own names ;
( k) They require information concerning a wife's birth control

practices in connection with a mortgage loan application ;
( 1) They require fluency in the English language as a prerequisite
for obtaining a loan ;
( m ) They use isolated past credit difficulties as a bar to receiv
ing a mortgage loan .

Since non -whites , in part because of discriminatory

credit practices , experience a higher incidence of credit difficulties ,
this practice discriminates against them without regard to current credit

worthiness.
( n) They use the existence of a prior criminal record or a prior

arrest record , regardless of the nature of the charge and even without con
viction , as a bar to a mortgage laon .

Since non -whites, in part because of

discrimination in law enforcement , experience a higher incidence of arrest

with and without conviction , this practice discriminates against them .
( o ) They deny loans to persons who have not previously owned their
own home . Since home ownership is less common among non -whites , in part be

cause of discriminatory real estate and lending practices , this practice dis
criminates against them .

bonuses or part -time work , thus discriminating against minority and female
borrowers who more frequently rely on such income;
( q) They impose overly restrictive payment - to - income ratios on
loans to black and female borrowers ;

!

!

503

( r) They refuse to make loans in certain areas, or make them
on less favorable terms, based solely on the age of the homes or the in
come level of the neighborhood . Since non -whites , in part because of dis
criminatory real estate and lending practices , more commonly live in
lower income neighborhoods and neighborhoods of older hames , this practice

discriminates against them .

( s) They finance and otherwise do business with builders, developers ,
brokers or other firms that practice racial and sex discrimination ;

whose clientele is predominantly non -white;

( u ) They fail to advertise their services in media reaching pre
dominantly minority borrowers while continuing to advertise in media reach
ing predominantly white borrowers ;
( v ) They refuse to make federally subsidized or federally guaran
teed loans or to make loans to borrowers receiving federal subsidies , thus

discriminating against minority persons who more frequently seek such loans
and subsidies .
26.

These discriminatory lending policies and practices place arbitrary

and artificial restraints upon the free flow of mortgage credit . They deny
to otherwise qualified non -white families the opportunity to purchase homes ,
and to purchase homes outside areas of non -white concentration ; deny other
wise qualified female- headed families the opportunity to purchase hames ;
and deny to otherwise qualified families , white and non -white , the opportunity

to purchase homes in racially integrated or predominantly non -white residen

tial areas . The policies and practices also contribute to the deterioration
and abandonment of racially integrated and predominantly non -white residen
tial areas .

27. In part because of the greater difficulty experienced by minority
families in securing mortgage loans from institutions supervised , regulated
and benefitted by the defendants , disproportionately few black families own

504

their homes compared with other families.

In 1970 , only 42%

of black house

holds and 448. of Hispanic households owned their own homes compared to 65%
of other households .

This racial disparity existed between black and other

homeowners of equal income levels . For example, in 1970, 70% of black but
82% of other families earning $ 15,000 or more owned their own homes ; 57% of
black but 74 % of other families earning $ 10,000 to $ 15,000 owned their own
homes ; and 47% of black but 63% of other families earning $ 7,000 to $ 10,000
owned their own homes . These disparities prevailed in urban , suburban and
rural areas .
28 .

In part because of greater difficulty in securing home financing ,

the housing conditions of black homeowner families are worse than those of
other homeowner families . For example , in 1970 , 15% of black but only 48

of other owner - occupied homes lacked some or all normal plumbing facilities ;
4 % of black but only 1% of other owner -occupied homes had all plumbing faci
lities but were in dilapidated condition ; 5% of black but only 1% of other
owner - occupied homes had more than 1.5 persons per room ; and 43% of black but

only 35% of other owner -occupied homes were built before 1940 .

principal on their first mortgages .
30 .

In part because of the practices listed in paragraph 25 , dispropor

tionately few black homeowners who secure mortgages are able to secure them
from institutions supervised , regulated and benefitted by the defendants .

1970 , only 578 of black homeowners were able to secure first mortgages from
commercial banks , mutual savings banks or savings and loan associations , while

74% cf white homeowners secured their first mortgage loans from these institu
tions .

505

31. . In part because of the practices listed in paragraph 25 , residen
tial segregation is widespread, especially in metropolitan areas which have

experienced housing growth in recent decades . In 1970 , there were 47 cities
with populations above 100,000 which had black populations above 50,000 .
Although the aggregate populations of these cities was only 28% black , 85%
of the black residents lived in majority - black census tracts and 53% lived
in 90-100% black census tracts .

City

Percent of popu
lation which is
black

By way of illustration :
Percent of black
population living in
majority - black census

population living
in 90-100% black

tracts

census tracts

Percent of black

51

91

76

Baltimore

46

92

71

Cleveland

38

94

67

Chicago

33

94

-78

Houston

26

83

39

Atlanta

Pittsburgh

20

81

38

Los Angeles

18

87

30

Milwaukee

15

86

42

Oklahoma City

14

91

60

Racial segregation in housing has contributed substantially to racial segre

total black student enrollment of 2,906,941 in 1973 , 67% of black students
attended schools with 90-100% minority enrollment .

32. Since at least 1971 , the defendant agencies, have had in their pos
session concrete evidence of discrimination by regulated lending institutions .
In June of that year , at the instance of the Department of Housing and Urban

Development , the defendant agencies distributed a questionnaire to more than
18,000 lending institutions inquiring into their lending practices as they
might be discriminatory with respect to minority loan applicants . The re
sponses from more than 15,000 institutions revealed widespread discrimination

2 / Jackson , Mississippi, and Savannah , Georgia , are tho of the 47 cities , but

506

in mortgage lending. For example, 899 institutions admitted -considering the
racial or ethnic character of neighborhoods in determining whether to make

loans secured by property therein ; 99 admitted considering the applicant's
race in determining whether to approve a loan . Four hundred fifteen insti
tutions admitted that they refuse to make loans on property in areas of
minority concentration ; in some large cities with large minority populations ,
over half of the savings and loan associations admitted refusal to make such
loans .

33.

In March , 1972 , the FHLBB released the results of a survey conduc

ted among selected member institutions concerning their lending practices
and criteria . Among those responding, four percent admitted requiring lower

loan -to - value ratios and shorter loan terms on loans to minority -group appli
cants , and 1.35 percent admitted requiring higher interest rates on loans to
such applicants .

In addition , in the case of loans on property located in

low - income or minority group neighborhoods, 28 percent admitted requiring
lower loan - to - value ratios ( averaging 12.5 percent lower ) ; 11 percent
admitted requiring higher interest rates ( averaging 1/2 percent higher ) ;
32 percent admitted requiring shorter loan terms ( averaging 7.5 years
shorter ) ; and 30 percent admitted disqualifying some such neighborhoods
altogether on the basis of their income or racial characteristics . Further
more , substantial proportions of the respondent institutions stated that
they evaluated and even disqualified applicants on the basis of discriminatory
criteria , such as whether the applicant had ever been arrested ( 23 percent

used to evaluate , 12 percent to disqualify ) , marital status ( 64 percent
used to evaluate , 13 percent to disqualify ) , type of employment ( 81 percent
used to evaluate , 39 percent to disqualify ) , prior home ownership ( 57 percent
used to evaluate , 23 percent to disqualify ) , length of present employment
j

( 89 percent used to evaluate , 49 percent to disqualify ) , and length of
residence in community ( 42 percent used to evaluate , 5 percent to disqualify ) .
Finally , 78 percent of the respondent institutions stated that, in
considering the income of a 25 -year - old wife with two school -age children

1

507

working full time as a secretary , her income would be discounted by 50 to

100 percent for underwriting purposes .
34. Between June 1 , 1974 and November 30 , 1974 , the defendant agencies
conducted fair housing information surveys covering lending institutions in

18 Standard Metropolitan Statistical Areas ( SMSA's ) . The surveys were con
ducted to determine , inter alia , whether supervised lending institutions were

in compliance with statutory prohibitions against discrimination in mortgage
lending. These surveys collected information concerning approximately 105,000
mortgage applications. The results demonstrate sharp disparities in the

rejection rates of white and minority applications, further evidencing wide
spread and continued discriminatory policies and practices by lending

institutions .
A.

Specifically :

The Survey A approach , devised and analysed by the FHLBB , was used in
Atlanta , Georgia ; Buffalo , New York ; Chicago , Illinois ; San Antonio ,
Texas ; San Diego , California ; and Washington , D.C.

This survey

collected information on the race , sex , marital status , and age of
the applicants and the census tract in which the security property

applicants suffered an 8 % rejection rate while black applicants :

suffered an 18 % rejection rate . This disparity existed in each
of the six SMSAs included in Survey A :

3/

66,320 applications were collected , of which 18% were not analysed

because they did not include race or other personal data . The
furnishing of this data by the applicant was optional . A sampling
of those electing not to furnish this data indicates that they
suffered a somewhat higher rejection rate than those who furnished
it .

37-415 0 - 79 - 33

508

SMSA

Black Rejection

White Rejection

12,4

Atlanta

7.1

Buffalo

15.2

28.8

Chicago

7.0

18.4

San Antonio

8.8

23.3

San Diego

5.4

18.2

Washington , D.C.

8.8

15.1

In the two Southwestern cities, similar disparities appeared in the
rejection rates of white and Spanish applicants :
SMSA

San Antonio
San Diego

White Rejection

Spanish Rejection

8.8

18.0

5.4

:

B.

and analyzed by the Federal Reserve Board , was used in Baltimore,
Maryland ; Jersey City , New Jersey , Tampa -St . Petersburg , Florida ; Gal

veston - Texas City , Texas ; Jackson , Mississippi; and Valejo - Fairfield
Napa , Califomia . Lending institutions collected data on the race of
loan applicants and the postal ZIP code of the security property , ag
gregated this information by ZIP code , and submitted aggregate figures
to the Federal Reserve Board . Among more than 20,000 applications rem
ceived in the six SMSA's covered by this survey , whites suffered a
rejection rate of approximately 12% while minority applicants suffered
a rejection rate of approximately 228.

The approximate rejection rates

for each SMSA are :
SMSA

White Rejection

Minority Rejection

Baltimore

12

24

Jersey City

12

22

Tanpa -St . Petersburg

il

18

Galveston - Texas City

7

18

Jackson

14

17

Valejo - Fairfield -Napa

24 ..

20

509

c
.

The Survey C approach , devised and analyzed by the Comptroller of the
Currency , was used in Bridgeport, Connecticut ; Cleveland , Ohio ; Memphis,
Tennessee ; Montgomery, Alabama ; Topeka, Kansas ; and Tucson , Arizona .
This survey collected data concerning the race , sex and marital status
of each applicant; information relevant to his or her creditworthiness ;

the census tract of the security property ; the amount of loan requested

and the purchase price of the property. Of the 12,707 applications

SMSA

White Rejection

Non -white

rejection rate ( % )
Bridgeport

11.1

15.8

Cleveland

16.2

26.5 .

Memphis
Montgomery

Topeka
Tucson

TE
13.1

23.0

15.6

48.5

11.5

33,5

9.3 .

22.0 .

Because this survey included creditworthiness data , an analysis is
possible holding constant certain factors relating to creditworthiness .
This analysis strongly suggests that the difference in white and mi
nority rejection rates cannot be explained by differences in credit
worthiness .

In every case , minority rejection rates are far higher

than white rejection rates among persons having the same gross annual
income , the same gross assets, the same outstanding indebtedness , the
same monthly debt payment burden , and the same number of years in pre
sent occupation . For example :
( 1) Among persons with gross annual incomes of $ 15,001 to $ 25,000 , the
white rejection rate is 13.9 % and the non - white 20.98 . Among per
sons with gross annual income over $ 25,000 , the white rejection
rate is 12.1% and the non -white 22.6% .

4 / of 18,372 forms collected from 152 institutions, 5665 were not analyzed

because they were incomplete or appeared to contain substantial errors.

510

:( 2) Among persons with assets between $ 60,001 and 100,000 , the white

( 4) Among persons with monthly debt payments under $ 100, the white
rejection rate is 12.9% and the non -white 20.0% .
( 5) Among persons with more than five years in current occupation ,

DEFENDANTS ' NON - DISCRIMINATION ENFORCEMENT DUTIES

Non-Discrimination obligations of Federally Remulated
Mortgage Lending Institutions

35.

All national banks , state - chartered Federal Reserve member banks,

and state - chartered non -member FDIC - insured banks are subject to applicable
federal laws and to rules, regulations and procedures adopted respectively by
the Camptroller of the Currency , the Federal Reserve Board , and FDIC .

All

federal savings and loan associations and those state - chartered savings and

loan associations which are members of FHLBS or FSLIC are subject to applicable
federal laws and to rules , regulations and procedures adopted by the FILBB .
36. Mortgage lending discrimination by federally regulated lending in
stitutions, because of race , color , religion , national origin , or sex , vio
lates the provisions of the United States Constitution and various applicable
federal statutes .

( a ) The Fifth Amendment to the United States Constitution prohibits
such discrimination by mortgage lending institutions that are regulated ,

supervised , and benefitted by federal agencies..

teenth Imendment to the United States Constitution , prohibit racial discrimina
tion in nortgage lending.

511

( c ) Title VI of the Civil Rights Act of 1964 , 42 U.S.C. 2000d , pro

hibits discrimination on the basis of race , color , or national origin in
programs or activities receiving federal financial assistance , including
vided to federally regulated lending institutions by the defendant agencies.
Accordingly , federally regulated lending institutions are prohibited under

Title VI from practicing such discrimination in their mortgage lending pro
grams and activities .

( a ) Section 527 of the National Housing Act . ( 12 U.S.C. 1735f - 5 ) , as
added by Section 808 of the Housing and Community Development Act of 1974 ,

prohibits sex discrimination in mortgage lending by lending institutions
supervised by , or whose deposits or accounts are insured by , any of the defen
dant agencies .
( e ) Title VIII of the Civil Rights Act of 1968 , 42 U.S.C. 3601

'et seg . , prohibits inter alia , discrimination because of race , color , reli
gion , national origin , or sex in mortgage lending .
37.

Mortgage lending discrimination based on race , color , religion ,

national origin , or sex , subjects lending institutions to civil liabilities ,

including compensatory and punitive damages, and attorneys fees, under Sections
1981 , 1982 , and 3601 et seq . of Title 42 U.S.C. Accordingly, such discrimina
tion subjects these lending institutions to probable substantial financial loss ,

as well as other damage resulting from the loss of public confidence associated
with adverse publicity for engaging in such discrimination .

38. Mortgage lending discrimination based on race , color , religion ,
national origin , or sex , unduly limits the business opportunities of lending

institutions and credit opportunities of borrowers .
Because mortgage lending discrimination based on race , color , religion ,

national origin , or sex violates federal law , subjects lending institutions to

financial loss, and unduly restricts business opportunities , such discrimination
constitutes unsafe and unsound practices within the meaning of 12 u.s.c. 1730
and 1818 .

512

40. Mortgage lending discrimination based on race , color , religion ,
national origin , or sex , by federally insured commercial banks and mutual

savings banks is in conflict with the FDIC requirement that insured banks

serve " the convenience and needs of the community" ( 12 U.S.C. 1816, 1828 ( c) ( 5) ) .
41. Mortgage lending discrimination based on race , color , religion ,
national origin , or sex , by federally chartered , FHLBS -member , and FSLIC
insured savings and loan associations is in conflict with the major purpose
of federal chartering of savings and loan associations and for which the
FHLBS and FSLIC insurance were established , namely : to enable Americans to

become homeowners by facilitating mortgage credit . Such discrimination also
violates basic conditions of eligibility for membership in the FHLBS and in
surance of deposits by FSLIC , namely : that the character of the institutions'
management or its home financing policy not be " inconsistent with sound and
economical home finance practices"

( 12 U.S.C. 1424 ( a) , 1464 ( a) , 1726 ( c ) ) .

Non - Discrimination Enforcement Obligations of Defendant Agencies
42 .

The Fifth Amendment to the United States Constitution prohibits

discrimination by the United States Government , including all departments
and agencies thereof , and requires such departments and agencies to assure
.

against discrimination by institutions with which they are significantly in
volved .

Under the Fifth Amendment , the defendant agencies are obligated to

take such action as is necessary and appropriate to prevent discrimination
in mortgage lending by the lending institutions they regulate , supervise,
and benefit .
43.

Section 602 of Title VI of the Civil Rights Act of 1964 , 42 U.S.C.

2000d-1, directs federal departments and agencies Empowered to extend federal
financial assistance to any program or activity by way of grant , loan , or

contract other than a contract of insurance or guarantee , to issue appropriate
rules , regulations, or orders, and to take other appropriate steps to assure
against discrimination on the basis of race , color , or national origin in such

513

programs or activities. The comptroller of the Currency and the FHLBB issue
charters to National banks and Federal savings and loan associations, re

spectively, subject to specific terms and conditions. Such issuance confers
upon federally chartered banks and savings and loan associations the exclusive
right to use the words " National " and " Federal" respectively in their names ,
endowing them with the prestige and imprimatur of United States Government
approval associated with these terms , The Federal Reserve Board extends

financial assistance to National banks and to state -chartered banks which are
members of the Federal Reserve System by making loans to them through Federal

Reserve Banks when they are in need of additional funds ( 12 U.S.C. 347 ) , by

supplying them with currency when needed , and allowing use of its facilities
for collecting checks, clearing balances and transferring funds to other cities
( 12 U.S.C. 248) .

The FDIC , in addition to insuring deposits of all banks

( National and state - chartered ) which are members of FDIC , makes loans or de

posits and purchases assets when its members are in danger of closing ( 12 U.S.C.

1823( c) ) . The FHLBB extends financial assistance to savings and loan institu
tions which are members of the FHLBS by making loans to them through Federal
Home Loan Banks ( 12 U.S.C. 1429 , 1430 ) .

Through the FSLIC , in addition to

insuring accounts at institutions which are members of FSLIC , the FHLBB makes
loans to or purchases the assets of institutions which are in danger of default
or liquidation ( 12 U.S.C. 1729 ) .

44. Title VIII of the Civil Rights Act of 1968 , 42 U.S.C. 3601 et seg . ,
requires all federal departments and agencies that administer programs and
activities relating to housing and Lucban development to administer such pro

grams and activities in a manner affirmatively to further the purposes of
the Act . Under Title VIII , the defendant agencies, all of which acminister
programs and activities relating to housing and urban developent , are obligated
to issue nules and regulations , adopt procedures , and otherwise adninister

their programs and activities, so as to assure against mortgage lending dis
crimination on the basis of race , color, religion , national origin , and sex ,
by the lending institutions they regulate , supervise and benefit .

514

45. Sections 1441 and 144 la of 42 U.S.C. direct all federal departments

and agencies having powers,functions, or duties with respect to housing, to
exercise them consistently with the national housing policy and in a manner
that will facilitate sustained progress in attaining the national housing
objective of " a decent home and suitable living environment for every American
. family . "

Those sections further direct that all such departments and agencies

act to encourage " the development of well planned , integrated , residential
neighborhoods ."

Pursuant to these statutory mandates , the defendant agencies

-

are obligated to take such actions as are necessary and appropriate to ensure
against mortgage lending discrimination by the lending institutions they regu
late, supervise and benefit .

46. The Financial Institutions Supervisory Act , 12 u.s.c. 1464 , 1730 ,
1818, requires that whenever a federally regulated or insured savings and loan
association or commercial or mutual savings bank is violating or has violated

an applicable law , nule, regulation , or order , or is engaging or has engaged
in an unsafe or unsound practice , the appropriate defendant agency must take
steps to secure corrective action .

In the event such corrective action is

not secured , these agencies are authorized to impose sanctions, including re
moval of the federal charter , termination of membership in the FHLBS or Fed
eral Reserve System , issuance of cease and desist orders , and termination of
federal insurance of accounts or deposits. The Financial Institutions Super
visory Act , 42 U.S.c. 1730 , 1818 , also authorizes the appropriate federal
agency to suspend or remove a director or officer of a member lending institu

tion for violating any applicable law , rue, cr regulation , or final cease and
desist order , or for engaging in any unsafe cr unsound practice, when the agency
determines that the lending institution has suffered or will probably suffer
substantial financial loss or other damage.

DEFENDANTS ' VIOLATION OF THEIR DUTY TO
ENSURE AGAINST DISCRIMINATION IN MORIGAGE LENDING

47. The principal way in which defendants normally assure compliance
with law and the soundness and safety of operations by supervised institutions

515

is by issuing rules and regulations , establishing procedures , conducting

periodic examinations of individual institutions, and requiring the collec
tion and maintenance of sufficient records and data to enable examiners to

detect violations so that necessary corrective action may be taken .

48 .

The

On March 8 , 1971 , plaintiffs ( other than National Neighbors )

filed a petition pursuant to 5 U.S.C. 553 ( e) with each of the defendant agen
cies requesting each of them to adopt rules , regulations and procedures which
would assure against discriminatory lending practices by institutions which
they supervise and regulate .

Included in the procedures requested was a re

quirement that each lending institution collect and retain for examination
by the supervising agency , data on the race or ethnic group identification

of all mortgage loan applicants , together with information concerning the dis
position of each application . Such racial or ethnic data is routinely required
by most federal agencies having non -discrimination enforcement responsibili
ties, and is essential to the identification of patterns of potential discrim
ination and the initiation of effective remedial action .
49.

Previously , in June of 1969 , pursuant to the powers and responsibili- .

ties vested in him by 42 U.S.c. 3608 , the Secretary of the Department of

Housing and Urban Development ( HUD) had recommended to the four defendant
agencies the adoption of rules , regulations and procedures similar to those
proposed by plaintiffs in their petitions, including specifically the require
ment that supervised lending institutions collect and retain for examination
racial and ethnic data on loan applicants .

Section 3608 of 12 U.S.C. requires

all federal agencies to administer their programs and activities relating to

housing in a manner affimatively to further fair housing, and to cooperate
with the Secretary of HUD to further such purpose .

516

50.

In the five years since plaintiffs filed their petitions, the defen

dant agencies, in violation of 5 U.S.C. 555 ( b) and ( e) and their duties as
alleged in paragraph 42 through 46 , have not acted upon them . Only one of
thèse agencies, the FHLBB , has adopted regulations dealing in any significant
way with the issues raised by the petitions, but as alleged in paragraph 51 ,
even in that one case the adoption of regulations has not been followed by
effective implementation and enforcement . Specifically :
( a ) The Conptroller of the Currency on December 17, 1971 announced
his intention to consider regulations prohibiting discrimina
tion in mortgage lending by national banks ( 36 F. R. 25167 ) .

No such regulations have ever been proposed or adopted , nor
have hearings been held .
( b ) The Federal Reserve Board has not even formally considered the

( c ) The FDIC on December 17 , 1971 announced its intention to consider

19 , 1972 held hearings on the proposed regulations . Despite

favorable comments from the Office of Management and Budget , the
Department of Justice , the Department of Housing and Urban Develop
ment , and the United States Commission on Civil Rights on the

proposed regulations , including specifically the proposal to re
quire the collection and retention of racial and ethnic data on
mortgage applicants, no further action has been taken by the

regulations ( 36 F.R .: 25151 ) , on January 13 , 1972 published pro
posed regulations for comnent ( 37 F.R. 811) , on April 27 , 1972

published general regulations concerning non -discrimination by
insured savings and loan associations ( 37 F.R, 8136) , on July 5 ,
1973 published regulations implementing Title VI of the Civil

517

Rights Act of 1964 ( 38 F.R. 17929) , and on December 17, 1974
published " Guidelines " discussing certain discriminatory prac

tices ( 39 F.R. 43618 ) . These regulations and -" Guidelines"
omitted the provisions contained in the original proposed regu
lations requiring the collection and retention of racial and
ethnic data on loan applicants, despite the endorsement of this

requirenent by the Office of Management and Budget , the Depart
ment of Justice, the Department of Housing and Urban Development ,
and the United States Canmission on Civil Rights .
51.

In addition , all of the defendants have failed and refused to adopt

effective procedures for detecting discriminatory patterns or practices at
particular institutions which they supervise and regulate, and have failed and
refused to undertake enforcement action against instit : tions where such discrim

inatory practices appear to exist . Specifically :
( a) They do not require institutions to collect and retain racial or

ethnic data on loan applicants which couldserve to identify insti
tutions at which discriminatory practices may exist , warranting
further detailed investigation .

( b) They have failed to investigate , or even schedule for investiga
.

ing the existence of discriminatory practices, derived from the

1971 HUD - sponsored lending practices survey ( see paragraph 32 ,
supra ) . and the 1974 Fair Housing Information Survey ( see para
graphs 33 and 34 , supra ) .

( c ) They do not include detailed investigation of potential discrim
inatory lending practices as part of their routine exaninations ,
such as a review of appraisal forms , underwriting standards , and

goographic lending pattems, and with the exception of the FILBB
they lack any procedures for conducting such investigations .

518

( d ) They do not adequately train or instruct examination staff
with respect to the investigation of discriminatory lending

practices , an area of responsibility with which such staff

is generally unfamiliar .
( e ) They do not conduct appropriate investigations of complaints
which they receive concering discrimination in mortgage

lending by institutions which they supervise .
52. The refusal and failure of defendants to act upon plaintiffs' peti
tions or HUD's recommendations or otherwise to adopt effective rules , regu

lations and procedures to ensure against discrimination by lending institu
tions which they supervise and regulate has persisted despite repeated efforts
by petitioners , by other federal agencies and by other persons and organiza

tions to secure such action .
53 .

Defendants ' failure and refusal to adopt appropriate rules , regula

tions, and procedures to ensure against discrimination in mortgage finance
by institutions which they supervise violate duties imposed on them by the

Fifth Amendment to the United States Constitution ; Title VI of the Civil Rights
Act of 1964 , 42 U.S.c. 2000d et seq.; Title VIII of the Civil Rights Act of
1968 , 42 U.S.C. 3601 et seg.; the Financial Institutions Supervisory Act ,
42 U.S.C. 1464 , 1730 , 1818; and Section 2 of the Housing Act of 1949 , 42 U.S.C.
1441, 144lai

Such failure and refusal also denies to plaintiffs and their

members rights secured under the Fifth Amendment to the United States Constitu
tion ; Title VI of the Civil Rights Act of 1964 , 42 U.S.C. 20000 et seq .;
the Civil Rights Acts of 1870 and 1866 , 42 U.S.C. 1981 and 1982 ; Title

VIII of the Civil Rights Act of 1968 , 42 U.S.C. 3601 et seq . , and Section 527
of the National Housing Act , 12 U.S.C. 1735f- 5 .
WHEREFORE, plaintiffs pray that this court advance the case

on the docket and order a speedy hearing thereof and , after such hearing , enter
an order :

519

A. Declaring that defendants ' failure and refusal to carry out their
responsibilities to ensure against discrimination in mortgage finance by
supervised lending institutions violates plaintiffs' and their members '
rights secured by the Constitution and laws of the United States .

to enforce the laws against discrimination in mortgage lending with respect
to institutions which they supervise, regulate and benefit .

and the FDIC forthwith to adopt rules and regulations to ensure against such
discrimination , including regulations defining and prohibiting, in specific
terms, lending practices which are discriminatory on the basis of race or sex .

D. Ordering all of the defendants to adopt procedures for the detection
and investigation of potential discriminatory practices and for the prompt
elimination of such practices where they are found to exist , including the
following:
1.

Procedures requiring the collection and retention of racial and
ethnic data concerning mortgage applicants and concering the

areas in which loans are requested , and data concering the
sex of mortgage applicants.
2.

Procedures for reviewing the foregoing data concerning loan

applicants and lending areas , and for reviewing appraisal,
underwriting and other practices which may be discriminatory
in purpose or effect , as a regular part of routine examinations ,
3.

Special investigation procedures and examination schedules for

institutions as to which infonration secured during routine
examinations or complaints received indicate possible violation
of laws concerning lending discrimination .
4.

Training of examiners in routine and special examination and

investigation procedures concerning non - discrimination in mortgage
lending.

520

! : 5. Schedules and deadlines for the commencement and conclusion of

are discovered .

6. Requirements that lending institutions which have engaged in

and female applicants are no longer discouraged from applying
for motgage loans .
Plaintiffs pray for such additional relief as the interests of justice

may require, together with the costs , including reasonable attorneys' fees ,
incurred in maintaining this action .

William L. Taylor

Taylor

Ragh Kulis
Roger Kuhn

Martin
Martin E. Sloane
Daniel A. Searing
Jay Mulkeen

Karen Krueger

Jack Greenberg

James E. Kabrit, III
Charles Willians

Counsel for Plaintiffs

Sloane

521

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

:
NATIONAL URBAN LEAGUE , et al . , )

Plaintiffs ,

Civil Action No. 76-0718

v.

STIPULATION OF DISMISSAL

)
i
)

OFFICE OF THE COMPTROLLER OF

EILED
)

THE CURRENCY , et al •. ,

Defcncants .

MAR 23 1977
JAMES F. DAVEY , Cierka

IT IS HEREBY STIPULATED that , in consideration of the
attached Settlement Agreement , dated March 22 , 1977 , between
Plaintiffs and Defendants Federal Home Loan Bank Board , Garth

Marston , and Grady Perry , Jr. , ' the above - entitled action against

the defendants named herein may be and is hereby dismissed
without prejudice .
Respectfully submitted ,

&

Sloane

HARTIN E. SLOANE
KAREN KRUEGER

DANIEL J. GOLDBERG

Acting General Counsel

MICHAEL W. WARREN

National Committee Against
Discrimination in Housing
1425 H Street , N.W.
Washington , D.C.

chines.Slue
HAROLD S. SHORE

20005

Associate General Counsel

Williant Taylor

WILLIAM L. TAYLOR

JOHN GUNTHER

ROGER KUHN

Center for Nat'l Policy Review
Catholic Univ . Law School
Washington , D.C.
20064

Attorney
Office of the General Counsel
Federal Home Loan Bank Board

320 First Street , N.W.
20552
Washington , D.C.

JACK GREENBERG
JA !!ES E. NABRIT , III

CHARLES WILLIAMS
NAACP Legal Defense and
Educational Fund
10 Columbus Circle
New York , New York
10019

Attorneys for defendants
Federal Home Loan Bank Board
Carth Harston and Grady Perry , jr .

Attorneys for Plaintiffs
ORDER
IT IS SO ORDERED :

This 23

day of March , 1977 .

Tuharad A. Fercel
UNITED STATES DISTRICT

522

SETTLEMENT

This Agreement between Plaintiffs National Urban League ,
National Committee Against Discrimination in llousing , National
Association for the Advancement of Coloured People , National
Neighbors , Metropolitan Washington Planning and Housing Association ,
and National Association of Real Estate Brokers ( hereafter " Plain
tiffs " ) and defendants Federal Home Loan Bank Board , Garth Marston

and Grady Perry , jr . ( hereafter " Board " ) is made to resolve , as to
the parties hereto , without adjudication of any issue of law or facts ,

litigation presently pending between Plaintiffs and the Board in the
United States District Court for the District of Columbia entitled
National Urban League, et al. v . Office of the Comptroller of the
Currency , et al . , ( Civil Action No. 76-718 )
suit " ) .

( hereinafter " the law

In executing this Agreement , none of the parties hereto

makes any admission whatsoever as to any issue of law or facts raised .

in the lawsuit or which might be raised in the lawsuit .

The Board

has entered this Agreement not only to settle the lawsuit , but also
to further its existing commitment to effective enforcement of its
nondiscrimination policies .
Section 1 .

The Board agrees that it will use its best efforts to
insure compliance by the financial institutions regulated by the

Board with the prohibitions against mortgage lending discrimination ,

tutions regulated by the Board shall be requested by the lender to
indicate their race ( as defined in 12 C.F.R. S 202.13 ( a ) ( il ) and
sex .

situa

523

cants . " The Board at this time has declined to impose sưch a
requirement .

The Board recognizes, however, that effective

monitoring and enforcement procedures may dictate that such a

If the Board , after good faith efforts , cannot obtain
such a control sample group voluntarily , it promptly will take

action to establish such a group through any means authorized by
law , including a temporary regulation .

Board's efforts to monitor non -compliance with its nondiscrim
ination regulations at said other insured institutions , the Board

37-415 O - 79 - 34

524

will take adeguate steps to eliminate the problem by proposing
a final regulation which would require all insured savings and

loan associations to provide racial /sex notation data for loan
'applicants when the applicants themselves decline to do so , or
will take other action , to the extent authorized by law , to
i

produce substantially equivalent results .
The Board further agrees that it will make available to
the plaintiffs the information on non - response rates, which is
used by the Board to evaluate the results of the Board's efforts

in this area , including the information called for in Section 10
of this Agreement , and to give Plaintiffs the opportunity to

offer suggestions to the Board regarding actions the Board might
take to make its enforcement efforts in this area more effective
X

* The Board agrees that it will consider such suggestions which may

collection of this data .
Section 2 .

The Board agrees to develop and implement a system for

the collation and analysis of the racial /sex notation data collec
ted in accordance with Section 1 of this Agreement , which system

will produce effective and meaningful use of the aforesaid data as

525

an aid to the Board's compliance program , without undue expense

or undue diversion of personnel .

The Board further agrees that it

will review the system devised hereunder within one year following

' implementation of such system in accordance with Section 10 of
this Agreement . The Board will provide to the plaintiffs the data
and analyses produced under this system , including those used by
the Board to evaluate said system in order to enable the plaintiffs
to review such system and to provide suggestions to the Board for

the improvement of such system ; provided that the Board will not
be obligated to turn over to the plaintiffs copies of examination
reports or excerpts therefrom , examiners ' work papers and confiden
tial examination programs , specific enforcement recommendations ,

material identifying specific savings and loan associations , and
legal advice prepared by the Board's Office of General Counsel .

Section 3 .

The Board is presently studying the usefulness of data .
available to it under the Home Hortgage Disclosure Act and will
attempt to develop a system for meaningful use of this data in

526

that they have been advised by Board representatives that devising
such a system may be unfeasible :

It is understood that the Board

has no obligation to implement such a system if the Board reason
ably and in good faith determines that it is unfeasible to implement
such a system . Before the Board makes a final determination on
feasibility , it will consult with Plaintiffs pursuant to Section
.10.0f the Agreement .
Section 4 .

tions used in such training sessions , as it has done in the past .

This will include appropriate training in the use of race/sex data ,
as it becomes available .

The Board will consult with the plaintiffs

periodically on the subject of examiner training , as set forth in
Section 10 of this Agreement .
Section 5 .

The Board agrees that it will provide extensive training

in civil rights matters to one person in each of its 12 districts
who will spend approximately 50 percent of his/her time on civil

rights enforcement matters ; each such person will. serve on a level

which will enable him/her to have direct access to the District
Director .

Such person will have a general responsibility to review

the nondiscrimination aspects of examination reports in order to

make them more effective , including review of individual examination
reports and discussions with examiners ; to make recommendations for

improvements in examination methods ; and to consult with Supervisory
Agents through the District Directors on enforcement recommendations .
It is understood that the workload of such specialists is expected
to vary from district to district , and that such specialists may

527

devote more or less than 50 % of their time to nondiscrimination
matters , depending upon their actual workloads ; it is further

understood that the time spent on such matters by such specialists
will be adequate to carry out their responsibilities , as described
herein .

In addition to the foregoing , the Board agrees that it

will do one of the following : ( a ) . the Board will hire a full time
to the Director of the Board's Office of Examinations and Supervision
( OES ) and who will report directly to the said Director of OES , or
( b ) if hiring said person would be burdensome , in light of personnel

or budgetary restraints , the Board , as an alternative , will hire ,
on a contract basis for a one -year period , a civil rights specialist .

( who will have an extensive civil rights background ) .

Said specialist

will assist in the training and guidance of the civil rights specia

lists in the field and the Washington and field staffs generally,
and will recommend improvements in examination and enforcement
methods and training .

the Board will review its effectiveness with plaintiffs , pursuant

to Section 10 of liis Agreement ..
Section 6 .

The Board is now in the process of developing nondiscri
mination complaint processing procedures , which will be implemen
ted within 90 days following the effective date of this Agreement .
The Board agrees that these procedures will include time limits for

actions thereunder , with exceptions for special circumstances . The

Board further agrees that , not later than thirty days following the
date of the execution of this Agreement , it will provide plaintiffs

with an outline of said proposed procedures , will allow. Plainti

528

Section 7 .

Section 8 .

The Board agrees that it will advise all insured institu
tions of its commitment to vigorous enforcement of its nondiscrim
ination regulations ; it will also advise said institutions that

the Board will use the enforcement procedures usually employed
in cases of other kinds of violations in the event of noncompliance
with said regulations .

communication public .

The Board agrees that it will make this

Although the Board agrees to do the foregoing ,

it contends that it has , in the past , given similar advice to insured

institutions . :
Section 9 .

The Board agrees that it will give the plaintiffs an oppor
tunity to make suggestions for changes in the Board's nondiscrimina
tion regulations , and will consider seriously any suggestions made

by the plaintiffs.
Section 10 .

The Board agrees that , for a period of 36 months following
execution of this Agreement , it will provide plaintiffs with the

following data or their equivalent at least annually , and more often
if available :
A.

copies of race/sex data notation forms and instruc

B.

Description of the Board's system for collation and

tions for their use .

analysis of race/sex data , with copies of relevant
instructions to personnel performing collation or
analysis .

529

c. “ Data and analyses produced pursuant to Section 2

trends and comparisons of lending patterns showing

various types of discrimination in vațious regions ,
cities , or SMSA's , and individual institutions ( but

only to the extent this can be done without revealing
information which in the Board's judgment could

reasonably permit identification of said individual
institutions ) .
D.

Data indicating non - response rates on race/sex
notation forms , including information on whether

there are deviant rates at particular institutions

R.

*:

530

J. : Reports concerning number of complaints received ,
:

: investigated and resolved ( showing separately

resulting in enforcement action ) .
Copies of any other instructions , regulations ,

guidelines , procedures or reports concerning fair
housing enforcement , if any , not covered by para
graphs A - J herein .

It is understood and agreed between the parties as follows ...
with respect to the Board's undertaking to provide the foregoing

information : ( a ) the Board will not provide any data which identifies
specific savings and loan associations , nor will it provide confiden
tial. exar ination progcams ; ( b ) the Board will not provide copies of : 1

examination reports , examiners ' workpapers , or excerpts therefrom ;
( c ) the Board will not provide copies of material which deals with

specific compliance matters at specific savings and loan associations

or contain recommendations for specific enforcement actions; ( a )
the Board will not provide legal analyses , opinions and conclusions
of the Board's Office of General Counsel ; and ( e )

the Board will

not provide data which is identical to that previously provided .

:

will receive a written explanation when their recommendations are .
not accepted .

It is understood and agreed to by all parties to

this Agreement that the responsibility for the implementation of
these programs is solely the Board's and not the plaintiffs ' .

531

Section 11 .

in the area of mortgage lending discrimination , from 1968 to the
date of execution of this Agreement ; and ( b ) give up any right to

sue the Board on any matter within the scope of the lawsuit for a
period of thirty ( 30 ) ronths from the date of this Agreement , except
for violations of the Agreciment .
Section 12

Upon execution of this Agreement , the plaintiffs and the

Board will file a stipulation in the United States District Court
to dismiss the lawsuit without prejudice , insofar as it relates
to the Board and

Dated :

its members .

March ?? , 1977

te : so ‫ ر‬there
MARTIN E. SLOANE
KAREN KRUEGER
MICHAEL W. WARREN

Dated :

March 22 , 1977

Guthwhis
GARTH AARSTON , --Çjairman

National Comunittee Pgainst

Z
GRADY PERRY , JR . ,femper
Federal Home Loan Bank Boara

Walhan (

Taylor

WILLIAM L. TAYLOR

ROGER S. KUHN

Center for National Policy

JACK GREENBERG
JAMES E. RABRIT , III
CHARLES WILLIAMS

NAACP Legal Defense anå

532

AMENDMENT TO SETTLEMENT AGREEMENT
between

the National Urban League , National Committee Against Discrimination
in Housing , National Asssociation for the Advancement of Colored

People , National Neighbors , Metropolitan Washington Planning and
Housing Associations , and National Association of Real Estate Brokers
( " Plaintiffs " )
and

the Federal Home Loan Bank Board ( " Board " ) .

1.

On March 22 , 1977 , the Plaintiffs and the Board entered into a

Settlement Agreement in an action entitled National Urban League , et al .
y . Office of the Comptroller of the Currency , et al . ( CA No. 76-0718 ,

D.D.C. ) , in consideration of which the action was dismissed without
prejudice .

It now appears to the parties to that Agreement that a longer

period of time than originally contemplated will be required to implement
the provisions of Section 2 of the Agreement .
2.

Accordingly the parties have agreed as follows :
( a)

The Board will use its best efforts to implement Section 2

according to the schedule proposed by the Board and agreed to by the
Plaintiffs .
( b)

The schedule is set forth in Appendix A.

The Board will provide the Plaintiffs with data to the extent

provided by Section 2 and 10 of the Agreement .

533

Appendix A

July 1 , 1978 :

Examiners begin completing 52 - column
loan application form for sample of
100 recent loans closed by each S & L
examined .

August 15 , 1978 :

Special report from OES providing
analysis of examiners ' assessment of
costs and usefulness of 23 - column and

52 - column loan application registers .
September 1 , 1978 :

September 30 , 1978 :

Loan application registers become
effective for S& L's .
Specification of edit test completed
at the Bank Board .

December 1 , 1978 :

Examiners compile 52 - column loan
application registers for all S& L's

in three SMSA's for loan applications
beginning September 1978 .
January 30 , 1979 :

Statistical testing format specified

and reliability of statistical pro
cedure tested with a trial run for
first months data .
February 28 , 1979 :

Data in form ready for use ; edits
completed ; and statistical routines
tested .

February 28 April 30 , 1979 :

Analysis of data in process .

April 30 , 1979 :

Final testing of alternative mortgage
application registers completed and
written analysis available for dis
tribution .

July 1 , 1979 :

Adoption by the Board of final loan
application register as determined
to be appropriate .

October 1 , 1979 :

Effective date for final loan applica

tion register as adopted by the Bank
Board on July 1 , 1979 .

534

( c)

The Settlement Agreement is hereby extended to expire on

March 1 , 1981 .

Dated :

September

, 1978

Martin S. Sloane
Martin E. Sloane

National Committee Against

Dated :

, 1978

September

Rohstofnula
Robert H. McKinney
Chairman

Hill 1.Tyn

JustMarathi

William L. Taylor

Garth Marston

Center for National Policy

Member

Attorneys for the Plaintiffs

Anita Miller

Curs

Mello

Member
Federal Home Loan Bank Board

535

It is hereby agreed by the signors that Appendix A to the Amendment
to Settlement Agreement , dated September 20 , is amended to read as
follows :

July 1 , 1978 :

Examiners begin completing 52 - column
loan application form for sample of

100 recent loans closed by each S& L
examined .
August 15 , 1978 :

Special report from OES providing

analysis of examiners assessment of
costs and usefulness of 23-column
and 52-colun loan application
registers .

September 1 , 1978 :

Loan Application Registers become
effective for S& L's .

September 31 , 1978 :

Specification of edit test completed
at the Bank Board .

December 1 , 1978 :

Examiners compile 52-column loan ap
plication registers for all S& L's in
three SMSA's for loan applications
beginning September 1978 .

January 30 , 1979 :

statistical testing format specified
and reliability of statistical pro
cedure tested with a trial run for
first months data .

February 28 , 1979 :

Data in form ready for use ; edits
completed ; and statistical routines
tested .

February 28 April 1979 :
April 30 , 1979 :

Analysis of data in process .
Final testing of alternative mortgage

application registers completed and
written analysis available for dis
tribution .
July 1 , 1979 :

Adoption by the Board of final loan
application register and data collec

tion and analysis as determined to
be appropriate .

536

on or about
October 1 , 1979 :

Effective date for final loan appli
cation register and implementation
of a data collation and analysis system
to the extent provided in Section 2 &
10 of the Agreement .

( як
Solat

Martin E. Sloane

Robert H. McKinney

National Comittee Against

Chairman

William L. Taylor
Center for National Policy

Anita Miller
Member

Attorneys for the Plaintiffs

Federal Home Loan Bank Board

Cuita

helle

537

RECEIVED
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

AY 1 3 1977
JAMES E , DAVEY, Clerk

NATIONAL URBAN LEAGUE , et al . ,
Civil Action No. 76-0718

).
Plaintiffs ,
)

STIPULATION OF DISMISSAL
v.
)

OFFICE OF THE COMPTROLLER OF
THE CURRENCY , et al . ,
)

Defendants .

IT IS HEREBY STIPULATED that , in consideration of the

attached Settlement Agreement , dated May 13, 1977 , between
Plaintiffs and Defendants Federal Deposit Insurance Corporation
( FDIC ) , Robert E. Barnett , George A. LeMaistre , Robert Bloom as
Director of FDIC and not as Comptroller of the Currency , the
above - entitled action against the defendants named herein may be
and is hereby dismissed .

Respectfully submitted ,

Mutu S. llama

Milis

eft

MILES A. COBB

MARTIN E. SLOANE
KAREN KRUEGER
MICHAEL W. WARREN

Rico Q How
ROGER'A . HOOD

Taylor

WILLIAM L. TAYLOR
ROGER KUHN

Attorneys for defendants

JACK GREENBERG
JAMES E. NABRIT , III
CHARLES WILLIAMS

Attorneys for Plaintiffs
ORDER

IT IS SO ORDERED :
This

day of May , 1977 .
UNITED STATES DISTRICT JUDGE

538

SETTLEMENT AGREEMENT

This Agreement between Plaintiffs National Urban League , National

Canmittee Against Discrimination in Housing, National Association for the
Advancement of Coloured People , National Neighbors, Metropolitan Washington

Planning and Housing Association , and National Association of Real Estate
Brokers ( hereinafter " Plaintiffs " ) and defendants Federal Deposit Insurance

Corporation ( hereinafter the " FDIC" ) , Robert E. Barnett, Ceorge A. LeMaistre,
and Robert Bloom , as a director of FDIC and not as Camptroller of the Currency ,
( hereinafter the " Directors " ) is made to resolve , as to the parties hereto ,
without adjudication of any issue of law or fact , litigation presently pending
between Plaintiffs , the FDIC and the Directors in the United States District

Court for the District of Columbia entitled National Urban League , et al. v.
Office of the Comptroller of the Currency , et al . , ( Civil Action No. 76-0718)
( hereinafter " the lawsuit " ) .

In executing this Agreement , none of the parties

hereto makes any admission whatsoever as to any issue of law or fact raised in
the lawsuit or which might be raised in the lawsuit .

The FDIC has entered this

Agreement not only to settle the lawsuit , but also to further its existing
commitment to effective enforcement of its nondiscrimination policies .

Section 1. FDIC's Enforcement Program . The FDIC agrees that it will take
the following actions in connection with its supervision and enforcement of the
fair housing lending practices of insured State nonmember banks ( including

insured mutual savings banks) as governed by Title VIII of the Civil Rights
Act of 1968 , 42 U.S.C. S 3601 , et seq . and Title VII of the Consumer Credit

Protection Act ,. 15 U.S.C. S 1591 , et seq . , as they relate to home mortgage
lending ( hereinafter the " hame mortgage lending laws " ) :
me FDIC will establish a data collection and analysis system

( the " FDIC System " ) which will apply to written applications

for lains to finance the purchase of one to four unit residential
buildings in which the applicant intends to occupy one unit as a
residence ,

539

The FDIC System will make use of race / sex identification informa

tion voluntarily given by the applicant and collected by the bank
pursuant to Federal Reserve Board Regulation B , and additional

financial information on the applicant and the loan terms . If
Regulation B is modified to not require race / sex data , FDIC will

continue to require such data unless such requirement is prohibited
by law .

All of the financial infomation to be required is now

and widely used by mortgage lenders , or the form approved by the
Federal Reserve Board in Regulation B.

In the course of a regular compliance examination , the examination
team will select some or all accepted and rejected mortgage loan
applications which were received since March 23 , 1977 or the last

regular compliance examination , whichever is most recent . The
personal and certain financial information on each of these forms
will be forwarded to the FDIC'S Washington Office for transcription

to a conputer based data file for analysis.

If the number of such

applications is small, information fran all applications will be
recorded .

However , if the volume exceeds the cutoff point set by

the FDIC in accordance with generally accepted statistical sampling
principles, a sample of rejected and accepted applications will be

The data collected during examination will be analyzed by appropriate
statistical techniques to evaluate race or sex as factors in the

bank's lending decisions. The objective of this analysis will not
be to establish the actual existence of discrimination , but rather

to identify institutions at which sufficient evidence of discrimina- .
tion exists to warrant further investigation .

If race or sex appears

to be a factor in the decision , a more detailed investigation will

l be made by specially trained examiners . A by -product of the
statistical analysis will be the generation of data on applications

37-415 0 - 79 - 35

540

broken down by race and sex and on approval / rejection rates by

race and sex . These data will permit observation of trends over

time and will permit canparison of geographic areas such as SMSA'S .
Within two years following implementation of the FDIC System ,

FDIC will give consideration to including within the System statistical
data on adverse actions ( as such tern is defined in Regulation B) and
on differential loan terms that may be associated with race or sex .

If the identification rate obtained by the FDIC differs substantially
in composition by race or sex from the results achieved by the
Federal Home Loan Bank Board in the control study to be undertaken
pursuant to its settlement of the lawsuit , the FDIC will consult
with Plaintiffs about using other means of obtaining identification .

Such means may include advertising , use of additional lobby posters,
mandating identification by bank officials , or other means that the

parties may agree upon . It is the FDIC's intent that a means of
identification be used which will produce a reliable statistical
sample .

The FDIC agrees to give further consideration to the inclusion of
applications for secured home improvement loans in the FDIC System .
The inclusion of such applications will depend , in part , upon the
ease with which such loans can be segregated from loans made for
purposes other than the repair or remodeling of residential property ,
and whether , after consultation with Plaintiffs , FDIC believes

sufficient additional information relating to lending practices can
be obtained to justify the additional data collection costs .
B. The FDIC will continue its current training program outlined in
train selected examiners to ( i ) collect samples of race and sex
data maintained by institutions pursuant to the hane mortgage

lending laws , and ( ii) use the Washington Office analysis of those

541

data in examinations for compliance with the home mortgage

lending laws .
The FDIC will provide appropriate level personnel specially trained
in fair housing lending matters who will be present in each

Regional Office , and who shall be responsible in the Regional Office ,

among other things, for reviewing fair housing lending aspects of
examination reports, advising examiners on fair housing lending
matters , reviewing individual examination reports and discussing
them with examiners, making recommendations for improvements in
examination methods, and consulting with Regional Directors on
fair housing lending enforcement recommendations .

D. The FDIC will create a position for a full -time civil rights

Office of Bank Customer Affairs .

This individual will report

directly to the Director of OBCA and will be responsible for

reviewing the work of OBCA staff in Washington and persons referred
to in paragraph C above , with respect to fair housing lending aspects
of compliance examinations, disposition of complaints relating to
fair housing lending, and enforcement actions involving violations
of the home mortgage lending laws .
The FDIC will amend its current processing procedures for complaints

with respect to violations of the home mortgage lending laws within
90 days after the date of this Agreement, to include time limits for
actions thereunder, with exceptions for special circumstances .

copy of the current procedures is attached as Exhibit " B " hereto .
The FDIC will consider all camments on such procedures Plaintiffs
may submit .

The FDIC will , in general , apply the same procedures concerning

special examinations , visitatios, investigations, supervisory

542

letters , and cease and desist orders in cases of suspected
violations of home mortgage lending laws as in cases of violations
of other laws .
FDIC will determine deviations in nonresponse rates on race / sex

notation forms anong the institutions examined by it , and where

such deviation affects the ability of FUIC to analyze the data
obtained from such institution , FDIC will inquire into the
reasons for the deviation and will take such action as is

necessary and appropriate to eliminate the deviation .

H. The FDIC will again advise all insured State nonmember banks
( including insured mutual savings banks ) about its intent to
enforce the home mortgage lending laws and the various sanctions

which may be used by the FDIC for this purpose . Such notice will

be sent within 90 days after the date of this Agreement.
I. The FDIC is presently studying the usefulness of data available
to it under the Home Mortgage Disclosure Act and will attenpt to
develop a system for meaningful use of this data in connection
with the FDIC's enforcement of the home mortgage lending laws .
Plaintiffs acknowledge that they have been advised by the FDIC'S
representatives that devising such a system riay be unfeasible .
It is understood that the FDIC has no obligation to implement
such a system if it reasonably and in good faith determines
that it is not feasible to implement such a system .

Before the

FDIC makes a final determination on feasibility , it will consult
with Plaintiffs pursuant to the procedures outlined below .

The FDIC agrees that Plaintiffs will have the opportunity to comment on
the FDIC's enforcement programs and the FDIC System described in this section

in order to provide the FDIC with suggestions for improvenents therein . During
the term of this Agreement , FDIC representatives will meet periodically ( at

least every six months) with representatives of Plaintiffs to discuss the
programs described in this section and to receive and consider suggestions

543

from them .

If so requested , Plaintiffs will receive a written explanation

when their recommendations are not accepted .

It is agreed by all parties

to this Agreement that the responsibility for the implementation of these
programs is solely the FDIC's and not the plaintiffs ' , and that in conducting

enforcement programs pursuant to this Agreement the FDIC may give due regard

to the allocation of its financial and personnel resources among all of the
duties which it carries out . Nothing in this Agreement is intended to subject

the decisions of the PDIC as to the appropriate allocation of such resources
to review by any person or authority not otherwise empowered by law to review
such decisions .

Section 2.

Disclosures to Plaintiffs. The FDIC agrees that during the

term of this Agreement it will provide Plaintiffs with the following data or
their equivalent at least annually , and more often if available :

A.

Copies of blank race /sex data notation forms and instructions

B.

Description of the FDIC System and any changes in that System .

c. Copies of instructions to personnel performing collation or
analysis of race / sex data collected pursuant to the FDIC System .
D.

Data and analyses produced pursuant to the FDIC System and
reports showing results of such analyses .
Data indicating nonresponse rates on race / sex notation forms ,

incluțing information on whether there are deviant rates at
particular institutions.
Data on approvals and rejections by race and sex and the results
of the regression equation on each bank .

544

G. Examiner training materials and examination manual sections

mortgage lending components of examinations.

H.

Reports concerning the number of possible violations of home

tions conducted , the number of supervisory letters sent , and
other enforcement actions taken with respect to violations of
home mortgage lending laws .

I. The number of examiners , supervisory personnel and others under
going special training in the analysis of home mortgage lending
and information showing location of such personnel within the
FDIC .

J.

Copies of instructions concerning procedures for investigating

and resolving complaints with respect to home nortgage lending.
Reports as to the number of complaints received and their disposition .
L.

Copies of any other instructions, regulations, guidelines ,

procedures or reports concerning home mortgage lending enforce

ment , if any , not covered by paragraphs A - K herein .
Copies of the FDIC'S analysis of its 1976 fair housing lending
survey when such analysis is available .
Job descriptions for persons described in Section 1 , paragraphs C
and D.

It is understood and agreed between the parties as follows with respect
to the FDIC's undertaking to provide the foregoing information :

( a)

the

FDIC will not provide any data which identifies or could reasonably lead to
the identification of specific institutions or persons , nor will it provide
confidential examination programs ; ( b ) the FDIC will not provide copies of

545

examination reports, examiners' workpapers , or excerpts therefram ; ( c) the
FDIC will not provide copies of material which deals with specific compliance
matters at specific institutions or contains recommendations regarding
specific enforcement actions ; ( d) the FDIC will not provide legal analyses ,
opinions and conclusions of its Legal Division or Office of Bank Customer
Affairs ; and ( e) the FDIC will not provide data which is identical to that
previously provided .
Section 3. Release .

Plaintiffs agree that , in consideration for the

FDIC's undertakings in this Agreement , they hereby:

( a) release and forever

give up any right to sue the FDIC and the Directors to obtain relief for any

action taken by the FDIC or any action not taken by the FDIC in the area of
home mortgage lending discrimination , from 1968 to the date of this Agreement ;

and ( b ) release and forever give up any right to sue the FDIC and the Directors
on any matter within the scope of the lawsuit ; Provided , that ( i) during the

term of this Agreement Plaintiffs shall not be barred from bringing an action
alleging that the FDIC has breached this Agreement , and ( ii) after the expira
tion of this Agreement , Plaintiffs shall not be barred from bringing an action

alleging that the FDIC has failed , at any time after the expiration of this
Agreement , to properly enforce the obligations of insured State nonmamber

banks ( including insured mutual savings banks ) under the then existing home
mortgage lending laws . Nothing herein shall be construed to prevent Plaintiffs ,
in the trial of an action under ( ii) above , from presenting evidence of the
FDIC's enforcement activities under the home mortgage lending laws prior to

the date of this Agreement , so long as such evidence is material, relevant
and otherwise admissible in such trial . Nothing herein shall be construed

as an admission by FDIC that Plaintiffs will have standing or a cause of action
to challenge the FDIC's enforcement of such laws.

the Plaintiffs shall first contact the General Counsel of the FDIC and attempt

in good faith , to resolve any differences by negotiation . The parties agree

546

that such negotiations shall continue for a period of at least sixty days ,
unless emergency circunstances require immediate action .

In any action

alleging breach or anticipatory breach of this Agreement, the party initiating
the action shall attach to its complaint an affidavit of counsel setting forth
the steps taken in canpliance with this provision .
Section 4. Dismissal. Upon execution of this Agreement, the plaintiffs
and the FDIC will filé a stipulation in the United States District Court to
dismiss the lawsuit insofar as it relates to the FDIC and the Directors .
Section 5.

Term . The term of this Agreement shall be three years fran

the date set forth below .

DATED :

Muy 13,1977

DATED :

May 13 , 1977

FEDERAL DEPOSIT INSURANCE CORPORATION

topour 5th
counsel for Plaintiffs

BY

Robert E. Barnett
Robert E. Barett

Chairman

Mitin S. Sloane
Counsel for Plaintiffs

547

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

)

NATIONAL URBAIJ LEAGUE , et al . ,

).
Plaintiffs ,

Civil Action No. 76-0718

)

)

STIPULATION OF DISMISSAL
)

V.

)

OFFICE OF THE COMPTROLLER OF
THE CURRENCY , et al . ,
)

)
)

Defendants .

IT IS HEREBY STIPULATED that , in consideration of the
attached Settlement Agreement , dated November 30, 1977 , between
Plaintiffs and Defendants Office of the Comptroller of the currency

and John G. Heimann , Comptroller of the Currency , the above
entitled action against the defendants named herein may be and
is hereby dismissed .
Respectfully submitted ,

MARTIN E.

SLOANE

Hoane

CHN E. SHOCKEY
Chief Counsel

KAREN KRUEGER
MICHAEL W. WARREN

Office of the Comptroller
of the Currency
Attorney for defendants

Bar Klie
WILLIAM L. TAYLOR
ROGER KUHN

Attorneys for plaintiffs
ORDER

IT IS SO ORDERED :
This

day of November , 1977 .

UNITED STATES DISTRICT JUDGE

548

SETTLEMENT AGREEMENT

This agreement between plaintiffs National Urban League ,
et al . ( hereinafter " plaintiffs " ) and defendants Office of the
Comptroller of the currency and John G. Heimann , Comptroller of
the Currency ( hereinafter " Comptroller " ) is made to resolve , as
to the parties hereto , without adjudication of any issue of law
or fact , litigation presently pending between plaintiffs , the
OCC and the Comptroller in the United States District Court for

the District of Columbia entitled National Urban League, et al.
v. Office of the Comptroller of the Currency , et al . , ( Civil
Action No. 76-0718 )

( hereinafter " the lawsuit " ) .

In executing

this agreement , none of the parties hereto makes any admission
whatsoever as to any issue of law or fact raised in the lawsuit
or which might be raised in the lawsuit .

The OCC has entered this

agreement not only to settle the lawsuit , but also to further its
existing commitment to effective enforcement of its nondiscrimina
tion policies .
Section

1.

OCC's Enforcement Program

The occ has implemented and will continue in effect special
1 /

Specialists both with advisory and supervisory responsibilities in
1/

Over 400 examiners have attended two-week schools for training

in the consumer laws and examination procedures and additional examiners
The occ intends to train all
assistant national bank examiners and selected national bank examiners

will receive such training next year .

in these procedures . Training and experience in consumer examinations
have been established as prerequisites for a commission as a national
bank examiner .

In the school for consumer examiner training , 33 % of student instruction
time is spent on Fair Housing , Equal Credit Opportunity and Home
Mortgage Disclosure . The schools stress examination techniques and

feature heavy reliance on case studies to give experience in examining
for compliance . The occ training program includes training examiners
to ( i ) sample mortgage loans and ( ii ) analyze the data in examinations
for compliance with the home mortgage lending laws. The occ expects
and anticipates that the training program and materials will be revised

on a continuing basis in the future as experience dictates . Revisions
are also expected to result from comments and suggestions from the Civil
Rights Division of the Justice Department and other interested govern
ment agencies , and private organizations or individuals .

2) Specialized consumer affairs examinations are made of each national
bank by examiners who have been trained in consumer laws and examination

1

549

3 /
the area of fair housing lending.

However , the OCC agrees that

it will take the following additional actions in connection with

its supervision and enforcement of fair housing lending practices
of national banks as governed by Title VIII of the Civil Rights
Act of 1968 , 42 U.S.C. $ 3601 et seq . and Title VII of the Consumer
Credit Protection Act , 15 U.S.c. $ 1591 et seq . , as they relate to
home mortgage lending ( hereinafter the " home mortgage lending laws" ) :
27

continued

The Fair Housing portion of the consumer examination is
divided into three parts . The examiner first determines the bank's
procedures .

lending policies .

Then , a determination is made as to whether or

not the policies , or any parts of them are unlawfully discriminatory .
Finally , through statistical sampling , a determination is made as to
whether or not the policy is consistently applied .

To facilitate determining the bank's policy , the examiner completes
two forms .
One is a guideline for the interview of bank personnel
and deals with information requested in an application , factors used
in evaluating an application such as income , credit scoring , etc. ,
and action taken on the application . In completing this form , the
examiner also discusses internal control procedures employed to
ensure compliance with the Fair Housing Act . The second form is
completed to obtain the objective criteria used in evaluating the
application . Objective criteria include income and debt service
requirements , how interest rates and durations of loans are deter
mined , evaluation of credit history and source of equity , and down
payment requirements . At this time the examiner also determines
the bank's appraisal standards . The information compiled above is
then evaluated for compliance with the Fair Housing Act and Regulation
B.
The examiner then reviews a sample of accepted and rejected mortgage
loans . Applications accepted should meet the bank's objective
criteria. Applications rejected should fail to meet the criteria .
In reviewing the sample , the examiner also checks to see that no
prohibited information has been requested or considered , and that
appraisal forms and loan memoranda are free of comments concerning
the applicant's race , sex , religion , or national origin and the
racial/ national origin make -up of the neighborhood in which the
house is located . Following this evaluation , a discussion is held
with bank management . The examiner asks management why any applicants
accepted that did not meet the criteria were in fact accepted , and
why any rejected applicants who met the criteria were in fact
rejected . The examiner also discusses with management any bank
policies or practices which appear unlawful , including any practices
which indicate prescreening .
In addition , the examiner determines that data is being maintained

by the bank as required by the Home Mortgage Disclosure Act and
reviews the data in connection with fair housing lending . The examiner
plots mortgage loans , or a representative sampling, as well as rejected
applications, on census tract maps to detect possible redlining
practices . If it appears that a bank is not lending in an area which
is included in its trade area , the examiner further investigates to
ascertain the reason for this lack of lending activity and to

determine whether a pattern or practice of discrimination exists .

continued

550

A.

The occ will establish a data collection and analysis

system ( the " OCC system " )

in Washington which will apply to

written applications for loans to finance the purchase of..one
to four unit residential buildings in which the applicant intends

to occupy one unit as a residence .

The occ system will make use

of race/sex identification information voluntarily given by the
applicant and collected by the bank pursuant to Federal Reserve
Board Regulation B , and additional financial information on the
applicant and the loan terms .

All of the financial information

to be required is now included in the mortgage application forms
approved by FNMA or FHLMC and widely used by mortgage lenders ,

or the form approved by the Federal Reserve Board in Regulation B.

If the Regulation B is modified to not require race / sex data ,, the
Occ will continue to require such data to the extent permitted by law .

551

terms given to the borrower .

If personal characteristics such

as race or sex appear to be a factor in the decision , a more

detailed investigation will be made by specially trained examiners
who will use the analyses prepared in the Washington office in their
investigation .

A byproduct of the statistical analysis will be the

generation of data on applications broken down by race , sex , marital
status , age and geographical location and on both approval/rejection
rates and adverse action .

These data should permit observation

of trends over time and comparison of geographic areas such as
SMSA's .

This system will be in effect for a minimum of three years

but is subject to change if the methodology does not prove to provide
reliable data .

The occ will determine deviations in response rates among the
institutions examined by it and where such deviation affects

the ability of occ to analyze the data obtained from such institution
or suggests possible failure to properly request information from
applicants or discouragement of response , OCC will inquire into the
reasons for the deviation and will take such action as is necessary
and appropriate to eliminate the deviation .
If the identification rate obtained by the occ materially
affects the reliability of the resulting data or should the results
achieved by the FHLBB in the control study which it will undertake
indicate that an alternative method will materially enhance the

Comptroller's ability to enforce compliance with nondiscrimination
laws , the occ will take action to improve the identification rate .
In choosing the appropriate action , the occ will publish for comment

in the Federal Register alternative or complementary proposals ,
including advertising , use of additional lobby posters , mandating
identification by bank officials and other means suggested by public

interest groups , government organizations , trade associations , banks ,
or others upon their own motion .

It is the OCC's intent that a

means of identification be used which will produce a reliable

statistical sample .

applications for secured home improvement loans in the occ system .

552

The inclusion of such applications will depend , in part , upon
the ease with which such loans can be segregated from loans made

for purposes other than the repair or remodeling of residential
property , and whether the occ believes sufficient additional
information relating to lending practices can be obtained to
justify the additional data collection costs .
The occ will periodically review and update if necessary
B.

its special procedures for the investigation and processing of
complaints concerning discrimination in home mortgage lending
described and set forth in Appendix " A " hereto .
C.

The Comptroller has represented to the plaintiffs in a

letter dated November 23 , 1977 , that he intends to hire within

three months a fulltime civil rights specialist to serve in a
Washington office policy - level position with full access to him .

This individual will be responsible for ( 1 ) reviewing the effective
ness of the fair housing lending examination and enforcement program
and advising the Comptroller with respect to improvements therein ,
and ( 2 ) reviewing the work of Washington staff engaged in fair

housing lending examination and enforcement activities and the work
of the persons referred to in paragraph E below .

These responsibilities

will include the review of fair housing lending aspects of compliance
examinations , disposition of complaints relating to fair housing

lending , and enforcement actions involving violations of the home
mortgage lending laws .

A copy of the letter is attached hereto as

Appendix " B " .
D.

Within 90 days after the date of this

memorandum , the occ

will again advise all national banks that it is the policy of the

ocC that the range of investigatory and enforcement methods available
to the agency , including but not limited to special examinations
and cease and desist proceedings under the Financial Institutions
Supervisory Act of 1966 , 12 U.S.C. $ 1818 , will be used to detect
or remedy prohibited discrimination in the same manner as these

methods are used to detect and/or remedy possible or actual
violations of other statutes applicable to national banks .

553

E.

The occ has designated ( see note 3 , supra ) and will

continue to provide appropriate level personnel specially trained
in fair housing lending matters , who will be present in each
Regional Office , and who shall have as their chief responsibility
in the Regional Office , among other things , the reviewing of fair
housing lending aspects of examination reports , advising examiners

on fair housing lending matters , reviewing individual examination
reports and discussing them with examiners , making recommendations

for improvements in examination methods , and consulting with
Regional Administrators on fair housing lending enforcement
recommendations .

F.

The occ will study the usefulness of data available to it

under the Home Mortgage Disclosure Act and will attempt to develop
a system for further meaningful use of this data in connection with

the occ's enforcement of the home mortgage lending laws .

It is

understood that the occ has no obligation to implement such a
system if it reasonably and in good faith determines that it is
not feasible to implement such a system .

Before the occ makes a

final determination on feasibility , it will advise plaintiffs
and other members of the public pursuant to the procedures outlined
below .

G.

Comments and suggestions from anyone on the foregoing

matters may be submitted at any time or discussed with oCC personnel

on reasonable notice , unless contrary to law .

The inclusion in

this agreement of footnotes describing portions of the occ's
current enforcement programs does not imply plaintiffs ' acceptance
thereof as fully adequate .

The occ agrees that plaintiffs will

have the opportunity to comment on the occ's 'enforcement programs

and the Occ's system described in this section in order to provide
the occ with suggestions for improvement therein .

During the

term of this agreement , the OCC will schedule meetings on equal

opportunity and home mortgage lending ( at least every six months)
at which representatives of the occ will discuss the programs

described in this section and any changes made or proposed therein

554

and will receive and consider suggestions from plaintiffs .
will suggest to plaintiffs alternative dates for such meetings

at least one month in advance and , if requested , will attempt to
schedule such meetings at a time when the maximum number of plaintiffs '
representatives may attend .

In addition , the public will be

notified of all such meetings , which shall be open to the public ;

and other organizations and individuals shall have a like opportunity
to make comments and suggestions with respect to the occ's enforce

ment programs and the occ system, which will receive like consideration
from the Occ .

Upon request , plaintiffs or others making comments

or suggestions will receive a written explanation when their
recommendations are not accepted , which explanation will be made
available to the public .
It is agreed by all parties to this agreement that the responsibility

for the implementation of these programs is solely the occ's and
not the plaintiffs , and that in conducting enforcement programs

pursuant to this agreement the occ may give due regard to the
allocation of its financial and personnel resources among all of
the duties which it carries out .

Nothing in this agreement is

intended to subject the decisions of the occ as to the appropriate
allocation of such resources to review by any person or authority
not otherwise empowered by law to review such decisions .
Section 2 .

Public Information

During the term of this agreement , the occ will provide
plaintiffs the following materials and / or data at least annually
or more often if available .

These materials and data also are or

will be available to the public .

A.

With the exception of computerized

Copies of blank race/sex data notation forms and instructions

which are used in the OCC system .
B.

A description of the OCC system .

Any significant changes

in that system will be announced publicly and will also be made
'available .

555

C.

Copies of instructions to personnel performing collation

or analyses of race/ sex data collected pursuant to the occ system .
D.

rates and terms of approval .

Such analyses will be produced in

report form at least annually , and will show the results of the
analysis of individual bank data to the extent available which
evaluates race or sex as a factor in the bank's lending decision
( without , however , disclosing individual bank identities or any
information from which , in the Comptroller's judgment, individual

bank identities could reasonably be ascertained ) . Consistent
with Office needs for computer time and personnel , and their
capabilities , analyses of a more limited scope and / or analyses at

other intervals , can be produced upon request if the requesting
party assumes the costs .
E.

Data indicating response rates on race/sex notation forms

including information on whether there are deviant rates at
particular institutions -- information which , in the Comptroller's

judgment , could reasonably permit identification of specific
institutions is not to be released .

F.

Examiner training materials and examination manual sections

concerned with the Home Mortgage Disclosure Act , the Equal Credit
Opportunity Act , and the Fair Housing Act .

Any significant change

in these materials will be publicly announced and will also be
made available .

With prior arrangement , the occ's Consumer Examiner

training sessions may be observed .

37-415 O - 79 - 36

556

H.

An organization chart of the Consumer Affairs Division

of the occ , as well as job descriptions of the professional staff
of this Division . Any significant changes in the organization of
this Division or in its position in the organization of the
Comptroller's Office as a whole , or in the system of Regional
Consumer Specialists , will be publicly announced .
The procedures of the OCC for investigating and resolving
complaints concerned with the home mortgage lending laws .

Any

significant changes in the Comptroller's procedures concerning
consumer complaints in general or home mortgage lending complaints

in particular will be publicly announced .
when such analysis is completed .

K.

Significant new or revised proposals , instructions ,

regulations, guidelines , procedures or reports concerning Fair
Housing Lending and the occ's data analysis system will be
publicly announced and/or noticed in the Federal Register for
comment as appropriate .

Copies of all instructions , regulations ,

guidelines , procedures or reports of the OCC concerning Fair

Housing Lending and currently in effect will be available in
the Fair Housing Lending file .
L.

paragraphs C and E.
It is understood and agreed between the parties that the OCC
will not provide ( a ) any data or item which identifies or could
reasonably lead to the identification of specific institutions
or persons , nor confidential examination programs if such are
developed in the future ; ( b ) copies of examination reports ,
examiners ' workpapers, or excerpts therefrom except for blank
copies of such reports or forms ; ( c ) material which deals with
specific compliance matters at specific institutions or which
contains inter- or intra - agency advisory opinions , conclusions and
recommendations ; ( d ) legal analyses , opinions and conclusions of

557

its Law Department or consumer Affairs Division ; and ( e ) data

or materials identical to those previously provided .

Plaintiffs will :

1.

Refer to the occ's Consumer Affairs Division or advise

it of any complaints of plaintiffs ' members of which plaintiffs
may be aware concerning prohibited discrimination in mortgage
lending by national banks , unless the complainant objects .
2.

3.

Upon request of the OCC make available to the OCC qualified

persons to speak on mortgage lending discrimination at occ consumer
examiner training sessions or similar programs , consistent with
the other duties of such persons .

constituents to complete the race/sex/data collection form . used

by national banks pursuant to the provisions of Federal Reserve
Regulation B.

Section 4 . Release

In consideration for the occ's undertakings in this agreement ,
plaintiffs hereby :

( a ) release and forever give up any right

to sue the OCC and the Comptroller of the Currency to obtain relief
for any action taken by the occ or any action not taken by the
occ in the area of home mortgage lending discrimination , from 1968
to the date of this agreement ; and ( b ) release and forever give up
any right to sue the occ and the Comptroller of the Currency on any
matter within the scope of the lawsuit entitled National Urban
League , et al . v . Office of the Comptroller of the currency , et al.;
Provided , that ( i ) during the term of this agreement plaintiffs
shall not be barred from bringing an action alleging that the occ

has breached this agreement ; and ( ii ) after the expiration of this
agreement, plaintiffs shall not be barred from bringing an action

558

alleging that the occ has failed , at any time after the expiration
of this agreement , to properly supervise compliance by national

banks with the then existing home mortgage lending laws .

Nothing

herein shall be construed to prevent plaintiffs , in the trial of
an action under ( ii ) above , from presenting evidence of the occ's
enforcement activities under the home mortgage lending laws prior
to the date of this agreement , so long as such evidence is material ,
relevant and otherwise admissible in such trial .

Nothing herein

shall be construed as an admission by the OCC that plaintiffs will
have standing or a cause of action to challenge the occ's enforcement
of such laws .

Prior to initiating any action under ( i ) above , the plaintiffs
will first contact the Chief Counsel of the occ and attempt , in
good faith , to resolve any differences by negotiation .

The parties

agree that such negotiations shall continue for a period of at least
sixty days , unless emergency circumstances require immediate action .

In any such action , the party initiating the action shall attach
to its complaint an affidavit of counsel setting forth the steps
taken in compliance with this provision .
Section 5 .

Dismissal

Upon execution of this agreement , the plaintiffs and the occ
will file a stipulation in the United States District Court to
dismiss the lawsuit insofar as it relates to the occ and the

Comptroller of the Currency .
Section 6 .

Term

The term of this agreement shall be three years from the date
set forth below .

DATED : November 30 , 1977

Martin

Sloane

Counsel for plaintiffs

Ross Sk

Counsey for plaintiffs

DATED :

November 28 , 1977

OFFICE OF THE COMPTROLLER
OF THE CURRENCY

By :

Jonathan

559

Comptroller of the Currency
Administrator of National Banks
Washington, D.C. 20219

November 23 , 1977

Mr. William L. Taylor , Director
Mr. Roger

S. Kuhn , Co-Director

Mr. Martin E. Sloane
National Committee Against

Center for National Policy Review
Catholic University of Smerica
School of Law

Washington , D. C.

20064

Dear Messrs . Taylor , Kuhn , and Sloane :

As I have previously advised you in personal meetings , it is my
intent to appoint as soon as possible , hopefully within the

next three months , a fulltime civil rights specialist to serve
in a Washington office policy level position. This individual
will be responsible for ( 1 ) reviewing the effectiveness of fair
housing lending aspects of compliance examinations , and enforce
ment programs related to these examinations , ( 2 ) reviewing the
performance of Washington and regional office staff engaged in
fair housing aspects of compliance examinations and related

enforcement activities, ( 3 ) reviewing the disposition of complaints
relating to possible violations of the home mortgage lending laws ,
and ( 4 ) recommending to the Comptroller improvements in these
programs .

While I have not as yet finally determined the precise organiza
tional position in which I would prefer to place this individual ,
it is my intent that this person shall have full access to me on
all matters pertaining to enzorcement of the home mortgage lending

laws .

I shall be pleased to advise you of my selection for this

position as soon as it has been made . In the meantime , it is my
understanding that you are willing to accept this personal commit
ment in lieu of a specific agreenent concerning a civil rights
specialist as part of the settlement in National Urban League ,

et al. v . Office of the Comptroller of the Currency , Civil No.
76-0718 , D. D.C.

Sincerely ,

decette
John G. Heimann
Comptroller of the currency
APPENDIX " B "

560

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

NATIONAL URBAN LEAGUE ,

).

Plaintiff ,
)

v .

76-718

Civil Action No.

)
)

OFFICE OF THE COMPTROLLER

OF THE CURRENCY , ET AL . ,

FILED
)

Defendants .

1370

MAY

JAJES F. DAVEY, Clerk

MEMORANDUM AND ORDER

Relying in part on Title VIII of the Civil Rights Act
of 1968 , 42 U.S.C. SS 3601-19 ( 1970 &

Supp . V 1975 ) ,

plaintiff National Urban League seeks aid of this court to
require the Federal Reserve Board adequately to enforce its

alleged responsibility to prevent race and sex discrimination
in home mortgage lending . Following extended pretrial
discovery , plaintiff seeks partial summary judgment ,
claiming on the basis of affidavits and other data that
banks subject to the Board's regulatory control discriminate
and that the Board's regulatory procedures designed to
prevent such discrimination are faulty and insufficient .
The Board opposes and counters with a motion for summary

judgment , asserting plaintiff's lack of standing .

The

issues were extensively briefed and argued .
I.

This statement of the issues does not reflect what has

preceded these discrete motions , and some background is
needed to understand the context in which the court must

organizations commenced strenuous efforts to persuade four
federal banking agencies to adopt what the coalition

perceived to be appropriate examination and enforcement

561

procedures necessary to alleviate racial discrimination by
home mortgage lenders subject to federal regulation .
Conditions in the home mortgage field have received

congressional attention , and considerable indications of
pervasive race and sex discrimination in home mortage
lending can be documented from field surveys , congressional

hearings , and similar sources .

Failing to receive adequate

assurances , 11 of these civil rights organizations commenced
this omnibus suit in April 1976 against the four agencies
the Federal Home Loan Bank Board , the Federal Deposit
Insurance Corporation , the Comptroller of the Currency , and
the Federal Reserve Board

and their chief officials .

The complaint is predicated on three basic propositions :

( 2)

Defendants are obligated by statute to

exercise their supervisory and regulatory powers to

ensure against such discrimination .
( 3)

Defendants have abdicated this responsibility

by failing to adopt standard procedures used by other
agencies in civil rights enforcement .
Over the ensuing months the case has been satisfactorily

resolved by agreement except as to the Federal Reserve Board
and its officers ( hereinafter collectively referred to as
the " Board " ) .

The three other agencies whose activities are

much more prominent in the field of home mortgage lending
have entered into arrangements which plaintiffs believe give

assurance of adequate enforcement and monitoring of the
problems perceived when suit was initiated .

The Board , on

the other hand , has strenuously opposed the suit from the

outset in the belief that it presently exercises supervision

562

over the relatively small amount of home mortgage lending

respects .
From the very beginning of the litigation the Court has

repeatedly expressed concerns as to the standing of plaintiffs
to proceed .

Because of its doubts as to the institutional

standing claimed , the Court required strict compliance with
Sierra Club v . Morton , 405 U.S. 727 ( 1972 ) , and gave
.

plaintiffs opportunity to file affidavits showing injury to
members .

Continuances were sought and granted , but when

forthcoming the submissions were minimal and sketchy , thus
indicating the tenuous nature of the plaintiffs ' genuine

standing .

Doubts were initially resolved in favor of plaintiffs

after some plaintiff organizations presented by affidavit a
prima facie showing that one or more members claimed injury
at the hands of a regulated bank because the bank failed to
lend due to race or

sex .

Once settlements with the Board's sister agencies were
arranged , standing was again considered .

Most of the

plaintiffs were dropped since they had made no showing that
they or any of their members had been injured by any action
of the Board , the only remaining defendant .

Now only the

National Urban League remains , and its status from the
viewpoint of standing rests solely on the allegations of the
complaint and on the affidavit of one Birgit Fein who
suspected sex discrimination in her dealings with a single
bank regulated by the Board .

When plaintiff moved for

partial summary judgment , the Board sought and received

permission to inquire more fully into the alleged basis of
the Urban League's standing , and having done so its counter

1 / Defendants ' affidavits indicate that Federal Reserve
member banks hold less than two percent of the dollar
amount of all outstanding purchase -money home mortgage loans .

563

motion for summary judgment followed .

The League's standing

must be examined more closely in the light of the further

facts developed .
II .

In the amended , unverified complaint filed July 14 ,
1976 , the National Urban League alleges that its general
purposes are , among others , to improve the living and
working conditions of blacks and other similarly

disadvantaged minorities and to foster better race relations
and increased understanding among all persons ; that the
League and its affiliates seek to assist black residents of
low- income , deteriorating neighborhoods to find and finance

standard housing outside such areas ; that in their efforts
to find and finance homes outside ghetto areas , the clientele
served by the League and its affiliates , as well as members
of the League and of its affiliates , suffer and continue to
suffer from the discriminatory practices listed in the

complaint engaged in by lending institutions regulated and
supervised by the defendants ; that the League , its affiliates ,

and their members and clientele are directly and adversely
affected by the failure and refusal of the defendants to act
to end such discriminatory practices by institutions which

they regulate ; and that the defendants ' failure injures the

League and its affiliates in that it compels them to expend
funds , staff time , and other resources in combating such

practices which they would not be compelled to expend were
the defendants to take action as prayed in this complaint .

These generalized allegations have no specificity as far as
the Board is concerned .
Birgit Fein , the only individual member of the Urban

League claiming injury , states that in December 1976 she
spoke to a Ms. Hugel , an assistant manager of the Bankers
Trust Company in New York regarding

mortgage loan on a

564

$ 32,000 home she wished to buy in Brooklyn .

She further

states that Ms. Hugel first categorically denied that
Bankers Trust made mortgage loans , but subsequently said
that some mortgage loans were made in exceptional
circumstances , for example , to a person who was earning
$ 100,000 a year . Ms. Fein then states that Ms. Hugel did not
ask her for any information regarding her credit record or

income or the house and did not offer an application .
After Ms. Fein wrote to the New York State Banking

Department to complain of sex discrimination , a vice

president of Bankers Trust contacted her to apologize for
the misinformation .

His apology was restated in a letter

dated February 24 , 1977 , in which the bank apologized for the
" shoddy treatment " Ms. Fein received but offered no
intimation that Ms. Fein was denied a mortgage loan for

discriminatory reasons .

Bankers Trust provided defendants with the affidavit of
Mary Hugel , the loan officer who dealt with Birgit Fein , to
explain why Ms. Fein was not offered a mortgage loan .

In

her affidavit Ms. Hugel states that she informed Ms. Fein
that the mortgage loan policy of the bank " was not making

mortgage loans subject to a few exceptions , but particularly
where circumstances existed indicating important relations

where the denial of a mortgage application to a customer
might result in a substantial loss of business to the bank
in other areas .

Ms. Fein was plainly not the

substantial relationship which justify an exception to the
bank's policy .

She merely had a special checking account

and a small savings account at the bank . "
Mrs. Hugel further states that she has since " reviewed

the bank's policy with regard to mortgage loans with my
superiors and these discussions have confirmed my
understanding that residential mortgage loans were then made

565

only as an exception . "

The exceptional nature of the bank's

mortgage loan policy is evident from Bankers Trust's overall
reduction of its family home mortgage portfolio , and also by
comparing its outstanding commercial loans ( $ 8,000,000 )

against the total number of residential mortgage loans made
in 1976 ( three ) .

Ms. Fein's sex was not shown to be a

factor in her inability to secure a mortgage loan from
Bankers Trust , although it is clear that at the time of her

brief dealings with the Board before arranging a loan
elsewhere she felt she was the object of sex discrimination .

III .

The National Urban League seeks to establish standing

both in its own right and as a representative of injured
members .

Neither position remains tenable , however ,

when the above undisputed facts are appraised against the
standards for determining standing enunciated in Simon v .
Eastern Kentucky Welfare Rights Organization , 426 U.S. 26
( 1976 ) ; Trafficante v . Metropolitan Life Insurance Co.,
409 U.S. 205 ( 1972 ) ;

Warth v . Seldin , 422 U.S. 490 ( 1975 ) ;

Harrington v . Bush , 553 F.2d 190 ( D.C. Cir . 1977 ) ; and other
pertinent cases , including especially the recent decision of
this Circuit in American Jewish Congress v . Vance , No.
76-1983 ( D.C. Cir . Apr. 21 , 1978 ) .
Plaintiff , relying on Trafficante , claims that it has

been conferred statutory standing under Title VII of the
Civil Rights Act of 1968 .
513-14 &

n.

21 .

See Warth v . Seldin , 422 u.s. at

Title VIII , among other things , makes it

unlawful to interfere with a person because of his having
aided and encouraged others to enjoy rights protected by
the Fair Housing Act .

42 U.S.C. S 3617 ( 1970 ) .

Trafficante ,

however , did no more than declare that standing in suits
brought under Title VIII should be defined " as broadly as
is permitted by Article III of the Constitution . "

409 U.S.

566

at 209 ( quoting llackett v . McGuire Bros., Inc. , 445 F.2d
442 , 446

( 3d Cir . 1971 ) .

It explicitly did not , nor could

it , abrogate the Article III requirement that a plaintiff
establish that either it or its members suffered " injury in
fact " and that this injury " was the consequence of the
defendants ' actions , or that prospective relief will remove
the harm . "

Warth v . Seldin , 422 U.S. at 505 ;

accord , Simon

v . Eastern Kentucky Welfare Rights Organization , 426 U.S. at
38 ,

41 n .

22 ; see Trafficante v . Metropolitan Life Insurance Co.,

409 U.S. at 209 , 211 .

minimum , "

This " irreducible constitutional

Schlesinger v . Reservists Committee to Stop the War ,

418 U.S. 208 , 227 n . 16 ( 1974 ) , is not met by plaintiff
either as an institution or

as

a representative of its

members .

As an institution , plaintiff's interest in and commitment
to the problem of housing discrimination , no matter how
strong , " cannot substitute for judicially cognizable injury . "
American Jewish Congress v . Vance , slip op . at 7 ;

see ,

e.g. , Schlesinger v . Reservists Committee to Stop the war ,
418 U.S.

at 226 .

Neither , apparently , can its alleged

expenditure of money on the problem .

Although the Supreme

Court has never explicitly determined whether an organization's

expenditures in combating a general problem are sufficient
to establish " injury in fact " in a lawsuit on the same
subject matter , the tone of its decisions indicates that
they are not .

In Simon , a case in which plaintiff quite

likely did expend such funds , the court explicitly stated
not only that no injury to the plaintiff institution had

been shown , but that in addition no such injury could
be shown .

426 U.S.

at 40 .

have implicitly so held .

Many other cases appear also to

In Sierra Club v . Morton , 405 U.S.

727 ( 1972 ) , for example , standing was denied plaintiff
despite the near certainty that the plaintiff club had

previously devoted considerable funds to obtain the result
sought in the lawsuit .

T

567

As far as Birgit Fein's claim is concerned , it is clear
that discovery has demonstrated no claim of present harm or
threat of specific future harm .

Her unfounded fears that

she was a victim of sex discrimination are not enough .
There is a total absence of any causal relationship between
the matters alleged in the complaint and what occurred in
her particular dealings with Bankers Trust .

She , too , has

failed to establish injury in fact , and therefore plaintiff
has no standing to sue as her representative .

Warth v .

Seldin , 422 U.S. at 511.2 /
Even assuming that injury in fact has been demonstrated ,
there is no showing that the Urban League's expenditures
were in any way fairly traceable to the Board's failure

adequately to regulate its members , who account even in the
aggregate for only a miniscule percentage of home mortgage
Nor does it appear that the conditions of which

loans .

Urban League complains would be rectified if the Board's

regulatory techniques took a different form .
Because it has failed to satisfy the Article III
requirement of standing , plaintiff's motion for summary
judgment is moot .

Defendants ' motion for summary judgment

is granted , and the complaint against them must be and hereby
is dismissed .
SO ORDERED .

Valexuel A. Pereld
UNITED

STATES DISTRICT JUDGE

May 3 , 1978 .
1

2 / By way of motion to revise an earlier Order of the Court ,
plaintiff seeks to reinstate National Neighbors as an
additional plaintiff on the grounds that the affidavit of
Betsy Collard , a member of an affiliate of National Neighbors ,

demonstrates sufficient injury and causal relationship to
establish the standing of National Neighbors to sue as her
representative . The representations made in the motion simply
reinforce the Court's prior determination that the relationship
between Ms. Collard and National Neighbors is too tenuous to
support the latter's standing . Moreover , the affidavit makes
no prima facie showing of either race or sex discrimination
or of any injury suffered therefrom . Indeed , an attachment
to the affidavit indicates that the affiant apparently received
a mortgage from the only Federal Reserve member bank with whom

she dealt .

The motion is therefore denied .

568

APPENDIX 5. - COMPTROLLER OF THE CURRENCY
BENJAMIN S. ROSENTHAL N.Y., CHAIRMAN
CARDISS COLLINS , ILL .

GARRY BROWN , MICH .
CLARENCE J. BROWN , OHIO

ROBERT F. DRINAN, MASS .

NINETY - FIFTH CONGRESS

ELLIOTT H. LEVITAS , GA.

TOM CORCORAN , ILL .

DAVID W. EVANS , IND .

( 202) 225-4407

ANTHONY MOFFETT , CONN .
FERNAND J. ST GERMAIN , R.I.

HENRY A. WAXMAN , CALIF .

Congress of the United States
COMMERCE, CONSUMER, AND MONETARY AFFAIRS

Hon . John G. Heimann

Comptroller of the Currency
Administrator of National Banks

Washington , D. C. 20219
Dear Mr. Heimann :

In connection with its general oversight responsibilities over the
federal financial regulatory agencies , the Commerce , Consumer and Monetary
Affairs Subcommittee has scheduled oversight hearings in September on the

financial regulatory agencies ' enforcement of the Equal Credit Opportunity
Act and the Fair Housing Act . I am writing to request your testimony on
the morning of September 15 at 9:30 A.M.

The hearings will address the topics of nondiscrimination regulations
to implement the purposes of the Fair Housing Act , the proposed uniform
enforcement guidelines for Regulation B , and other aspects of the financial

regulatory agencies ' policies and activities for securing financial insti
tution compliance with the Equal Credit Opportunity Act and the Fair Housing
These other aspects will include the collection and use of monitoring
information , examiner training for and the organization of the civil rights
compliance examination work , the handling of consumer discrimination com
plaints , and actual enforcement activities to date .

Act .

The topics and specific questions on which the subcommittee requests
the testimony of the Comptroller of the Currency are the following :
1 .

Redlining Regulations :
a.

Is there a problem of redlining discrimination in home lending
by financial institutions , and is the problem of urban neighbor
hood decay due in any way to discriminatory practices in the
handling of individual loan inquiries and applications by
financial institutions ?

569

b.

Would banking agency promulgation and enforcement of nondis
crimination regulations explicitly prohibiting redlining
discrimination contribute materially toward more equitable
treatment of individuals and a reduction of the problem of
neighborhood decay?
Has the Comptroller sufficient statutory authority to issue

and enforce such nondiscrimination regulations , or does it
plan to request legislation to convey this authority ?
d.

Has the Comptroller any plans to issue such nondiscrimination
regulations addressed , at least in part , to redlining discrim
ination?

If not , what is the Comptroller's present approach

to the regulatory control of redlining discrimination ?

.
2

.

Redlining Monitoring:
Has the Comptroller any plans to collect monitoring information

on home loan applications and inquiries more detailed or cover
ing more types of transactions than is now required under the
monitoring provisions of Regulation B ? Will the required
monitoring information be similar in detail to the information
to be collected by the FDIC and the Federal Home Loan Bank

Board ? Will monitoring information be required on applications
for home improvement loans or mortgage refinancings ? Will it

be required on inquiries for home loans ? If not, why not?
b.

How will this monitoring information be employed to examine
individual banks for evidence of redlining discrimination?
How do you employ Home Mortgage Disclosure Act ( HMDA ) data to
examine individual banks for evidence of redlining discrimination ?

d.

Have you any suggestions for improvements of this Act or of its

implementing regulation , Regulation C , to improve the usefulness
of this data for regulatory purposes ?

.
3

Recent Enforcement :

How many and what types of violations of the Fair Housing Act ,
the Equal Credit Opportunity Act , or Regulation B have your
examiners found in national banks in 1977 and 1978? What por
tion of these violations were clear violations of the substance

and spirit of the laws prohibiting discrimination ? What remedial
or enforcement action have you taken to correct these violations ?

570

b.

Were there any instances of repeat violations , in which the bank

was found to be continuing to engage in discriminatory practices
after having previously been told to stop? What enforcement
actions have you taken in these cases of repeat violations ?
4.

Future Enforcement: How will you deal in the future with cases of
repeat violations of the Fair Housing Act , the Equal Credit Oppor
tunity Act , or Regulation B , where a bank is found on the second or

third examination to have failed to correct conditions found on a
previous examination ?

In particular ,

In the case of repeat violations will you inform , or require a
bank to inform , the victims of lending discrimination that un
lawful discrimination has been found in the institution's handling
of a previous application or inquiry from them?
b.

Under what circumstances will you release publicly the names of
institutions that have refused or failed to eliminate discrimi
natory practices .

Under what circumstances will you seek criminal prosecution of
or other punitive action against banks or their officers who
fail to eliminate discriminatory practices ?
5.

Civil Damages Litigation:

What is your view about the effectiveness and proper role of
civil damages litigation by private individuals in bringing
about general compliance with the laws against credit dis
crimination?
b.

What steps does your office take to inform consumers of their
right to file civil damage suits under the Fair Housing Act

and Equal Credit Opportunity Act , or to facilitate in other ways
consumer use of the civil damage provisions of these acts ?
6.

Consumer Information : What other consumer information and education
activities does your office conduct to inform the general public

about the laws against credit discrimination ?
to expand these activities ?

Do you have any plans

In addition to these questions to be addressed in testimony, the sub
committee requests that you provide in advance answers to certain specific

questions and certain related materials , as follows :
1.

What specific evidence have you that discriminatory redlining and
appraisal practices are occurring or have recently occurred in home

mortgage or home improvement lending by banks ? Please provide to

571

the subcommittee copies of any staff studies or other reports, or
citations of any independent research or investigative studies , on
which you rely as evidence . In the case of evidence arising from
examinations , please report as fully as possible the nature of the
findings , the types of communities or neighborhoods involved , the
number of institutions involved , and all other information pertinent
to a full description of your findings of redlining practices .
2.

Do banks maintain in their files information that would identify
individual home loan applications denied or withdrawn , or outstand
ing home loans foreclosed , for lack of acceptable fire , homeowners ,

or mortgage insurance ? Has your office utilized this information ,
or would it be feasible for your office to utilize this information ,

possibly in conjunction with the other financial regulatory agencies ,
to derive statistics on the extent and geographic distribution of
insurance redlining ?
3.

How do your examination procedures and regulations deal with dis
crimination in real estate appraisals ? Please supply to the subcom
mittee the text of any examiner instructions that address the detection
of discrimination in appraisals . If there are no such instructions ,
please so state .

4.

Have you considered requiring , as a part of the adverse action notice
required under Regulation B , that the bank include a copy of the
appraisal with the adverse action notice sent to an applicant when

his application for a home loan is denied on the basis of an inadequate
appraised value? What factors have you considered or will you con
sider in reaching a decision on this matter ?
5.

How do the Comptroller's examination procedures determine whether
discriminatory " pre- screening " and discouragement of potential loan
applicants are occurring ?

In particular :

a.

Please explain how the examination procedures will determine

b.

What procedures will detect the discouragement of applicants

by certain subtle devices such as ( i ) informing certain
applicants whom the bank wishes to discourage that six to
eight weeks will be required to process an application , when
in fact only one week is required , or ( ii ) quoting a higher
rate of interest to certain inquirers or applicants whom the

bank wishes to discourage than to favored applicants ?

37-415 0 - 79 - 37

572

Please supply to the subcommittee the text of all examiner
instructions that address the problem of " pre - screening " and
discouragement . If there are no such instructions , please
so state .
6 ..

How do you currently employ the race , age , sex , and marital status
monitoring information gathered on home mortgage applications by
banks , as required by Regulation B ?

7.

Do you find this information sufficient for monitoring national

bank compliance with the Equal Credit Opportunity Act and Regu
lation B , or do you plan to require that national banks record

additional monitoring information ? What inadequacies do you find
with the present monitoring information ?
8.

Have you considered requiring each national bank to have clearly

written nondiscriminatory loan underwriting standards , available
to the public in printed form at each office , as the Federal Home
Loan Bank Board has done for savings and loan associations ?

What

factors have you considered or will you consider in reaching a
decision on this matter ?
9.

How do national bank examiners evaluate whether formalized credit
scoring systems are in compliance with the Fair Housing Act , the

Equal Credit Opportunity Act , and Regulation B ?

Please supply to

the subcommittee the text of any examiner instructions that address

the evaluation of credit scoring systems.

If there are no such

instructions , please so state .
10 .

How do national bank examiners evaluate the internal management
controls and organized civil rights compliance program of each
bank? Please supply to the subcommittee the text of any examiner
instructions that address the evaluation of internal management

civil rights compliance programs .

If there are no such instruc

ions , please so state .
11 .

In their examinations for compliance with the Fair Housing Act , the

Equal Credit Opportunity Act , and Regulation B , what procedures or
guidelines do your examiners follow in determining what portion of
their examination effort is to be devoted to each bank ? How is the

size determined for the loan sample that will be reviewed for com

pliance in each institution?

In particular , is recognition given

to the volume of loan originations , as distinct from loans held in

the portfolio , in allocating examination effort to institutions
that are active in originating loans for resale? Please supply
to the subcommittee the text of any examiner instructions , policy
guidelines , or other documents that address this question of the
allocation of compliance examination effort among the different
institutions to be examined .

573

12 .

In their examinations for compliance with the Fair Housing Act , the
Equal Credit Opportunity Act , and Regulation B , what procedures or
guidelines do your examiners follow in determining what portion of
their examination effort is to be devoted to each type of loan or

credit ? In particular , is recognition given to the volume of loan

originations , as distinct from loans held in the portfolio , in
allocating examination effort at institutions that are active in
originating loans for resale? In your answer please distinguish

between home loans on 1-4 family dwellings , other loans on resi
dential property , other consumer loans or credit , other small

business loans or credit , and all other credit ( including loans or
credit to large businesses ) .

Please supply to the subcommittee the

text of any examiner instructions , policy guidelines , or other docu

ments that address this question of the allocation of compliance
examination effort among the different types of loans or credit . If
there are no such documents , please so state .

13.

14 .

Please describe the organizational structure and responsibilities of

How does the system of recognition and advancement for examiners convey
an agency commitment to and provide personal reward for vigorous en

forcement of the laws against credit discrimination? In particular ,

15. Please provide the following actual or estimated figures for the full

574

The full costs for all activities in the twelve -month period
from July 1977 through June 1978 , and the projected full costs
for the twelve - month period from July 1978 through June 1979 .

b.

A percentage breakdown of each total to show the proportions

c . A percentage breakdown of each total in part ( a ) to show

16 .

Please provide the following actual or estimated figures on numbers

of banks and numbers and sizes of loans . Please state the method by
which any estimates were derived .

In this request , " home loans "

refers to real estate loans secured by 1-4 family residences and also
consumer installment loans for repair and modernization of residential
property .
a.

The number of national banks examined in the twelve - month

period from July 1977 through June 1978 and the number that

will be examined in the twelve -month period from July 1978
through June 1979 .
b.

The numbers of home loan applications received and home loans

granted , and the dollar volume of home loans granted , by the
examined banks in the twelve months ending June 1978 .
The projected numbers of home loan applications to be received

and home loans to be granted , and the projected dollar volume
of home loans to be granted in the year ending June 1979 by

f.

The projected numbers of credit applications to be received and

575

d.
19 .

A percentage breakdown of each regional total to show separately

Please restate the figures given in answer to the previous question ,
as follows :

a.

The answers to parts ( a ) and ( c ) of the previous question restated

( ii )

20 .

examiner hours applicable to all other credit ( excluding

Do you employ, for enforcement or any other purpose , a distinction
between " technical " and " substantive " violations of law ? If so ,
please explain in precise terms how this distinction is used and
what it means , as applied to violations of the Fair Housing Act
and the Equal Credit Opportunity Act . Please list the types of
violations of these acts that fall into each class .

21.

Please provide a detailed tabulation , by region and for all regions

576

more than one type or class of violation was found at a single in
stitution , please count each type of violation separately , as this
request is for a tabulation of violations , not of institutions in
violation .

22 .

Please restate certain elements of the above tabulation of violations

to show , by region and for all regions combined ,
a.

Technical and substantive home loan violations per 100 examiner
hours devoted to civil rights compliance examination of home

loans , per 100 home loan applications received , per 100 home
loans granted , and per $ 100,000 of home loans held in the bank's
portfolios at December 31 , 1977 .
b.

Technical and substantive violations related to other credit

23. Please provide a tabulation , by region and for all regions combined ,

24 .

Please restate the above tabulation of institutions in violation to

show institutions in violation as a percentage of all examined in
stitutions in the region .
25 .

What are the established procedures of your office for investigating
and/or responding to written consumer complaints alleging discrimi
nation in some aspect of the credit granting process ?

Please supply

to the subcommittee the text of all staff instructions , policy guide
lines , or other documents that specify the procedures to be followed
in investigating and/or responding to consumer complaints that allege
discrimination in the credit granting process , whether relating to
home loans or to other credit .

577

26 .

27 .

If the individual complaints are handled primarily in the regional
offices , what are the procedures followed for systematic oversight
and review of the complaint handling work by the headquarters staff
in Washington ?

Please provide figures giving the numbers of consumer complaints
received by your office in the twelve -month period from July 1977
through June 1978 alleging discrimination in some aspect of the
lending process , as follows:
a.

Total complaints related to home loans or home loan applications .

b.

Total complaints related to other consumer or small business

A disaggregation by region of the total complaints related to
home loans or home loan applications .

d . A disaggregation by region of the total complaints related to
28.

Please provide a further tabular breakdown , as indicated below , of

a.

Complaints the investigation of which found one or more vio

lations of law that substantiated the complainant's claim;
b.

Complaint cases in which no violation was found but in which
an adjustment or accommodation was offered by the bank and

accepted by the complainant ( including correction of bank
errors) ;
C.

Complaints based on a factual dispute , in which the complainant
received no satisfaction ;

d . All other complaints that received a thorough investigation

e . All other complaints ( including information requests ) in which

578

29 .

Please provide further supplementary information , as indicated below ,
on each group of complaints identified in the answers to the previous
question . For each group of complaints enumerated above , please
specify
What portion of these complaints were about banks in which a
violation similar to the complaint had been found previously ,
at the most recent prior general compliance examination ?

30 .

b,

What portion of these complaints were about banks in which a

c.

What portion of these complaints were about banks that have not

How many private law suits for civil damages under the Fair Housing

Act or the Equal Credit Opportunity Act have been filed against
national banks in 1977 and 1978 ? In how many of these instances
had the plaintiff previously filed a complaint with your office ,
prior to filing the law suit ?
31 .

In what ways does your office inform loan applicants or potential
applicants of the existence and possible usefulness to them of the
civil damages provisions of the Fair Housing Act and the Equal Credit
Opportunity Act? Please supply to the subcommittee examples of any
letters , pamphlets, or other educational or informational materials
in which these civil damages provisions are mentioned .

32.

Approximately how many of each type of letter , pamphlet , or other

33 .

Have you any reliable and representative information concerning the
costs incurred by banks to comply with Regulation B and the laws

against credit discrimination ? If so , what portion of these costs
are associated with the initial training and other front end start
up costs of the banks ' compliance programs , and what portion are
continuing expenses directly associated with processing of appli

cations ? Can the continuing expenses be stated as costs per loan
application received or per $ 100,000 of mortgage loan or other .con
sumer credit assets held ? Can they be stated in terms of fractions
of a percentage point on the interest rate of a mortgage loan or
other credit ? What was the method by which these measurements were
made ?

579

34.

Please identify and describe any major surveys , reports , or studies,

Please provide 75 copies of your prepared statement to the subcommittee

at
least 24 hours in advance of your appearance . The responses to the
supplementary questions should be provided by Friday , September 8 . If

for

any reason not all of these responses can be compiled by that time, then

please deliver to the subcommittee on September 8 the answers and materials
that are ready at that time, with the remaining answers and materials to be

supplied as soon thereafter as possible . If you have any questions concern
ing this request , please contact Don Tucker of the subcommittee staff .
Sincerely ,

Benjamin S. Rosenthal
Chairman
BSR : tt

580

Comptroller of the Currency
Responses to Supplementary Questions

Requested in Letter of August 16 , 1978 by the
Commerce , Consumer , and Monetary Affairs

1.

What specific evidence have you that discriminatory redlining
and appraisal practices are occurring or have recently occurred
in home mortgage or home improvement lending by banks? Please
provide to the subcommittee copies of any staff studies or
other reports , or citations of any independent research or
investigative studies , on which you rely as evidence . In the
case of evidence arising from examinations, please report as
fully as possible the nature of the findings , the types of

communities or neighborhoods involved , the number of institutions
involved , and all other information pertinent to a full description
of your findings of redlining practices .

In

another case , we found evidence of a bank engaging in prescreening
on the basis of location .

In addition , we have under way investi

gations of banks in which there is some evidence of discriminatory
redlining and appraisal practices , although in these cases we have
not yet reached any conclusions .

showing that in such neighborhoods property transfers dispropor
tionately are achieved through noninstitutional financing .

Generally , however , these studies have been inconclusive because
they do not adequately address the question of whether the
absence of lending is due to discriminatory or irrational lending
decisions and policies rather than reasonable decisions to avoid

581

unsound lending .

In other words , these studies generally do not

answer the question of whether and how many potential creditworthy
applicants are being shut out by the policies and practices of
banks .

In this regard , several studies have concluded that lack

of demand from creditworthy persons may explain the absence of
lending in some neighborhoods .

Mortgage Plan is an important example .

in the examination process .

582

2.

Do banks maintain in their files information that would identify

The withdrawal of fire or homeowner's insurance coverage
from a neighborhood , or the availability of such insurance only
on onerous terms , can substantially increase obstacles to home
ownership in the affected neighborhood .

Moreover , the unavailability

of property insurance coverage would severely limit the availability
of mortgage credit , since extension of a mortgage loan without
such insurance could be considered an unsound practice .

For

this reason , mortgage files contain information regarding in
surance .

Also , if a loan were denied based on unavailability

of insurance , this would be noted in the denied loan file .
In accordance with a request from the Justice Department , OCC
examiners will be instructed to include , starting in October , a
comment in the report of examination if they detect or suspect

insurance redlining .

This information may be referred to the

Department of Justice for its use .

It is also possible that

referrals could be made to the primary insurance company regu
lators , the state insurance commissioners .

While it is possible to detect individual instances of
insurance redlining by reviewing loan files , we doubt whether
the information is amenable to useful statistical analysis .

583

3.

How do your examination procedures and regulations deal with
discrimination in real estate appraisals ? Please supply to the
subcommittee the text of any examiner instructions that address

the detection of discrimination in appraisals .

If there are no

such instructions , please so state .
Examiner instructions concerning appraisals are contained
in the Handbook Section 12.4 , page 1 , Nos . 1.b. , 1.c. , and 3.b.
( Exhibit A. )

These instructions are verification procedures de

signed to enable the examiner to determine the adequacy of

bank appraisals , the level of training received by appraisers ,
the familiarity of the bank with its or outside appraisal
standards , and whether or not appraisals and/or appraisal

standards are discriminatory .
Consumer examiners are provided Fair Housing case studies
at the consumer training schools which deal with discrimination
in real estate appraisals .
( Exhibit B - 1 , )

Case Study , Section 12 , Handout 2 ,

specifically provides examples of discriminatory

appraisals that examiners are assigned to detect and analyze .
Included also are situation examples which are thoroughly dis
cussed at the school in breakout groups .

12 , Handout 3 , ( Exhibit B - 2 , )

Case Study , Section

also provides additional verification

procedures concerning appraisal policies , appraisal standards ,
techniques for detecting discrimination in appraisal policies ,
and interviewing techniques .

On a verbal basis , examiners receive Fair Housing lectures
at the consumer training schools .
lectures are attached .

Outlines and copies of these

Additionally , instructors at the school

584

and / or a representative from the Department of Justice discuss
discrimination in real estate appraisals with the examiners

at breakout groups .

Specific methods for evaluating real

property are outlined and ways in which such appraisals can
discriminate are explained . For example , homes in a particular
neighborhood are compared by size , number of rooms , etc. Values
are equated and appreciation factors are added to the values of
the homes .
Depending upon the racial composition of the neighbor

hood , appreciation factors are shown to vary on a discriminatory
basis .

Beginning in 1978 , the consumer training schools will include
additional handouts dealing with discrimination in real estate
appraisals .

They will include examples of appraisal methods and

policies and will exemplify both discriminatory and nondiscrimina

tory appraisal standards for class discussion .

In addition to reviewing appraisals , the examiner determines
whether bank personnel are aware of the appraisal standards the
bank utilizes .
If they are unaware of such standards , this is
treated as an internal control problem .

If internal or external

appraisals are discriminatory , this is treated as a violation
of the Fair Housing Act .

If these appraisals are determined

by the examiner to have the effect of discriminating , such
as with low values for older homes which are located in a neighbor
hood that has residents which are predominantly of a protected
class , the examiner provides an analysis of the possible dis

criminatory effect in the report of examination for further
review by the Consumer Affairs Division , Washington , D. C.

585

4.

Have you considered requiring, as part of the adverse action
notice required under Regulation B that the bank include a
copy of the appraisal with the adverse action notice sent to
an applicant when his application for a home loan is denied
on the basis of an inadequate appraised value ? What factors
have you considered or will you consider in reaching a
decision on this matter?

The Federal Home Loan Bank Board has issued a proposed
regulation to implement such a requirement .

It is our under

standing that the Bank Board has received considerable comment
on the proposal from the savings and loan industry .

We intend

to review the comments the Board has received and to consider

the proposal .
This proposal may be desirable in that it would increase
accountability and provide applicants with basic information
upon which to better understand and evaluate the reason for
adverse action .

This would facilitate enforcement in that

it would provide the rejected applicant with the basis for
filing a complaint if he or she believed the denial discriminatory .
Moreover , a significant prophylactic effect might be achieved .
While the proposal appears to have some merit from a regulatory

and equitable perspective , serious concerns have been expressed .
In the past it has been argued that providing copies of appraisal
reports to denied loan applicants might create pressures on
appraisers which could hamper their independence and objectivity .

The concern has also been expressed that if appraisal reports are
made available , home purchasers might rely on information in

the report relating to the condition of the property , and
appraisers might be held legally liable if they make mistakes .

586

5.

How do the Comptroller's examination procedures determine

whether discriminatory " pre- screening" and discouragement
of potential loan applicants are occuring , in particular :
Please explain how the examination procedures will deter

a.

Examiners are instructed to review a sample of the loan

file and rejected applications for violations .

This review

includes examining application forms for completeness and monitor
ing records for completion by applicants or notation by bank
officials .

Incomplete forms are treated as internal control

problems in the report of examination .

Examiners determine under

what conditions applications might be withdrawn from the files
through interviews with bank personnel .
When the data collection and analysis system is implemented
and , if it includes a separate file on inquiries , a spot check
1

of the loan file and rejected applications would be made to

see if an application was submitted subsequent to an inquiry .
We would also consider sampling those persons who made inquiries
but for whom an application is not on file to determine if an
application was made , or why not .

This procedure would indicate

whether applications are missing from the file .
b.

What procedures will detect the discouragement of
applicants by certain subtle devices such as ( i )

informing certain applicants whom the bank wishes
to discourage that six to eight weeks will be re
quired to process an application , when in fact ,
only one week is required , or ( ii )

quoting a higher

rate of interest to certain inquirers or applicants
who the bank wishes to discourage than to favored
applicants ?

-)

587

Examiners review a bank's policies , practices , procedures and
internal controls .

Therefore , they obtain some indication of

what interest the bank charges for certain loans , what down
payments are required , the length of time usually required
to process a loan , etc.

By using the procedures noted in the

response to question 5.a. ( above) , a review of prescreening
procedures and interviews with first contact personnel ,

ex

aminers should , in most cases , become aware of possible dis

couragement tactics .

The new data collection and analysis system will further

assist our efforts by highlighting banks where the data indicates
that loan volume to particular groups is substantially lower
Where this data

than might be expected from demographic data .

suggests the possibility of prescreening , extra emphasis on

detecting prescreening problems will be given in the examination .
In addition , consideration is being given to requiring the
collection of limited monitoring information in connection with

specific in - person inquirers .

Use of information in this file

would be a further tool for examiners in detecting prescreening .

For example , minority inquirers who did not subsequently file
an application could be contacted by the examiner to ascertain
the reason why no application was filed .
c.

Please supply to the subcommittee the text of all

examiner instructions that address the problem
of
there are
" pre- screening" and discouragement .

If

no such instructions , please so state .

Most banks employ prescreening procedures .

These are re

viewed to determine that they reflect no prohibited discrimina

37-415 O - 79 - 38

588

tory practices .

Moreover , a bank's records may indicate a low

ratio of rejected applications suggesting that there is pro
hibited prescreening which the examiner will pursue in more
detail .

Interviews are also conducted with loan officers and

first contact personnel concerning prescreening procedures .
Examiner instructions which address the problem of prescreening

and discouragement are set forth in Handbook Section 10.3 , 10.4 ,
12.3 and 12.4 , Fair Housing Handouts , and lecture outlines , which

are attached as Exhibits A , B - 1 , B - 2 , C , and D.
6.

How do you currently employ the race , age , sex , and marital status

Monitoring this information which is required by Section
202.13 of Regulation B is essential to the examination of fair
lending practices regarding home mortgage applications .
information enables examiners to determine which applicants ,

classified by personal characteristics , are being accepted or
rejected .

Rejected applicants are evaluated by the examiner

against the bank's stated loan policy and creditworthiness

criteria and they are compared to accepted applicants to
ascertain if the bank follows its own standards in all cases .
For example , it is determined if different income, net worth
and other credit standards are detrimentally applied to minorities .
Examiner instructions which prescribe the use of monitoring
information are set forth in Handbook Section 12.4 , No. 3 , with
the attached as Exhibit A.

589

7.

Do you find this information sufficient for monitoring
national bank compliance with the Equal Credit Opportunity
Act and Regulation B , or do you plan to require that national
banks record additional monitoring information ? What inadequacies
do you find with the present monitoring information ?
The present monitoring data have a number of deficiencies .
First , they are limited to 1-4 family mortgages for home purchase .
Second , because the method of racial data collection is limited

to voluntary self- identification , there is considerable missing
information .

Third , there are no data on those inquiries which

do not result in a written application .

In light of these

deficiencies , in our substitute monitoring program under develop
ment , we are studying the desirability of 1 ) requiring the use
of racial / ethnic identification by visual observation and/or
surname where the applicant does not supply the information by

self- identification , 2 ) expanding the coverage of the racial
data provisions to home improvement loans , and 3 ) requiring
that limited monitoring information be collected in conjunction
with specific in -person inquiries .

The new data collection and analyses system being developed
will substantially increase the usefulness of the monitoring
information .

The information on race , sex , marital status and

age will be combined with other information on loan terms,
borrower characteristics and property characteristics into a

reporting system to create a computer data base which will allow
statistical analyses to be run for each bank prior to the exami
nation .

The statistical analyses will be used to identify specific

disparities for examiner investigation .

Also , specific loan

590

files and denied loan files , which manifest these disparities ,
will be identified for examiner review .

8.

Have you considered requiring each national bank to have clearly

It is the present policy of the occ to strongly encourage
banks to maintain written loan policies .

Examiners review these

policies to determine their adequacy and appropriateness .

They

are careful in the course of that review to assure that these
policies are not discriminatory .

When a bank has no written

policies but has been found to have violated substantive pro
visions of Regulation B , as part of corrective action it is
required to develop a written nondiscriminatory loan policy .
The Office has for some time discussed the possibility of
requiring banks to maintain written loan policies .

That this

has never been decided is attributable to the fact that it
might impose an undue burden on small banks , that many banks
already have such policies , and that nearly all banks will

probably have written policies within the next two years because
of our commercial examination procedures.
We are aware of the Federal Home Loan Bank Board's new
requirement and intend to carefully monitor their experience with
respect to it .

We do see potential advantages to requiring such

policies and making them public .

This would alert applicants

to the policies of the bank and would serve to provide better

591

means of determining whether the policies are being applied in
a nondiscriminatory manner .

At the same time , it must be

recognized that the asset mix of a commercial bank is much more
varied than that of a thrift institution and most banks claim
that their loan policies contain proprietary information , such
as collateral and security terms .
9.

How do national bank examiners evaluate whether formalized

credit scoring systems are in compliance with the Fair Housing
Act , the Equal Credit Opportunity Act , and Regulation B?
Please supply to the subcommittee the text of any examiner
instructions that address the evaluation of credit scoring
systems . If there are such instructions , please so state .

Formalized credit scoring systems , as well as informal
evaluation systems utilized by banks , are reviewed for compliance
with the Fair Housing Act , the Equal Credit Opportunity Act ,
Regulation B , and state fair lending statutes .

The examiner

considers whether the bank has incorporated prohibited bases
into its scoring system , such as in assigning more points to
an applicant who has a home telephone in his or her own name
or in assigning less weight to part- time income .

Additionally ,

expertise in evaluating such systems is gained through experience ,
communications with regional support staff , and by means of
training techniques provided at consumer training schools .

The

examiner is exposed to various types of credit scoring systems
and learns of the history of scoring systems utilized by financial
institutions in the past , some of which are shown to be dis
criminatory .

Consideration is also given to civil rights

court cases which serve to emphasize ways in which discriminatory
policies can overtly or subtly become incorporated into management

592

policies .

Such information supplements the specific dis

criminatory practices defined in Regulation B.

Instructions for evaluating a bank's credit system are
provided examiners at the training schools .

Regulation B and

the Fair Housing Act are taught in conjunction with credit
systems through lectures , workshops and a presentation by a
representative of the Department of Justice .
examiners receive handouts to assist them .

Additionally ,
The Guidelines

for Interview of Bank Personnel , court cases and legislative
background documents dealing with discrimination and the effects
test are provided to examiners .

These are attached as Exhibits

C and D, as well as Handbook sections 10.1 , 10.3 ( 2 ) , 10.3 ( 4 ) , 10.3 ( 10 ) ,
I

10.3 ( 11 ) , 10.4 ( 4a ) , 12.1 , 12.4 ( 2 )

10.

and 12.4 ( 3d) .

.

( Exhibit A. )

How do national bank examiners evaluate the internal management

Examiners follow the instructions in the Comptroller's Handbook
for Consumer Examinations in conjunction with handouts and training
provided at the Consumer Affairs Training School for evaluating
the internal management controls and organized civil rights com
pliance of each bank .

Examiners interview bank personnel on their

knowledge of the Equal Credit Opportunity Act and the Fair Housing
Act .

Bank policies and procedures are also reviewed for compliance ,

as are its internal compliance programs .

The actual practices of

593

the bank are then compared against the stated policies and the
requirements of the law .
Overall internal controls are evaluated at the beginning of

every examination .

Section 1.5 of the handbook ( See Exhibit A )

discusses the importance of a good internal controls program and
Section 1.8 of the handbook ( see Exhibit A)

lists the criteria

used by examiners to evaluate the bank's internal controls manage
ment .

Examination and Verification Procedures in Sections 10 and

12 of the handbook ( see Exhibit A) provide examiners with
specific instructions in evaluating civil rights compliance and
internal controls relating to the Fair Housing and Equal Credit

Opportunity Acts .

Handouts with the same section numbers also

deal with these subjects .
11 .

In their examinations for compliance with the Fair Housing Act ,
the Equal Credit Opportunity Act , and Regulation B , what proce
dures or guidelines do your examiners follow in determining
what portion of their examination effort is to be devoted to
each bank ? How is the size determined for the loan sample that
will be reviewed for compliance in each institution ? In particular ,
is recognition given to the volume of loan originations , as distinct
from loans held in the portfolio , in allocating examination effort

to institutions that are active in originating loans for resale?
Please supply to the subcommittee the text of any examiner instruc
tions , policy guidelines , or other documents that address this
question of the allocation of compliance examination effort among
the different institutions to be examined .

Each Regional Office makes the determination as to bank

assignment and the anticipated time frame for the examination :
Guided by past experience , the amount of time scheduled for an
examination is based primarily upon bank size .

Generally , a

bank with a greater asset size will require more examination time .

594

The time schedules are flexible enough , however , to allow for
additional time when problems are uncovered which require further

investigation .
In the consumer compliance examination , the examiner has
examination and verification procedures which must be performed
for every bank .

The examiner does not initially decide how much

time and effort will be allocated to any particular subject ; the
examiner works through the procedures until they are completed .
Generally , the examiner does not establish priorities in the
examination unless the suspicion of problems in a specific area
is raised by the existence of consumer complaints , comments in

the previous Report of Examination or working papers , or some
other source raises questions regarding bank practices .

In such

cases additional examination effort is allocated to the area in

question .

An established work schedule has been adopted ( See

Exhibit #

A , Handbook # 10 , Section 3 ) .

Since the examiner must

rely on bank personnel to gather much of the information and to
answer questions , the work order follows a different path in
every bank .

A statistical sample of loans is reviewed for compliance
with Fair Housing and Equal Credit Opportunity .

A minimum

595

statistical sample of 35 accepted and 18 rejected loans is
selected from all the bank's loans made in the past three months.

However , if all loan types are not represented , the examiner
judgmentally selects several of each of the unrepresented loan
types to complete the sample .

In addition , a minimum of at

least five accepted and five rejected real estate mortgage
loans is reviewed for compliance with the Fair Housing Act .

The

sample size is the minimum acceptable consistent for all national

banks regardless of bank size or portfolio size .

However , if

the examiner runs into problems or questions in the original

sample, he/she is expected to review additional loans to determine
the extent of the problem .

In specialized Fair Housing examinations

the examiner statistically samples 35 accepted and 18 rejected
real estate loans and performs the Fair Housing and Equal Credit
Opportunity Act procedures for those loans .
The statistical sampling process employed in selecting loans
for review will result in loans of each type being selected
based on their frequency of occurance in the population . The
population also is defined as loans originated by the bank
regardless of final disposition .

Therefore the primary factor

in determining the examination effort devoted to loans originated
for resale is their proportional relationship to total loans
originated by the bank .
12 .

In their examinations for compliance with the Fair Housing Act ,
the Equal Credit Opportunity Act , and Regulation B , what procedures
or guidelines do your examiners follow in determining what portion
of their examination effort is to be devoted to each type of

596

loan or credit? In particular , is recognition given to the volume
of loan originations, as distinct from loans held in the portfolio ,

in allocating examination effort at institutions that are active
in originating loans for resale? In your answer please distinquish
between home loans on 1-4 family dwellings , other loans on residen
tial property , other consumer loans or credit ( including loans or
credit to large businesses ) . Please supply to the subcommittee
the text of any examiner instructions, policy guidelines , or other
documents that address this question of the allocation of compliance
examination effort among the different types of loans or credit .
If there are not such documents , please so state .

As mentioned in our response to question 11 , the sample of
35 accepted and 18 rejected loans should contain a representative
number of all of the types of loans made by the bank .

If some

loan types are not represented in the original sample , examples
of those loan types are selected from the population and added
to the sample .

The population would include all types of loans

including commercial , installment , real estate , etc.

The sample

size of 35 and 18 loans has been determined to be statistically
valid .

This means that problems appearing in the sample will be

representative of those occuring in the entire population .

The

percentage of loans of any type in the sample should be propor
tional to the percentage of loans of the same type in the entire
population of loans .

Therefore , the primary factor in determining

the examination effort devoted to each type of loan in the sample
is the frequency of occurance of the loan type in the total

population .

Such loan types will have originated within three

months prior to the examination .

If a violation or questionable practice is discovered in a
particular type of loan , the sample will be expanded for that
type of loan .

Therefore , the second factor that affects the

597

amount of examination time spent on a given loan or credit type
is the extent of violations or problems found .
Again , as in the answer to question 11 , the volume of loan
originations , as distinct from loans held in the portfolio

is

not a consideration in allocating examination effort among types
of loans or credit at banks that are active in originating loans
for resale .

The examination outline and the statistical sampling instruc
tions used by examiners are enclosed for your information in

Exhibits E and F.

The sampling instructions address , at least

in part , the question of allocation of examination effort among
the different types of loans or credit .

13.

Please describe the organizational structure and responsibilities

The Consumer Examination Division has responsibility for
the fair housing and equal credit opportunity compliance exami
nation function .

In accordance with the recent reorganization

of this office ( organization chart attached as Exhibit G

the

Division Director reports to the Deputy Comptroller for Specialized
Examinations , who in turn reports to the Deputy Comptroller
for Bank Supervision . There are presently eight permanent

598

members of this staff .

Position descriptions outlining the

duties , responsibilities , and authority of the major positions
Two of these positions , the Consumer Exami

are attached .

nations Review Assistant and the Manager , Examination Analysis ,
are primarily responsible for the review of all examinations
conducted by the regional offices and oversight of the consumer

examination program .
Each regional office operates autonomously , but under

examination guidelines and procedures established by the Consumer
Examination Division in the Washington Office .

At the present

time there is a Regional Consumer Affairs Specialist assigned
to each regional office , under the supervision of the Deputy
Regional Administrator for Examinations , who is responsible
for the Fair Housing and Equal Credit Opportunity examination
functions .

It is contemplated that this position will soon be

upgraded to create a Regional Director of Customer and Community

Affairs who will be responsible for both policy and operational
efforts in the areas of consumer affairs , civil rights and

community programs .

The Comptroller of the Currency has established Civil Rights
and Community Development Divisions within the Office of Customer
and Community Programs .

These divisions will have major responsi

bility with respect to Fair Housing Act and Equal Credit Opportunity
Act matters .

599

14 .

How does the system of recognition and advancement for examiners
convey an agency commitment to and provide personal reward for

vigorous enforcement of the laws against credit discrimination ?
In particular ,
a.

OCC has developed a career path for consumer examiners that
is to be implemented in the fourth quarter of 1978.

Prior to

a formalized career path , consumer examiners have been re

cognized for their contributions to the consumer examination
function by means of high quality salary increases , promotion
to higher grade levels , assignment to areas of greater responsi

bility in both the consumer and commercial functions , and
desirable performance evaluations that will affect their later
careers with occ in a positive manner . When the career path
has been formally adopted , higher grade levels will be available
to consumer examiners , with a possible progression from GS 7
Prior to receiving a national bank commission , a

to GS 14 .

consumer examiner will advance on the basis of expertise in
the area of consumer and civil rights laws and regulations .
Commercial examination expertise will also be required for
obtaining a commission , along with consumer and civil rights
expertise .

While a consumer examiner is evaluated by his or her

overall ability to detect violations of laws and regulations ,
the nature of the training program emphasizes that particular

weight will be placed upon the examiner's ability to be effective
in the area of civil rights .

600

b.

What are the standards by which examiner performance in
civil rights compliance work is judged ?
The examiner is first tested for knowledge at the Consumer

Affairs Training School .

The examiner then conducts exami

nations and his or her work is reviewed for thoroughness and
accuracy .

Working papers are reviewed for proper documentation

and analysis .

The working papers are compared to the report

of examination to ensure detected violations have been included

in the report .

If the documents obtained from the bank ( in the

working papers ) have been analyzed properly or if the working
papers indicate the examiner has not completed the necessary
procedures for the civil rights work programs , the examiner is
contacted and criticized . Weak performance is emphasized
in the examiner's performance evaluation , which subsequently

affects the examiner's ability to receive a salary increase
or promotion .

Reports of examination that contain very few

violations of law are reviewed in greater depth by the Regional
Consumer Specialist

Exhibit I) .

( Refer to Working Papers checklist ,

601

15.

Please provide the following actual or estimated figures for the

a.

Note:

The full costs for all activities in the twelve - month period

By program design , forty percent of consumer efforts are allocated to

Washington Office
The full cost of the Consumer Affairs Division :

$ 610,000 ( per OCC Financial

Management Division) . Forty percent of Division activities are related to
fair lending enforcement :

.40 x $ 610,000 =

$ 244,000 .

Field Personnel

National Bank Consumer Examinations :
Schools
Total

:

22,492 person days
3,000 person days
25,492 person days

The average yearly cost of a GS-8 /5 Assistant National Bank Examiner , including
salary and 9 % benefits : $ 16,875 . Average per diem expenses of a National Bank
Examiner , based upon a regional survey : $ 4,800 . Average cost per bank examiner

year :

$ 21,675 .

Average cost per bank examiner day :

Total yearly cost of Consumer Examiners :

$ 21,675 - 220 days

$ 98.52 x 25,492 days =

$ 98.52 .

$ 2,511,472 .

Forty percent of national bank consumer examinations are related to the
enforcement of fair lending laws and regulations: .40 x $ 2,511,472 = $ 1,004,589.

602

Consumer Specialists
The average yearly cost of a GS-9/5 Regional Consumer Specialist , including
benefits equal to 9 percent of the annual salary : 1.09 x $ 17,102 = $ 18,641 .
The annual cost of 14 Regional Consumer Specialists :

14 x $ 18,641 = $ 260,974 .

Forty percent of the activities of Regional Consumer Specialists are estimated
to be related to the enforcement of fair lending laws and regulations:
.40 x $ 260,974 =

$ 104,389.

Regional Counsels
The average yearly cost of a GS -14 /4 Regional Counsel, including 9 percent
benefits :

1.09 x $ 33,825

$ 36,869 .

The annual cost of 14 Regional Counsels : 14 * $ 36,869 = $ 516,166 . An
estimated ten percent of the activities of Regional Counsels are related to
consumer affairs ; 40 percent of these activities are concerned with fair
lending compliance enforcement : .04 x $ 516,166 = $ 20,647.
Regional Administrators
The average yearly cost of a GS-16 Regional Administrator, including 9 percent
annual benefits :

1.09 x $ 42,423 =

$ 46,241 .

The annual cost of 14 Regional Administrators :

14 x $ 46,241 =

$ 647,374 .

An estimated four percent of the activities of Regional Administrators are

related to the enforcement of fair lending laws and regulations:
$ 647,375 =

.04 x

$ 25,895 .

Deputy Regional Administrators

The average yearly cost of a GS- 15 Deputy Regional Administrator , including
9 percent annual benefits : 1.09 x $ 36,171 = $ 39,426 . The annual cost of 14
Deputy Regional Administrators : 14 x $ 39,426
$ 551,964 .

An estimated four percent of the activities of Deputy Regional Administrators
are concerned with the enforcement of fair lending laws and regulations: .04
x $ 551,964 . =
=

$ 22,079 .

Miscellaneous Support

The average salary of four support personnel, such as secretaries , paralegals
and interns , for consumer activities in each region , with a median grade level
of GS-6 , including 9 percent of the annual salary for employee benefits :
x $ 11,101 = $ 12,100 .

1.09

603

The cost of four support personnel for 14 regions :

56 x $ 12 , 100

$ 677,600 .

Forty percent of the activities of these support personnel are related to
the enforcement of fair lending laws and regulations: .40 x $ 677,600 =
$ 271,040 .

Regional Office Overhead

Total regional office overhead expenses :

$ 4,220,958 ( per occ Financial

Management Division ) .

Roughly six percent of total overhead can be imputed to consumer affairs,
and forty percent of that total is imputed to Fair Lending . $ 4,220,958 x
.024 =

$ 101,303 .

The total estimated cost of all occ activities related to the enforcement of

fair lending laws and regulations : $ 1,793,942.
We anticipate that costs for 1978-1979 will be comparable to those noted
above .

b . A percentage breakdown of each total to show the proportions

Estimated Percentage Breakdown
Examinations

85 percent

Training

10 percent

Consumer Complaints

3 percent

Consumer Education

1 percent

Credit Education

1 percent

c.

A percentage breakdown of each total in part ( a ) to show
separately the proportions applicable to home loans and to
all other credit .

Occ efforts to enforce national bank compliance with the Fair Housing Act ,
the Equal Credit Opportunity Act , and Regulation B are approximately evenly
divided between oversight of home loan activities and all other types of credit .

37-415 O - 79 - 39

604

Fifty percent of the components noted above at 15a represent costs attributable
to housing loan supervision .
Estimated Percentage Breakdown

42.5 percent

Examinations

percent

Training

5

Consumer Complaints

1.5 percent

Consumer Education

.5 percent

Creditor Education

.5 percent

16.

Please provide the following actual or estimated figures on numbers

a.

The number of national banks examined in the twelve - month period

from July 1977 through June 1978 and the number that will be
examined in the twelve -month period from July 1978 through June
1979 .

1695 consumer examinations conducted from July '77 through June '78 have been
entered into a computerized data base .

Of these examinations , 13 represented

banks examined for the second time , thus 1682 banks , and 1695 examinations , are
entered into the data base .

At least 384 examinations from this period have

been received by the Consumer Examination Division in Washington , yet have not
been reviewed and entered into the data base .

A smaller number of reports

( estimated to about 75 ) from the same period have not yet been received by
the Washington Office , and remain in Regional Offices throughout the country .
We estimate the total number of examinations conducted during this period as
being 2,154 . We anticipate comparable numbers for the current year .

b. The number of home loan applications received and home loans
This data is not currently available , but we expect to be able to provide
information concerning the number of housing related loan applications

|

605

received , and number of such loans granted, following completion of a survey
now being conducted as part of our implementation of a computerized data
collection and analysis system designed to assist in our enforcement of Fair
Lending laws . ( See attachment to Muckenfuss letter of January 22 , 1979)

c.

The projected numbers of home loan applications to be received

We have no basis for projecting this information .
d . The dollar volume of home loans held by the examined banks

The dollar volume of home loans held in the portfolio of all national banks
reported in the December 31 , 1977 Call Report was $ 59,399,079,000 . This
figure is the sum of items 1.c. and 6.d. from Schedule A of the Call Report .
Projections of the dollar volume of home loans during the year froin July
'78 through June '79 are not available .
e.

The numbers of credit applications received and loans and
credit lines granted , and the dollar volume of loans and
credit lines granted, for other consumer or small business
credit ( excluding home loans ) by the examined banks in the
twelve months ending June 1978 .

This information is not available for national banks, nor can it be developed
at a reasonable cost , to the best of our knowledge.
f.

The projected numbers of credit applications to be received

We have no basis for projecting this information .

606

8.

The dollar volume of consumer and small business credit

outstanding ( excluding home loans) in the portfolios of the
examined banks as of the December 1977 call report data , and
the corresponding dollar volume projected for December 1978 .
The dollar volume of consumer credit outstanding in the portfolios of national
banks reported in the December 31 , 1977 Call Report was $ 75,223,473,000 . This
figure is item 6 of Schedule A of the call report, less 6.d. We have no basis
for projecting forward this information . Our call data does not separately

report information concerning small business credit , thus our response does not
reflect loans made to small businesses .

17. Please restate the cost figures given in answer to question 15.a. and
a.

The total costs of the earlier period and the projected total
costs of the later period restated as costs per bank examined
( or to be examined ) .

Cost Per Bank Examined

$ 1,793,942 ( total costs ) · 2,154 ( banks examined ) = $ 833.00 per bank. We
anticipate that comparable costs per bank examined will be incurred in the
coming year .

b . The total costs of the earlier period and the projected total

We estimated that 50 % of our Fair Lending efforts relate to housing credit ,
and would therefore estimate such housing related enforcement costs to amount
to about $ 869,971 or $ 416.50 per bank .

Dividing the above Fair Lending enforcement costs for housing credit by
$ 1,000 of loans outstanding yields a figure of $ .015100 per $ 1,000 of home
loans held as of December 31 , 1977 .
We are unable to provide projections of this data for the following year ,
or figures relating to costs per the number or amounts of applications granted
or denied .

607

c.

The total costs of the earlier period and the projected total
costs of the later period that are applicable to all other
credit ( excluding home loans) restated as costs per bank
examined ( or to be examined ) , per application received ( or
expected ) for other consumer or small business credit , per
loan or credit line granted ( or expected to be granted) for
other consumer or small business credit , per $ 1,000 of loans
or credit lines granted ( or expected to be granted) for other
consumer or small business credit , and per $ 1,000 of consumer

and small business credit outstanding ( or expected to be out
standing) from the examined banks at the midpoint of the
period .

The total cost of the Fair Lending portion of consumer examinations, related
to all other credit activities during the year from July 1977 through June
1978 , per bank examined was $ 416.50. See ( b . ) , above .
The total cost of the Fair Lending portion of consumer examinations, related
to all other credit activities , during the year ending June 1978 , per $ 1,000
of consumer and small business credit maintained in the portfolio of all
national banks as of December 31 , 1977 was $ .011924 .

$ 1,793,942 = 2 = $ 896,971
$ 896 , 971 ; 75,223,473 = $ .011924

The average cost of consumer bank examinations related to consumer and small
business credit activities , with respect to credit applications received , lines
of credit granted and per $ 1,000 of consumer and small business credit granted
during the year from July 1978 through June 1979 could not be derived . The
average cost projections for the year ending June 1979 are unavailable .
18. Please provide the following actual or estimated figures for the number

a.

Total examiner hours for the twelve - month period from July 1977
through June 1978 , and projected total examiner hours for the
twelve -month period froin July 1978 through June 1979 .

71,974 examiners hours :

Fair Lending Enforcement

The data base reflected 17,710 person days devoted to consumer examinations.
Because only 1,695 reports of an estimated total of 2,154 exams were entered

608

2,154

into the data base , all results were multiplied by 1,695, or 1.27 , to yield
weighted data representative of our enforcement program . The total person
days thus became 22,492 , which when multiplied times eight equals 179,936
examiner hours for consumer examinations . Since 40 % of our enforcement pro

gram is estimated to be allocated to Fair Lending, we estimate that 71,974
examiner hours were devoted to enforcing these laws. See CEIS Special Viola
tion Summary appendix to Question 23 , dated 9/13/78 for weighted data concerning
examiner days .

We anticipate comparable figures for the following year .
b . A percentage breakdown of each total to show separately the

c.

A disaggregation by region of the totals given in answer to part ( a ) .

The same approach noted above at ( a . ) was followed , multiplying weighted
data by ( 8 x .40 ) for each region's examiner day data .
OvNM
OG
on
A
W

Region

Total Fair Lending Examiner Hours

1
2
3
4
5
6
7
8
9

10
11
12

13
14

Total 1.s.

*may not total due to rounding .

2,259
3,622
3,834
7,712
5,363
4,528
6,109
5,734
7,245
8,685
8,493
3,507
1,722
3,158

* 71,974

609

d.

A percentage breakdown of each regional total to show separately

Examiner Hours
Home Loans

Other Credit

1130
1811
1917
3856
2682
2264
3054
2867
3622
4342
4246
1754

1130
1811

35,987

35,987

Boo
von
W
A NH

Region

5

7
8
9

10
11
12
13
14

Total

19.

1917
3856
2682
2264
3054
2867
3622
4342

4246
1754

Please restate the figures given in answer to the previous question ,

a . The answers to part ( a ) and ( c ) of the previous question restated
Examiner hours per examination :
71,974 hours + 2153 examinations =
Region

33.4
33.4

610

Note: Disparities in personnel allocations may to some degree be explained

b . From the answers to parts ( b ) and ( d ) of the previous question :

AWN
OO
00

( i)

1

2
3
4

5
6
7

examiner hours applicable to home loans restated as examiner

.587
.260
.424

15.1
16.2
17.9
18.3

.684

17.8
11.4

1.010

.635

16.8

8
9

13.2

10
11
12
13
14

24.5
12.7
24.7
18.7
28.2

17.5

Total

16.7

( ii )

.606

examiner hours applicable to all other credit ( excluding

611

Examiner Hours ( other )
Region
1
2
3
4
5
6
7
8
9
10

11
12
13
14

Per Bank Examined
15.1

16.2
17.9
18.3
17.8
11.4
16.8
17.5
13.2
24.5

12.7
24.7
18.7
28.2

Examiner Hours ( other )
Per $ 100,000 Other Loans
.483
.256
.410
.533
.408

.455
.428
.511
1.290
1.376
.684
.535
.236
. 150

.478

612

20 .

Do you employ , for enforcement or any other purpose , a
distinction between " technical " and " substantive " violations
If so , please explain in precise terms how this dis

of law ?

tinction is used and what it means as applied to violations
of the Fair Housing Act and the Equal Credit Opportunity Act .
Please list the types of violations of these acts that fall
into each class .

We view some violations as having a much more immediate impact
on consumers than others .

We have developed the following list

of violations as being " substantive" .

Our criteria for this

categorization is that these violations may impair the consumer's
access to credit in the immediate transaction .

While other

violations will impede full implementation of the purposes of
these laws , their effect is much less direct .
Substantive Violations
42 USC 3605

Fair Housing Act

12 CFR 202.4

Refers to definitions as to
what constitutes discrimi

nation on a prohibited basis .
12 CFR 202.5 ( a)
.5 ( a) ( 1 )

Discouraging applicants on a
prohibited basis .
Requesting marital status where
prohibited .

.5 ( d ) ( 4 )

Requesting information about
birth control or child bearing/
rearing practices or intentions .

.5 ( d) ( 5 )

Requesting race , color , reli
gion or national origin .

12 CFR 202.6 ( b )

Rules concerning the use of
information in evaluating
applications .

12 CFR 202.7 ( a )

Refusal to grant individual
account on any prohibited
basis .

613

Substantive Violations
.7 ( c )

Adverse action on open - end account
becaues of change in marital status
or age .

.7 ( d )

Requiring signature of spouse or
other person where not permitted .

.7 ( e )

Refusal to extend credit because
insurance is unavailable on basis

of applicant's age .
12 CFR 202.11 ( c )

Combining individual accounts of
married applicants to determine

permissible finance charges and
loan ceiling under state or federal
law .

Technical Violations
All Equal Credit Opportunity Act / Fair Housing violations not specified
above are viewed as being less likely to impair the customer's access to
credit in the immediate transaction . All of the citations appearing in the
left hand margin of Appendix 2 to question 21 have been so categorized , and
have been termed ' technical ' violations .

Note that C.F.R. has been abbrevi

ated to " c " and periods have been omitted , so that 12 C.F.R. 202.5 ( c ) , for
example, is shown as 12C2025d . Similar treatment of U.S. Code citations

causes 42 U.S.C. 3605 to show as 4203605.

Examples of typical technical

violations are the following :
12 CFR 202.5 ( c )

Improperly requesting information about
a spouse or former spouse , typically on
application forms .

12 CFR 202.5 ( d ) ( 2 )

Improperly requesting information about
alimony or child support payments .
Typically this involved failure to pro
vide the required notice .

12 CFR 202.5 ( d ) ( 3 )

Inquiring about an applicant's sex , or
using terms on an application form which
are not neutral as to sex .

12 CFR 202.9

Failure to provide adequate notice of
adverse action .

42 USC 3605
( Substantive fair housing
violations would be cited

to equivalent ECOA vio
lations . )

Failure to display Equal Opportunity
Lender Posters , or failure to include
fair housing logo in advertisements .

614

21. Please provide a detailed tabulation , by region and for all regions

See Consumer Examination Information System , report of substantive violations
by Region ( appendix 1 to Question 21 ) , and report of technical violations by
Region ( appendix 2to Question 21 ) , both dated 9/13/78. See also Number 20
above, for categorization of violations as being either technical or sub
stantive .

Note : These reports have been weighted by a factor of 1.27 to reflect
The reports are organized by department as follows :
1.

Note

2.
3.

Installment Loan
Real Estate

4.
5.
6.

Open End
Interest on Deposits
Indirect

7.
8.

Leasing
Operating Sub .

9.

Trust

Citations to CFR have been abbreviated to read " C" ,e.g. , 12 CFR 202.5 ( a ) would
appear as 12 C
Act , primarily
as 42 U 3605.
reported under

2025A . Additionally , technical violations of the Fair Housing
relating to poster and advertising requirements, are reported
Substantive violations of the Fair Housing Act are normally
the appropriate Regulation B citation .

Violations are reported by department. Thus violations involving real property
in , for example , the instalment loan department ( e.g. , home improvement loans)

will not be broken out in our real estate department figures. The system is
unable to distinguish them .

See appendix 3 to question 21 for an analysis of repeat violations .
It should be noted that all figures represent patterns of violations within

departmentsof a particular institution . For example, a pattern of violations
involving 500 real estate loans would show as 1 violation .

615

NOTE :
covered .

Examiners selected citations to describe violations they dis

Some were more specific than others , who merely identified a

general section of the Act .

Thus , for example , the same fact pattern

might have been identified as 12 CFR 202.8 , 12 CFR 202.8 ( d ) , 12 CFR 202.8
( d) ( 2) .

Additionally , keypunch errors resulted in a number of violations

being entered with improper department codes . Though they represent
violations actually discovered in an examination , the data base cannot

616

22. Please restate certain elements of the above tabulation of violations
It should be noted that all figures represent patterns of violations within
departments of a particular institution . For example, a pattern of violations
involving 500 real estate loans would show as 1 violation .
a.

Technical and substantive home loan violations per 100 examiner

hours devoted to civil rights compliance examination of home

loans, per 100 home loan applications received, per 100 home loans
granted, and per $ 100,000 of home loans held in the bank's port

Home Loans
Region
1
2
3
4
5
6
7
8
9
10
11
12
13
14

Patterns of
Technical violations
Per 100 Hrs. Per $ 100,000

Patterns of
Substantive Violations
Per 100 Hrs . Per $ 100,000

617

b . Technical and substantive violations related to other credit

other Credit

Region
1

2

Patterns of
Technical Violations
Per 100 Hrs. Per $ 100,000
20.265
11.209

3
4
5
6
7
8
9
10

0.009 509

9.871

052
949
906
465
103
837

9.083
12.736
11.587
8.552
7.898
11.146

0.007 648

9.509

0.021
0.027
0.012
0.006
0.003
0.001

12

13
14

Total u.s.

0.007 302
0.008 012

4.867
5.853
2.765
5.757
9.806
11.440
13.523

0.009 787

0.002 867
0.003 120
0.007 036
0.007 132

11

15.986

Patterns of
Substantive Violations

Per 100 Hrs . ' Per $ 100,000
0.002
0.001
0.001
0.003
0.004
0.005
0.005
0.005

351
511
133
069
000
210
785
049

0.011 719

0.017
0.007
0.004
0.001
0.001

489
911
575
867
675

0.004 550

23. Please provide a tabulation , by region and for all regions combined ,

618

See CEIS Special Violation Summary Appendix to Question 23 dated 9/13/78 .
This data has been weighted by a factor of 1.27 to compensate for reports
not yet entered into the data base . See Appendix 3 to Question 21 , referenced
earlier .

24. Please restate the above tabulation of institutions in violation to

No Violations

AWN
OUT
00

Region
1

2
3
4
5
6
7
8
9
10
11
12
13
14

Total u.s.

Percent of Examinations
8.000
9.821

25.234
12.796
9.934
7.732

6.044
5.488

13.869

10.636

See Appendix to Question 24 for more complete tabulation .

619

25.

What are the established procedures of your office for in

Complaints received by the Washington or Regional Offices
are acknowledged by the return of a post card to the complainant
with a control number for future reference .

Data are then re

corded into our computerized Consumer Complaint Information
System which is used to track the complaint processing function
and gather data for reports and management purposes . When we
have insufficient information to respond to complainants on

the basis of his/her letter , normal procedure is to correspond
with the bank to obtain additional information and its explanation
of the situation .

Following a review of this information and

any supplemental information that may have been requested from
complainant and the bank , we make a determination based on the
facts presented by both parties .

( See Exhibit No.

J

)

An exception to these procedures has been established for

complaints involving real estate loans or applications where
a violation of the Fair Housing Act is alleged .

Examining

Circular No. 158 dated August 8 , 1977 ( attached as Exhibit K) ,

outlines the specific procedures used in processing such com
plaints including the assignment of an examiner to conduct a
field investigation of the complaint.

37-415 O - 79

- 40

These procedures include

620

requests for information from the bank , an interview with the

complainant and other interested parties , an investigation at
the bank and interviews with personnel .

The investigation is

to be completed within thirty ( 30 ) days of the receipt of the
complaint .

Prior to commencing a Consumer Affairs Compliance Exami
nation , the field examiner is supplied with a copy of all data

which has been compiled by the Consumer Complaint Information
System regarding the specific bank .

The examiner performs an

in - bank investigation of each of the consumer complaints received .
In addition , the examiner reviews the complaints for indications
of potential problems within the various departments of the bank .
( See Exhibit No. 1)
26 .

If the individual complaints are handled primarily in the regional
offices , what are the procedures followed for systematic oversight

and review of the complaint handling work by the headquarters
staff in Washington?
Approximately 75 % of all the consumer complaints are pro
cessed by the Regional Offices .

The Consumer Complaint Information

System provides a convenient means for the Washington Office
to review the number and type of complaints received , the
timeliness of the processing , and the resultant resolutions .
Complaints are frequently filed in Washington on matters that
have already been investigated by a Regional Office .

These

complaints provide additional insight into the nature of com
plaints received and the manner in which they are handled .

621

When an allegation is received that a complaint was

not handled properly , a complete investigation is made into
the original complaint.

The investigation of such a complaint

entails a review of how the original complaint was processed
and whether the procedures were followed completely and accu
rately .

The original complaint , if closed , is reopened and

the investigation resumes .
According to our records , this office has received 25

consumer complaints thus far in 1978 in the category of Bank
Supervision .

This category primarily includes , but is not

limited to , complaints against this agency .

As this type of

complaint is received , it is used as a review mechanism for

evaluating internal policies and procedures relating to the
consumer complaint resolution process .

The occ consumer complaint

handling process has undergone several re- evaluations and re
visions since the founding of the division .

We remain continu

ously receptive to new procedures and innovations that will
improve the complaint process .

We are now in the process of

establishing a permanent oversight mechanism to identify and
address such concerns in the future .

It should be noted that ,

in accordance with procedures established for processing com
plaints alleging violation of the Fair Housing Act , all such
complaints are reviewed by the Washington Office before a
resolution is reached .

622

27.

Please provide figures giving the number of consumer complaints

a.

b.

Total complaints related to other consumer or small business
credit applications .

c.

A disaggregation by region of the total complaints related
to home loans or home loan applications .

d.

A disaggregation by region of the total complaints related
to other consumer or small business credit or credit
applications .

Chart follows .

See Appendix to Question 27 for more detail .

27
Question

n
Discriminatio
Alleging
Complaints
Consumer

Region

4
3

2

5
의

9.

8

1

10

11

52101

0|

12

13

14

Total

Hon
to
Related
Loans
Home
or

2Loan
Applications

010

25

Other
to
Related
Small
or
Consumer
or
Credit
Business

Credit
Applica
tion

33

33

41

42

47

27

10

20

34

20

16

70

33

34

42

44

52

28

10

21

34

20

16

98

504

엠

68

Total

17

108

529

623

624

28 .

Please provide a further tabular breakdown , as indicated below ,
of each of these figures of discrimination complaints received .
For each region separately and for all regions combined , please
provide the numbers of complaints in each category below for
complaints related to home loans or applications and , separately ,
for other consumer or small business credit or credit applications .
a.
Complaints the investigation of which found one or more

b.

Complaint cases in which no violation was found but in
which an adjustment or accommodation was offered by the

bank and accepted by the complainant ( including correction
of bank errors ) ;
C.

Complaints based on a factual dispute , in which the
complainant received no satisfaction ;

d.

All other complaints that received a thorough investiga
tion but resulted in no violations related to the
complainant and no satisfaction for the complainant ; and

e.

All other complaints ( including information requests) in
which no investigation , or only a cursory investigation ,
was deemed necessary .

Charts follow .

28
ion
Quest
to
Related
Complaints
Discrimination
of
Resolution
or
Loans
Home
Applications
Loan
Home

Region

1

4543

2

?
6

190

8

11

12

13

Total

14

-Violation
to
found

i1
No
found
violation

0

based
on
Complaints
factual
dispute
1

2

1

625

-Complaints
receiving
4

2

6

-All
complaints
other

1

21

1

3

8

Referred
proper
to

investi
for
agency
gation

1

2

1

still
Investigation
in
process

1

3

20511
Total

01

2

6

10

25

28
Question
Resolution
Discrimination
of
to
Related
Complaints
or
Credit
Business
Small
or
Consumer
Other
Applications

Region

5
4
3

2

1

6
7

9

8

10

il

12

13

Total

14

to
found
Violation
substantiate
the

claim
complainant's
1

1

12

5

6

17

found
violation
No

but
adjustment
or
accommodation
was
offered
and
accepted
13

i1

21

1

based
Complaints
on
factual
dispute
4
i

1

i
12

10

626

Complaints
receiving
thorough
investiga
tion
but
resulting
no
in
violation
3

3251

51

9

35

58

339

2

6

other
All
complaints
information
and
re
no
which
in
quests
investigation
,or
inves
acursory
only
deemed
was
tigation
20

31

necessary

28

819

32

13

14
15

15

2
1

still
Investigation
Total

9

4

5

5

68
33

33

41

8

9

5

1

5

11

3

42

47

27

10

20

34

20

un

5

15

1

in
process

16

21

92

98

504

627

29 .

Please provide further supplementary information , as indicated
below , on each group of complaints identified in the answers
to the previous question .

For each group of complaints

enumerated above , please specify .
a.
What portion of these complaints were about banks in

Chart follows .

29
Question

Discrimination
Alleging
Complaints
Similar
With
Number
in
Found
Violations
Examination
Prior

Number

Number
similar
with
No
With
in
Found
Violations
Since
Examination

Complaint
of
Filing
Examination
Subsequent

V
found
- iolations
to

0

6

N

No
found
violation
adjustment
but
or
accommodation
was
offered
and
accepted
17

3

3

12

o
O

10

Complaints
on
based
factual
dispute
12

0

628

C
receiving
- omplaints

41

2

35

*
30

*
210

other
All
complaints
information
and
requests

which
in
investigation
,no
inves
c
a ursory
only
or
deemed
was
tigation
necessary

*
40

Referred
to
proper
in
still
or
agency
investi
of
process

529

-

Total

106

gation

51

35

B
ased
* 0ample
on
s
%a1

received
banks
these
of
255
**
examinations
prior

*
270

629

30 .

How many private law suits for civil damages under the Fair Housing
Act or the Equal Credit Opportunity Act have been filed against
national banks in 1977 and 1978 ? In how many of these instances
had the plaintiff previously filed a complaint with your office ,
prior to filing the law suit ?

Aggregate information regarding this area is not available .
As a part of the consumer affairs examination process , the examiner
performs an investigation of pending and threatened litigation

involving alleged violations by the bank of consumer affairs
legislation .

This litigation is commented upon fully in the Report

of Examination .

To date , however , no centralized recordkeeping

system has been implemented to facilitate compilation and analysis
of this information .

31 .

In what ways does your office inform loan applicants or potential
applicants of the existence and possible usefulness to them of the
civil damages provisions of the Fair Housing Act and the Equal Credit
Opportunity Act ? Please supply to the subcommittee examples of any

letters, pamphlets, or other educational or informational materials
in which these civil damages provisions are mentioned .
Upon receipt of a complaint alleging a violation of the Fair

Housing or Equal Credit Opportunity Acts , if we are unable to resolve
the matter , the complainant is informed that he or she has certain
rights under the Act and may want to contact an attorney to seek
redress through the courts .

630

32 .

Approximately how many of each type of letter , pamphlet, or other
educational or informational material mentioned in the answer to

the previous question were sent out or distributed to the public
in the twelve -month period from July 1977 through June 1978 ?

Please indicate the method of distribution and types of groups or
individuals to which these materials were distributed .

The two Equal Credit Opportunity Act pamphlets on age and sex
discrimination are sent out to consumers and interest groups in

response to written and oral requests .

( Exhibit M. )

The requests

generally originate from interested consumers , students , newspapers
1

and consumer groups .

Approximately 300 of each pamphlet were

distributed during the period from July 1977 through June 1978 .

However , since no record are kept on the number of informational
material that are distributed this is only a very rough estimate .

33 .

Have you any reliable and representative information concerning the
costs incurred by banks to comply with Regulation B and the laws

against credit discrimination ? If so , what portion of these costs
are associated with the initial training and other front end start-up
costs of the banks ' compliance programs , and what portion are con
tinuing expenses directly associated with processing of applications ?
Can the continuing expenses be stated as costs per loan application
received or per $ 100,000 of mortgage loan or other consumer credit
assets held ? Can they be stated in terms of fractions of a percentage

point on the interest rate of a mortgage loan or other credit?
What was the method by which these measurements were made ?

We have no representative information concerning such costs .
34 .

Please identify and describe any major surveys , reports , or studies ,
either by outside experts or by your staff , that have recently been

completed , are currently in progress , or are planned for the near future
on any aspect of the responsibilities of your office under the Fair
Housing Act or the Equal Credit Opportunity Act .

In 1974 , the Office of the Comptroller of the Currency conducted
a 6-month survey of primary residence mortgage applications in six

631

Standard Metropolitan Statistical Areas ( SMSAs ) .

That survey was

intended to determine whether data on lenders and borrowers could
be used to monitor compliance with the laws and to ascertain the
feasibility of conducting an on-going reporting program .

The OCC

approach requested certain economic and personal data from appli
cants as well as data on the characteristics of the subject property .
The results of the survey , as noted in a press release , " did
not provide data sufficient to support sophisticated analysis . "

However , " the experience gained in conducting a sensitive survey
of this nature will be useful in considering any future efforts of

this type" .

Essentially the results of the survey reflected de

ficiencies in the form itself .

First , the form provided for ranges

of dollar amounts rather than specific dollar amounts .

That pre

vented the calculation of ratios and the use of modern statistical

procedures .

Second , the form did not include terms of the loan ,

i.e. , years to maturity , interest rate , and requested or required
down payment .

Third , 31 percent of the survey responses were not

analyzed due to blank or invalid responses or inconsistencies .
.

In an effort to rectify the problems encountered in the first
survey , the Office of the Comptroller of the Currency in conjunction
with the Federal Deposit Insurance Corporation ( FDIC ) conducted a
second survey beginning in September 1976 .

That survey was national

in scope , requested specific dollar amounts , contained information
regarding loan terms , creditworthiness of the applicant , and
property characteristics .

632

The sample of banks that were stratified nationally , by
whether the bank was inside or outside a USMSA , by size , and by

the bank's mortgage loan activity within each stratum .

The banks

were mailed forms to be used in conjunction with every application
for a home mortgage or home improvement loan of more than $ 4,000 .
The form consisted of two parts .

Part I , completed by the bank

and mailed to the FDIC when a final loan decision was reached ,

requested information regarding the characteristics of the loan
applied for as well as the applicant's financial position . Part
II , completed and mailed to the FDIC by the applicant , contained
necessary information regarding personal characteristics of the
applicant and co - applicant, if any .

Each part contained a unique

identification number which allowed the two parts to be matched
and the bank to be identified .

The results of the second OCC

survey were of benefit to the agency .

Information gleaned from

the survey procedure and the analysis of the data has been helpful

in the consideration of alternative approaches for our new data
collection and analysis system .
To provide further assistance in the establishment of report
ing requirements for our new system , the Comptroller on July 28 ,

1978 mailed a special survey to each national bank requesting
information on the volume of 1-4 family mortgage loans made and

denied , and home improvement loans made and denied .
of this survey are now being tabulated .

The results

Also , beginning this

month , the occ is planning a field test of our new data collection

and analysis system .

A proposed regulation to implement our new reporting require
ments is expected to be published for comment in the near future .

19
QUESTION
TO
PPENDIX

SUMMARY
EXAMINATION
CEIS

WW2

NY

MA

1

5UNDER
$ 000

S5000

Chi
Memp

Atl
Rich
Cley

Phil
PA

Bost NY

)($ 000 S
1ASSET

MO
MN

IL

VA

OH

CY
KS
Minn Dal
TX

1
90

3

27

5
5,20

8
4,80

3

2

3,60

6,00

12
EXAMINATIONS
OF
NUMBER
AVERAGE 6,20
DAYS
EXAM
PER

8

5,60

22
5,50

18
6.30

22
6.20

20
5.30

31
6,30

15
5.90

EXAMINATIONS
OF
NUMBER
60
AVERAGE 6.30
EXAM
PER
DAYS

42
5.50

75
6.40

80

58
7.20

91
6,60

87

7.70

9.00

75
6,20

88

90
8.30

162
89
151
11.90
10.70
8,40

153
8,50

145
8.30

40

49
12.20

4

23,50
6.80

14

8

5,20

6.30

Denv

11

CO
12

18
5.40

5
7.20

Port
OR

S.F.
CA

U.S.

13

14

Total

3
4.30

0
0,00

85
6.00

7
10
8,40
6,20

6,50

299
6.40

$9,999
TO

12.20
6.30

61
4.80

140
9.90

70
9.30

171
5.80

11.30

148

80
8.50
15.50

188
7.40

45
11.60

25
32
12.20
11.70

19

31

24,20

16,20

42
27

10,000
$2
TO
4,999

21
1,030
19
6,00
7.60
10,90

$99,999
TO
$25,000

7,50

7.10

28
9.30

26
1.458
9.30
14.50

$2100,000
TO
99,999
38
25
26
32

14
EXAMINATIONS
OF
NUMBER
AVERAGE
EXAM
PER
DAYS

10.90
17,50
20.20
10.80
13.10

9,70

5
18.80

9.824
22,50
20.70
15,30
15.70

16

523
813
17

14.10

25.20
39.10
22.00
19.60
33,20

8511
355
23,60
13.70
20.20
15,60

$9
300,000
TO
99,999

3

51,000,000
OVER
8598
17.40
13.20
30.50
22.30
27.30
27,30

4

329
9,80

339
10.00

6

39,58

9

29.60

89
656
46.80
56.80
31.40
30,70

BANKS
ALL
EXAMINATIONS
OF
NUMBER
169
8.00

EXAM
PER
DAYS
AVERAGE

210

8.90

233

285
9,00

219
385
9.40
15.10

501

3,463
69
73
118

8.20

18.90
10.00
13.90

633

EXAMINATIONS
OF
NUMBER
65
DAYS
AVERAGE
PER
EXAM

-

QUESTION
TAPPENDIX
121O
VIOLATIONS
SUBSTANTIVE

330

385

1

0
0
0

2
4

14
84

7
7

3
o
0
2
31
0
0
0

14

15

700

588

164

1
0

35
142

105

0

OWAPOOOOO

1

o

5

oo Popoooo

P

16

49
17
0
1

1

1

9
9

1

77

147

988

1509

1
5
9
2
1
9
43

3
0

1

1
6

TOTAL

29

1
‫انلاا‬

489

0

57
33
1
0
9
19

24
42

WOOOOOP

279

42
46
0

1

44
61
0

‫ܘܩܚܩ‬

314

21
31

1
0
1
0
28
1
0
2
4

171

188
ll

онооннооо

ооогооооо

Enoo ü ÑOOL

OOOOOOOOO

оорнооооо
Ooo

Hooooonoo

275

2
1

56

U.S.

39

198

4055

634

69

19

1
5

0

0

1

119

22
43

0
0
27
51
1
0
20
9

0
3
0

0

S.F.
CA
14

3

On

68
VIOLATIONS
TOTAL

9

OOOO

(3)12
d
202.7
CFR
(4)
d
202.7
CFR
12
202.7
CFR
d(5)12

1
0
0

1

0
0
0
13
44

‫ܘܘ‬

2CFR
0()
202.7
12

16

1
6
0

2

Oooooomoo

d
202.7
CFR
12

(1)
202.7
CFR
12

0
0
0
16
8
3
0
1
2

8

0
0
1
0
0
1
10
0
o

3

ONOOOOOO

c(1)
202.7
CFR
12

92
186

OOOOOOOOO

Oo

12
a
202.7
CFR
C
202.7
CFR
12

138
167
23
3

145
104

0

1

161
195

55
76

Port
OR
13

24

OOOOONOAH

12
CFR
202.6
b

88
167

3

N O

60
120

40

2

o

6
43
7
1

4

8

Deny
CO

12

DOPNO

0

23
41

3

6

O 01

CFR
12
202.5
(5)d

33

0

MO

‫نیا‬

202.5
CFR
(4)12
d

OWP

202.5
CFR
(1)12
d

0

861

202.5
CFR
a12

4

.City
KS
Dal

MN
TN
98

Shoot Noñoooon

0

Minn
Memp

Chi

Atl
GA

OPOOOOOOO

202.4
CFR
12

Rich
VA
5

‫ں دیا‬
HW VOOH

1

Phil Clev
он
PA
3

‫لیا‬

NY

O !

Bost NY
MA

OOOOOO

REGULATION
B
CITATION

SUBSTANTIVE
VIOLATIONS
REGION
BY
1 e
Pag

VATES
NUN

Kansas
Bost

NY
NY

MA

Phil

Rich Atl

Clev

PA

VA

Minn
Memp

Chi

GA

Dallas
City

MN
TN

IL

Deny
Port

TX
МО

OR
CO

S.F.
CA

U.S.

HO
1

Dept.
)(Note

1

2

3

0

0

4

5

7

8

9

0

3

22

27

41

39

85

81

65

0

3

10

11

12

Total
14

13

9
11

0

0

0
0

14

23

9

10

44

57

1

3

4

11

34

0

20

5

1

5

226

29

17

5

587

0

0

1

14

0

0

3

51

11

0

3

3

0

10

37

99
120202544

1

0

0

1

1

19

0
0

0

0

0

0

0

4

0

0

1

4

0

1

0

.0

0

0

0

0

635

0

0

0

0
0

0

0

120202cus

0

0

0

0

0

0

1

0

0

0
0

120202644

1

197702321

120202602

4

0

0

1

0

0

1202020621

9

C

120202505

IL

120202501

4

13

15

13

14

17

13

0

0

0

1

0

0

0

1

1

0

0

1

0

5

0

0

0

0
0

0
0

1

0

3

3

0

0

0

5

1

0

í
10

23

9

0

120202701

3

1

5

93

9

0

1
4

0

:01
0

0
4

0

0

0

0

10

10

48

1

1

0

1

1

29

11

1

175

0

0

5

0
0

0

6

2011.702571

0

9

1

9

0

120202705

3

19

24

14

84

110

42

1
6

TOTALS

95

156

0

1

23

8

3

18

109

57

23

65

1,336

9

0

0

0

0

0

0

1<C202704

0

1

120202703

109

159

249

171

SUBSTANTIVE
VIOLATIONS
REGION
BY

2 e
Pag

0
! 9/13/18
VATE
HUN
Kansas

Bost NY
MA

NY

Phil
PA

Rich
Clev

Atl
GA

Chi
Memp
TN
IL

MN

78

9

Minn

City
DallasS.F.
Denv
Port
MO

CA

U.S.

HO

DEPARTMENT

1)2(Instalment2
Loan

3

4

.6

5

12

10

13

14

Total

IT
29

28

3

3

25

51

32

47

56

18

0

36

50

71

48

63

0

0

4

3

1

0

70

11
10

18

15

48

120202504

0

3

3

0

120202505

0

1

1

0

0

0

28

65

9

15

368

15

10

3

0

0

9

3

25

99

0

0
3

0

0

1

0

0
0

0

0

ó

0

0

1

1

0

0

0
1

1

1202020114

5

0

0

0

0

1

1
0

0

ö

1
0

0

0

1

5

1
1.

3

1

1

0

9

949702321

!6
12020201

0

0

1

0

1

19

1

1

0

0

1

0

1602021A

1

0

1

0

5

0

0

8

10

15

0

0

15

17

1

39

42

13

1

1

0

23

18

13

0

0

3

1
98

171202571

9
20

19

13

213

S
0

0

0

0

0
63

0

25

1

3

19

3

127

!82

!26

3

9

1

28

!18

117

3
0

1

1

36

5

1

17

108

77

1.511

9

10

5

0

1

0

1

23

0

1
1

2023711
ni

0

11

101.702321

0

0

0
0

4

0

1

12020273

2
1 0202705

0
0

1
‫ܐܐ‬
5

120202716

0

0

0

1

10
1120202

9

22

!29

222

6

C

TOTALS
.

229

636

0

0

27

1

0

0

0

0

120202002

0
0

1

0

120002001

160202002111

5

0

0

18

0

120202011

1

527
9

140202501

0

0

0
U

1

9

0

1<C20254

4

ö

3

9

1202024

1

3
Page
09/13/18
ATEI
Kansas

)3(Real
Estate

120202501
120202504

13

1

1

Chi
IL

Deny Port
Dallas
City

Minn
Memp

7

皇后 。

Department

Rich Atl
Clev
Phil
GA
VA
OH
PA
6
453

NY
NY

WW2

Bost
MA
1

1

0

0

10

3

15

17

!0

13

28

27

28

14

33

32

20

24

S

0

0

1

1

CO
TX
MO
12
11
10

MN
TN

13

5

1

0

121202505

0

19
0

0

0

0
0

0

0

0

0

6

0

6

1

0

0

0

0

9

3

1

1

0

0

0

1

0

0

0

0

1

0

3

11

5

0

0

0

0

1

0

3

3

1

9

0

1

0

3

8

0

0

.
0

12
c20270
5
15

13

17

56

53

22

1

0

80

48

3

57

5)1 3

1
25

5

0

0

5

46

1

0

0

1

15

9

11

1

0

0

1

121

1

•0

0

0

1

1

0

0

24

15

3

1

1

36

151

99

14

23

657

4

1

0

1

0

10

216

1

12
C20270
3

TOTALS

149
3

0

4

1

0

1

0

12
C20271
4

Total

637

620c6u5
12

c20272
12

U.S.

CA
14

4

6202004
12

c202701
12

S.F.

18

3

L202007
12

OR
13

SUBSTANTIVE
VIOLATIONS
BY
REGION

9/13/18
ATE
!0

4
Page

Bost NY
MA
NY

0

22

18

18

6

17

164

6

13

3

5

1

97

3

0

11

28

22

10

5

19

5

1

0

0

0

0

3

0

0

0

0

1

0

0
0

0
0

0

0

0

0

0

0

1

0

0

12

13

0

0

1

0

0

0

13

0
0

0

1
0

4

0

3
0

0

0

0

1

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

1

0

0

0

0

1

1

4

1

0

0

0

3

22

18

0

0

1

0

1

1

0

0
1

0

0

0

0

10

10

8

11

1

0

1

55

29

0

3
0

0

1

0

0

3

0

5

0

0

0

0

23

36

1

6

0

0
0

3

3

0

1

0

1
1

0

0

Total

14

0

1

0
0

11

42

23
11

32

329

638

0

0

9

0

0

8

4

0

U.S.

1

5

0

CA

10

1

0

S.F.

1

3

0

0

1

Port
OR

9

1

0

0

6

0

7

5

0

3

0

5

.
o

0

1

4

8

0

CO

3

1 tment
Depar
t 2
pen
4(O)Credi
End

12C
2024

Deny

5 e
Pag

REGION
BY
VIOLATIONS
SUBSTANTIVE

Kansas

RUN
UA
NY

Bost
MA

DEPARTMENT

160202505

0

120202004

0

0

12020270

0

3

0
0
0

0

0

120202701

0

0

120202105

TOTALS

0

1
0

.*Loans
others
from
d
purchase

3

IL

7

6

5

Chi

1

0

Minn
MN

8

9

66

3

6

Memp
TN

1
0

8

0

0

0

0

0

0

0

1

0

1

0

0

0

0

0

0

0.

0

0

1

0

0

4

0

3

56

4

0

1

57

0

1

0

Total

0

1

0

0

14

3

5

1

0

13

10

0

0

!

12

10

1

0

0

11

0

1

0

10
11

6

0
0

U.S.

CA

1

1

4

Port
Denv
Dallas
City S.F.
OR
CO
TX
MO

0
0

0

5

4

Atl
GA

VA

0

0

0
1

1

3

6

0

3

0

0

1

0

0

9

0

17

0

3

4

0

1

0

1

0

0

1

0

0

1

1

1

0

154

4

15

19

13

23

30

22

0

0
0

6

160

639

120202704

Rich

Clev
Phil
OH

0

3
0

120202005

1202027A

3

2

I*)(6 ndirect 1

1202025A

120202501

PA

VATE
IN

SUBSTANTIVE
VIOLATIONS
BY
REGION

6
Page
Kansas

Bost

NY
NY

MA
2

3

VA

4

5

Rich

D

6

Atl

Chi

GA

IL

?

Dallas
City
Minn

Memp
MN

TN

8

9

OR
CO

10

0

0

1

0

0

0

0

3

0

0

0

0

0

Port
Deny

MO
11

12

1
.)( perating
Sub
O

PA

Phil
Clev
OH

13

S.F.
CA

U.S.

14

Total

0

0

0

0

1
‫ܙ‬

1

5

5

8

0

0

0

1

0

0

6

.0

14

640

REGION
BY
VIOLATIONS
SUBSTANTIVE

Bost NY
NY
MA

Phil

Ati
Rich

Clev

Chi

Dallas
C
. ity
KS
Minn

Memp

S.F.

CA
14

U.S.

PA

OH

GA
VA

2

3

44

65

IL
7

80

57

9

657

48

23

22

14

17

53

99

13

56

151

15

413

283

3,422

329

176

259

68

222

150

106

263

492

55

53

553

Other

281

493

331

386

77

199

4,079

316

164

119

70

591

70

278

704

Total

Region 1

* .
R.E

TN

Total

8

641

Estate
Real
*

1
Page
21
Question
t2 o
APPENDIX

1

2

3

5

4

Atl
Rich
clev
Phil

Chi

VA
GA
OH
PA

IL

7

6

0

.CDal
KS
Minn
ity

Memp
MN

TN

0

Denv
CO

Port
OR

S.F.

10

11

12

13

14

0

0

0

1

0

0

1

0

2

Oo
O ‫لیا‬

24

8

5
10
6

11

34

314
40
5

10
15
11

12
23

4
24
62

POOONOO

ONPOooo

1
1

Ро

Oo

Oo

лооо

1

1

0

7

0

1

12

1

0

46
33
37

2
8
21

9

10

‫ܩ‬

15
4
5
0
75
23
0

O

O

0
7

3

7

7
7

4

40
9

0

11
351
323

0
0

0
0
3

202

51
23
0
1

0

‫ܘܺܘܘܰܩܘ‬

Oo

3
17
10

WPONOON

Oo

Oo

Oo

Oo

Nunun oooo

UPPOWOAW

Роноооо

Ooooooo

Oo

oo
Oo

oo

៩.៩៩ ០០០

‫ܘܘܘܘܘܘܘ‬

‫ܘܘܘܘܘܘܘ‬

NOOoooo

OOOOOPO

Oo

ob poin orood
O O

Oo

0

45
40
28

9

2
2

0

9

7

38

1

0

4
3
6

3
2
13

179
208
290

642

3

2

31

2

1

0

1

TOTAL

O

1

1

2

Oo

0

2

OOOO

0

0

0

47
57
41

Oo

0

1

OOO

41

0

0
1

0

O

0

25

0

33
19

1
3

O

50

0

OO

OO

0

59
30
2

28

4

‫ܘܘܘܘܘܘܘ‬

OO

OO

OO

3

0

10
51

1
0

2

O O

0

OOOOOOO

0

OOOOOOO

0

‫ܘܘܘܘܘܘܘ‬

‫ܘܘܘܘܘܘܘ‬

2

0

U.S.

89

2

1

CA

VWNNNEN

Bost NY
NY
MA

OO

ON
B
REGULATI
CITATION

VIOLATIONS
TECHNICAL

2
Page

ity
CDal
.Minn
KS
Memp

Chi

Rich Atl
Clev

Phil
PA

NY
Bost
MA
NY

B
REGULATION

MO
MN
TN

Denv
CO

GA

IL

6

7

8

9

10

11

12

1

1

0

4

4
1

0

VA
NH

Port

OR

S.F.
CA

U.S.

CITATION
1

2

13

14

TOTAL

4

28
1
2
42
1023

‫ܘܘܘ‬

0

0

2

8
3

8

0

2
3

0

ooOOOH

1

33
13
1
0
0

4
9

22

10
2
0

2
5

1

0

92
5

ооооноол Н

5

OOWN OO OOO

ouoooinoin

OOOOO OWO

20

0

0
1

OOHOOO UN

Pooooo

Oowa

‫بیوا‬
‫یا نیا‬

Oow vowOWNAOOOH

Ooo
OOONHAOOOO UT

0
0

1

110
63

1

0

0

0

0

0

9

11

0

WN

VN

0
0

22

32
1
5
1
0

8
5
2

2
1

1

27
14

1
2
6

132

6

230

OOO ONE

3

10
23

POVON

2

6

0

24

OOOOOHNOO

0

‫ܚ ܢܝ‬

9
8

27
78

OOONOOOOO

2

15
50
15

OPONNWOO

0

1
0
0

‫ܘ̄ܘ ܘܝ‬

NOOOOWOOO

‫ܗ‬

‫ܝ‬

‫ܘܘܐܗ‬

‫ܗܗ ܘܘܘܘ‬
‫ܘܘܘ‬

CFR
12
202.12
b
(2)

18

0

.
24

0
17
0
4

33
1

1
0
6

0

0

13

Oll
3

23
13
10
0
1
11
0

mo

CFR
12
202.12bl
)a(ii
CFR
12
202.12bl
)(ibi

0
0

oomoy

oo

a12
202.12
CFR
b
202.12
CFR
12
202.12
CFR
12
(1)6
b
(1)i0
b
202.12
CFR
12
(1ii
b
202.12
CFR
)012

0

‫ܘܢܙ‬

O

O

202.12
CFR
12

9

0
0

0

0

8

0
8

1

144

3

3

‫ܘ ܠ‬
‫ܘ‬

0

2

0

0

‫ܚ ܘ ܬ‬
‫ܢ‬

a
202.11
CFR
12

1

16
12

94
2
3

9

11
0
4

‫ܘܘ‬

5

10

3

OOOOOOOO

C
202.10
CFR
12

0

1

0
0

3
110

6

O

a(2)12
202.10
CFR
CFR
12
202.10
(3)
a
b
202.10
CFR
12
b(2)12
202.10
CFR

Pooooo

a(1)
202.10
CFR
12

оонооооо

OOOOHAN

2

1

‫ܘ ܝܘܩ ܘ ܗܝܝܙ‬

3

a
202.10
CFR
12

loo

OO

202.10
CFR
12

0

‫ܘܚܝܪܘ ܚ ܗܰܘܘܘ‬

1

'‫܂ ܝܪܝܢ ܢ ܢ‬

12

2
1
17
19

OOOOO

0

VENFOURHOOV

1

81
5
0
1

OOONOOOO

a()
202.9
12
3CFR

1

HOOOOOOOO

UNOON

35
6
1
0

0
0

643

oond Brown @ noow

0

Orto

a(2)i12
202.9
CFR
2
a(2ii
202.9
CFR
)512

1

‫ܘܘܘ‬

202.9
12
() 37
a2CFR

2

O

i1
202.9
a(1)12
CFR
a(1ii
)012
202.9
CFR
a(1iii
202.9
CFR
)012
a(iv
202.9
CFR
)112

oo A

un

3

0
0
0

3 e
Pag

617

415

CA

il

12

13

14

830

729

‫ܘܝܙܗܘ‬

3

794

11
58
24

3
8
6

6

OO

18
47
10
1
0
11
0

U.S.

TOTAL

4

OPOooow

0

1

OOO OO W

3

4
0

0

OOONE

15

0

ow

OP

Oo

‫ܩܩܩ‬

0

44

‫الا‬

780

01

Oo

Oo

24
55

‫ܟܩ ܘ‬
‫ܬܢ ܘ‬

255

9

54
4

‫ܘ‬

3

299

22

13
0

OR

3
20

5

11
1
0

1
134
457
148

0

1

644

6l

292

4
5
1
0

10

S.F.

CO

MO

3

0

23

5

9

8

10
37
16

6

‫ܘ ܘܘܢܝ‬

‫ܪܐ‬

MN
TN

OO

70
оолоон

Oo

Oo

21

23

。

rooono

16

toono

10

7

0

not

6
25

6

Dallas
.City
KS
Denv
Port

Minn
Memp

Chi
IL

OO

1

13

CFR
12
202.13
a(1)1
12
CFR
202.13
a(1)i0
12
CFR
202.13
b

5

Oo

0
0

4

3

Atl
GA

Clev
Rich
VA
OH

Oo

2

PA

O

1

a
202.13
CFR
12

Phil

Bost NY
MA
NY

B
REGULATION
CITATION

0

1

12

0

0

4

35

1110

1030

262

154

244

7812

1Page
N
REGIO
BY
IONS
VIOALT
ICAL
TECHN
Kansas

. ich
R
Clev

.N.Y.
Phil

Boston

.
Atl
GA

TN
IL

. inn
M
emp
Chi
MN

NY
HO
1

4

0

0
3

0

:

0

1

0

0

1

10

5

3

3

0

0

1

0

1

3

0

3

4

3

6

1

0

0

0

0

0

0

0

0

9
0

0

24

9

0

38

1
15

0

0

1

4

0

0

0

0

22

5

0

!

0

10

0

3

0

1

1

0
0

9

13020210A

.F.
S
.Denv
ort
P
Dallas
CA
1.4
U.S.
12
1.3
11

7
9

160202
10
.

OR
CO
TX

3

DEPARTMENT

City
MO
19

0

0

0

0

0

0

0

0

0

0

1

0

1

0

0

0

1

1

0

0
0

1

4

10

0

1

0

0

1

1

0

0
4

3

1

0

10

3
C
3

3

0

0

0

0

4

3

10

10

28

0

0

0

11

0

0

1
0

0

0

0

0

0

4

1

0

4

1

0

0

0

0

0
0
0

0

0

0

0
0

0

0
0

0

0

0

1

1

1

3

0

5

0

0

0
0

1

1
T

0

8

0

0

18

1

4

0

0
0

0

0

0

1

0

0

0
0
0

0

0

3

0

0

1
0

0
0

0

0
0

1

0

1

9

0

0

0

0

0

0

0

0

0

0

°F
120202

1

0

0

1

0

0

0

0

0

0

3

1

0

1

0

0

0

0

0

0

1

0

0

0

0

0

0

12020213A1

0

1

0
0

1
.0

1

0

0

0

0

0

0

1

1

1
1

0

0

0

0

79

1

0

0

0

0

39
9

5

645

1

2·Page

14

0
0
4

1

0

1

14

10

10

3

il

0

25

8

3

10

15

0

9
4

0

4

14

4

100

0

0

55

T
1

11

I
0

0

50

70

52

72

94

84

88

74

34

13

15

20

4

17

15

42

48

20

5

3

0

0

3

0

0

0

0
5

1

213

S

S
0
0

0

0

0

0

0

0

0

3

4

11

0
3

0

0
0

0

0

0

0

1

3

0

9

1

3

3

4

9

5

0

4

4

4

0

0

0

0

1

0

0

0

0

0

1202020A

0

0

0

3

17

0

10

10

4

18

13

8

0

1

0

3

0

9
15

5

1

0

0

0

1
0

0

8

22

U

0

1

0

0

4

0

0

1

0

1

3

0

14

25

19

30

41

39

48

0

10

1

3

1

0

3

0

0

1

0

0

0

0

0

4

10

0

1

5

U

i

0

1

0

0

0

1

1

0

0

63
75

0
0

1202029ATTI

55

1

1202024A11

0

9

0

3

4

1

0
0

'3

3

0

0

0

0

0

0

C

0

715

0

0

20

3

3

0

274

8

€

1

1

1

1

9

3

0
5

0
5

8

22

0
1

It

0
3

9

0

4

0

0

11

0

0

0
3

0

1

C

4

0
0

0

1

15

0

3

3

3

U

3

1

1

0

3

77

646

0

18

0

€

17

0

18

6

1

0

30

12620290

1

1

:

1202024

112

8

1

4

18

19

15
0

1262025C
12C202SCT

REGION
BY
VIOLATIONS
TECHNICAL

3
Page

Kansas

18
09/13/
DATEI
HUN
Boston N.Y.
NY

TEC2029C

1206029F
4203605

TOTALS

Atl
GA

Chi

Memp
TN

U.S.

CA

CO
TX
MO

'"
‫ܙܐ‬

.9

8

6

F.
Port
Deny
Dallas
City S.

Minn
MN

4

)1(Note
Dept.
0

0
0

0
0

1

0

4

0

0

0

20

120202962

Clev Rich
VA
OH

5

3

2

1

DEPARTMENT

Phil
PA

5

6

0

0

0
0

0

1

0
0

1

0

0

0

0

0

0

0

0

0

0

1

0

0

0

230

264

357

301

86

0

0

0

0

0

0

0

53

163

215

50

185

121

61

.

0

0

1

0

0

1

1

3

48

2,169

0.
36

647

Page
4

REGION
BY
VIOLATIONS
TECHNICAL

09/13/18
UATET
RUN

Kansas
Bost

Clev
Phil

NY
NY

PA

2

Atl
Rich

TN

S.F.

U.S.

CA

TOTAL

13

8

HO

N

Port
Dallas
Denv
City

Minn
Memp

Chi

VA
12

EPARTMENT

12020218

1
0

1

0

4

3

4

0

6

3

15

1
3

32

3

0

0

5

3

37
15

0

S
0

0

0

0

1

0

6

0
1

0

11

0

0

0
0

0

0

0

120202100

4

1

0

0
0

1202021013

3

0

1202021001
12020210A2

0

0

0

0

120202104

1

0

12020210

0

4

1

9

1

1

0

0

3

0

0

0

30

9

1

0

2A012023:1

1

12020212

0

0

1

3

0

0

0

3

0

3

8

11

3

8

27

18

1

5

0

0

0

0

1

0

0

3

1

3

5

1

0
8

3
8

1

0
0

0

0

0

3

1

3
0

1

0

0

0

0

1

0

0

0

120202120

1

0
0

0

1

0

0

0

1

0

12020213

15

0
0

0

4
0

12020213A

3

3

1

0

0

0

3

15

0
0

1

0

0

0

1

1
0

0

0

1

0

0

12020213C

0

0
0

0

1

0

0

1
0

0
0

0

0

0

0

ů

ů
.

1
0

0

1

0
0

0

0

?
0

12C2022N

!

0

0

.

0

C

G

C

0

0

0
0

0

12020224

C1? 2022L

1

0

1

0

0

0

3

0

0

1

3

0

VITTA71202321

0

0

3

1202021204

8

1

0

0

0
0

1

0

0

0
0

3
0

1

0

1

0

1202021242

94
1

0
0

0
0

5
0

0

0

1202022C1

8

3

0
4

12020212011

C20213A1
?

0

1

648

1202021281

120202120111

1
0

120202120

10

0

12020212A

0

0

0

5Page

20222
120
202
12C3L2

0

0

0

0

0

0

0

0

0

0

0

0

0
0

0

1

0

0

0

0

0

1

0

1

0

1

0

0

3

0

0

0

0

0

1

0

0

27

17

1

23

9

11

14

13

9

13

9

24

4

20

3

4

9

1

17

13

13

0

1

0

89

15

8

4

10

4

1

5

4

5

3

0

1

0

6

12C20250

11
0

0

19

56

62

58

58

90

52

4

15

20

9

17

15

32

0

0

0

0

0

3

0

0

0

0

1

0

U

5

67

32

3

85

17

0

13

19

1

8

665
230

A

1
0

0

0

0

0

0

0

0

0

1
0

0

1

4

11

8

1

4

5

3

20

0

3

1

0

4

1

3

0

0

5

3

14

0

0

0

0

C

0
0

3
0

0

17

1

3

1

13

1

8

15

5

11

5

15

3

1

9

25

17

10

4

3

3

0

57

0

1

3

109
0

10

15

83
8

138

9
0
0
0

0

0

0

0

18
0

0

0

0

1

0

0

1

0

0

1

3
0

0

11

?029A1111
12C
?029A1TV
12C

4

1

1

0

0
0

1

16

649

29

14

37

3

3

132

0

120202502

4

1

0

0

0

5

0

0

9

3

0

0

1

0

0

0

0

0

0

0

0
0

0

0

0

0

0

12C5
202

0

REGION
BY
VIOLATIONS
TECHNICAL
..
6
Lage
0:ND9/13/18
ATE

Kansas
Bost NY
NY
MA

Phil
Cley
PA
OH
3

2

20

14

1

3

5

6

13

32

42

3

6

3

1

3

0

.
0

1

1

0

0

1

3

0

4

1

0

8

3

5

9

6

0

112

4

0

0

8

62

1

4

0

0

1

0

0

1

72

258

122

O

Minn

TN

MN

7

8

9

25
3
0

37

}
1

47

39

65

18

0

5

5

1

0

1

5
0

1

0

6

3

10

3

9

3

257

0

229

:U.S
TOTAL

10

13

0

194

Port S.F.
Denv
Dallas
City
МО
TX
CO
OR

0

0

218

Memp

Chi
IL

0

237

0

6

20

20

10

11

0

0

0

1

334

400

17

439

1

23
1

0

13

1

25

10

112

0

76

0

1?

86

0

3

50

109
2,678

650

1

Atl
GA

Rich
VA

A
." UTORE
Uniu
AVUI

7Page
Kansas

Bost NY
MA

EPAHTMENT

Clev
Phil
PA
OH

NY

Estate
R)3( eal
1

Rich

34

2

Atl
GA

VA
6

5

Chi

IL
7

Memp

S.F.
Port
Den
Dall
Cityvas

Minn

TN

MN

8

9

TX

MO

OR

U.S.

Total

N

1

0

0

1

3

1

5

1

5

10
0
0

0

0

5

0

3

0

0

.
0

0

1
0

1

11
8

3
1

1

22

1
0

5

18

1
0

0

0

1

0

18

3

1

0

1

0

5

0

4

120202128111
0

1

3

0

0

.1

19

4

1

37

0

39
1

0

1

1

0

0

0

0

0

1

14

18

10

3

22

23

66

34

14

52

11

11

0

0

1

6

0

0

5

3

13

IS

0

0

13

25

1

12020213ANI

10
1

0

3

0

0

5

18

10

3
19

23

39

46

48

50

5

10

22

0

5

126

1

132

420

1

0

1

3
0

1

1

3

18

0

1

90

1

0

0

0

0

1

0

1

63

0

1

1

1

3

0

0

0

1

14

9

11

651

120202126111A

9Page

REGION
VIOLATIONS
BY
TECHNICAL

1

Kansas

Bost NY
MA

Phil
Clev

NY

PA

Rich Atl
VA
GA

Chi
IL

Minn

Memp
TN

MN

City
Dallas
MO

TX

Deny
Port
S.F.
OE
CO

CA

13

14

HO

65

98

7

10

11

I.
1

3

5

14

3

10

0

1

3

3

4

0

3

8

3

0

1

0

0

1

1

11

19

3

12

0

0

28

0

0

0

0
0

0

3

0

34

36

11

19

48

17

10

1

6

0

0

6

1

0

19

Total

0.

43

2

U.S.

20

39

32

9

23

10

311

4

9
9

0

0

0

0
1

1

0

0

0

0

0

0
1

0

10

1

15

1

1

01

3

1

0

0

1

1

1

3

0

11

0

11

4

6

8

4

1

8

1

5

17

3

0

1

0

50

0

14

1

1

1

0

0

0

0

1

0
0

1

1
0

0

0

0

1

0

0

14

3

22

4

1

0

9

22

0

0

1
13

0

3

1
0

1

0

1

0

0

0

28

23

5

4

6

208

0

0

0

0

10

0

0

0

0

0

1

C

0

58

1
0

0

1

1

0

1

1

3

17

0

14
0

1
3

5

3

4

1

1
0

3

5

0

0

5

5

0

0

3

6

0

0

0

0

0

1

4

36

9

0

1

0

9

0

1

1

0

0

0

0

1

1

3

55

259

0

0

0

1

19

0

10

0

..5

17

8

1

4

4

1

4

3

71

1

24

С

0

0
0
3

0

0

1

0

226

51

3

17

0

C

97

0

0

3

1

0

110

274

152

201

183

296

2,071

652

0

109

4

0
3

0

1

0

0

0

0

0

0

1

9
0

0.

1

0
0

0

S

C

0

1

0

0
0

3

1

1

99

10
Page
NDATEI
19/13/18
Kansas

Bost

)1End
Credit
(Open

Phil

NY
NY

MA
2

Clev
OH

PA
3

4

Rich
VA
5

6

0

S.F.
Port
Denv
Dallas
City

Minn
MN

TN

98

7

0

0

0

Memp

Chi
Atl

GA
IL

MO
TX
CO
OR
CA
10

0

0
0

0

0

0

1

0

0

0

0

0

0

0

0

0

1

0

0

0

0

0

0

1

0

0

0

0

0

0

1

0

0

0
0

0

0

11

0

12

0

0

1

0

1
0

0
0

0

0

0
0

0

1

0

1
3

0

0
0

13
0

0

1

0

0

0

1

0
0

1

0

0

0

0

0

0

0

0

0

0

0

0

3

0

0

0

0

0

0

0

0

0

0

0

0

1

0

0

0

0

0

1

0

0

0

0

0
.

0

0

0

0

0

0

0

0

0

0

0

3

3

3

1

0

3

10

0

0

0

..
4

1
5

10

0

0

0

0

0

1

0

4

4

8

22

5

30

S

!

0

0

0

0
0

1

1

1

0

0

0

0

0

0

0

0

0

0

1

5

3

3

1

0

23

3

5

1
4

0

0

0

43

15

0

24

1

0

0

0

1

0

0

0

O

0
0

653

0
0

0

5

0
0

0

0

5

0

0

0

0

0

0

1

20

12060250C

1

0

0

0

12020251

0

0

U

120602502

0

.0) ..

0

1

Total

14

0

0

1

13

U.S.

23

9

5

5

183

11
Page
0

1
0

0

0

6

0

5

0

1

0

1

4

1

0

1

0

0

1

0

0

3

0

0

0

1

0

0

4

1

0

0

0

0

0

11

0

0

11

0
0

0

0

0
4

0

0

0

10

8

3

0

3

0

4

6

4

0

1

0

1

1

0

9

0

0

19

0

0

9

8
0

0

C
0
0

0

0

0

0

0

0

1

1

0

0

0

0
4

1

0

1

3

1

0

0

0

0

0

0

0

0

0

0

0

42

52

0

S

1
0

0

0

0

0
39

63

28

77

25

29

50

1

1

1

13

5

6

0

1

1

0

0

0
0

1

0

0

0

0

1

0

1

0
0

0

0

1

0

23

11

•
32

525

654

14

8

0

0

0

0

0

0

0

3

0

0

1
0

0

0

1

0

0

0

1

51

5

0

0

0

13

0

0

3
0

0

0

0

0

1

0

0

0

0

0

3

0

0

0

o

4
3

0

0

0

0

0

0

0

12C2027B

REGTON
BY
VIOLATTUNS
TECHNICAL

12
Page

09/13/16
Kansas

1)*6(ndirect t
Iepartmen

NY

2

3

4

6

7

MO
TX

8

9

0

0

0

0

0

0

0

0

0

0

0

1

3
0

Deny
Port
CO
OR

12

13

s

0

0

0

10
1

11

0

12C20210B

Dallas
City

IL

GA

.0

0

0

5

Chi
Memp
Minn

At1

.

12C20210A
1202021043

Phil
Clev
Rich
PA
OH
VA

NY

Bost
MA

0

0

14
0

0

12020212B1

0

0

0

0

0

0

0

0

0

12020212B4

0

0

1
0

1

0

1

1

0

0

1

0

0

12C2022L
0

0

Total

0

12C20212B
0

U.S.

CA

0
0

0

S.F.

0

1

1

1

12C2025B2
12C2025C

1

0

0

0

3

1

5

1

1

3

0

1

1
8

1

0

1

1

1

5

10

6

15

3

1

4

0

0

0

0

0

0

0

0

0

0

3

0

0

0

0

0

0

0

3

0

3

1

0

0

0

0

0

3

1

0

0

3

1

0

U

1

0

0

1

0

0

19

18

0

0

U

.

0

1

1

19

2,.: 2
13

0
9

8
0

1
3

1
8

5
0

0

5

5

1

80

1

1

42

5

1

1

0

0

1

1

1

1

1

0

0

1

0

1
1

3

1

0

0

10

0

6

12C2029B2
C

0

TOTALS

42

42

.;*Loans
others
from
purchased

A13

24

0

26

0

0

13
14

235

655

0

1

REGION
BY
VIOLATIONS
TECHNICAL

13
Page

DATET
JN
09/13/10

Kansas
Bost
MA

NY
NY

Phil
PA

Rich
VA

Clev

Atl
GA

Port
Denv S.F.
Dallas
City

Minn
Memp

Chi
IL

TX
MO
OR
СО

TN
MN

CA

U.S.

HO

2

3

5

4

10

7

9
0
0

0

0

0

0

0

13

14

Total

0

0

0

1

0

0

0

0

0

0

0

12

6

0

11

0

.)8( perating
O1Sub

1

1

0

0

0

1

0

0

1

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

1

0

1

0

0

0

0

0

1

5

0

0

0

0

0

1

656

0

3

0

1

0

0

0

0

0

0

0

0

0
0

0

0

0

0

0

0

0

0

0

0

0

0

0

1

0

0

0

0

0

0

0

1
0

0

0

0

1

0

0

1

0

0

1

0

0

0

1

0

0

0

0

0

0

0

.:0

0
0

0

0

0

0

0

0

0

3

0

0
0

0

0

0

.0

0

1

0

0

1
3

8

10

!

5

0

0

!

0

C

0

0

25

0

0

REGIONIONS
BY
VIOLAT
CAL
TECHNI

Bost NY
NY
MA
2
Region 1

MN

VA
5

GA
6

7

8

9

3

OH
4

PA

Clev

Rich

Atl

C
. ity
KS

Minn

Memp
TN

Chi
IL

Phil

Dallas Deny
CO
12

Port
OR
13

S.F.
CA
14

U.S.
Total

42

152

819

801

212

113

143

5,753

510

363

572

590

203

147

533

229

469

Other

1,115

263

155

253

7,824

773

1,027

621

734

300

784

831

295

257

418

Total

Estate
*eal
R

657

51

60

296

226

2,071

183

274

201

110

259

97

55

66

R.E.

658

APPENDIX 3 TO QUESTION 21
REPEAT VIOLATIONS *

Section of 12 CFR 202 in Violation
Bank
1
2

5 ( a)

5 ( 0)

5 ( d) 1
x
X

X

3
4

5 ( d) 2

5 ( d) 3

7 ( d) 5

х
X

X

x

X
Х

X

X

5

х

X

6
7

X

8

X

х
X

X

9

10

х

x

x

11
12

х

*Corrective action has been effected at 10 of these banks and is in process
at the remaining two .

GENERAL DESCRIPTION OF SECTION IN VIOLATION
Section 202.5 ( a)

Discouraging applications on a prohibited basis .

Section 202.5 ( c)

Requesting information about a non - applicant spouse or
former spouse .

Section 202.5 ( a) ( 1) - Request for an applicant's marital status in other
Section 202.5 ( d) ( 2 ) - Inquiring about other income without disclosing that

Section 202.5 ( d) ( 3) - Requesting the sex of an applicant , using terms in an

Section 202.7 ( 0 ) 5

Requiring the applicant's spouse to be a party to the
credit , as co - signer , guarantor , or the like .

SUMMARY
ON
VIOLATI
SPECIAL
CEIS
3
/1UN
09
VÄTEO
Kansas

23
QUESTION
TO
APPENDIX
Atl
Rich
Cley

Phil
PA

2

I

days
examiner
Total

706

tions 75
examina
of
Number
examine
banks d
of
Number

5

3

1,132 dol98

2,410

1,676

GA
VA
OH

Chi
IL

Memp
TN

6

7

8

1,415

.194

112

107

211

151

72

112

105

211

151

194

6

11

27

27

.
15

15

Port
Denv
Dallas
City
Minn
MO
MN

13

12

il

10

9

1,096

S.F.
CA

TOTAL

14

1,909

2,264
1.792

2,714

2,654

182

164

274

177

334

71

46

180

164

271

174

331

71

44

9

38

8

55

U.S.

22,492
987

538
56

2.153
2,136
55

banks
Examined
229

3

‫ܙܐ‬

659

technic
with al
Bank

Both
Banks
Total

13

9

17

13
44

1
19
13

6
30
8

8
15

3
8
22

.
27
25

37

70

33

44

30

32

61

15

5
17

11
9

15

15

34

.
37

Ciao

only
Dept
Estate
Real
only
Depts
Other

10
43
27

1
8
6

80

15

more
or
one
with
Banks

1
3

71
207
215
493

.

:
ons
violati
tive
substan

Banks
Total

3
19

S

10

32

6

'8
28
6

9
67
38

63

42

114

52

58

1
117

5
83

103

135

138

)
4

3
· 3
8

51

123

3
127

5

42

85

4
132
61

171

155

197

65

0

10

3
32
4

52

38

51

‫ܙ‬
41

30
20

52
933
429

1,415

APPENDIX
QUESTION
TO
24
Special
CEIS
Violation
Summary
Examinations
of
Percent
Violations
Showing
Bost
MA

NY

별 2NY

Clev
Phil
OH
PA
3
4

Rich
.VE

•Ati
GA
6

Chi
IL
7

Memp

Dallas
,City Denv
KS
Minn
MN
MO
10

CO

12

Port
OR
13

S.F.
CA

14

Total
U.S.

Banks
of
Percent
In
Not

Violation
Specified
of
Laws
8.0

9.8

25.2

12.8

9.9

7.7

6.0

5.5

13.9

4.5

16.5

5.6

6.5

0.0

10.6

6.2

24.0

21.1

8.7

7.1

22.9

0.0

3.3

With
Banks
of
Percent

Technical
Violations
Only
Real
With
Banks
of
Percent

Estate
Department
Violations
Only

5.3

4.5

6.2

0.7

3.1

4.4

1.8

3.3

0.0

3.0

1.4

0.0

8.4

6.2

12.6

15.5

4.4

4.9

9.9

3.4

12.9

11.3

8.7

8.6

4.1

8.2

13.4

9.1

2.8

8.1

8.5

0.0

9.6
1.8

5.4

10.0

91.1

65.7

0.0

2.4

Percent
One
With
Banks
of
Substantive
Or
More
Violations

42.7

82.6

56.3

39.3

54.0

68.2

70.0

75.8

75.0

62.4

87.6

59.0

73.2

4.5

7.5

4.3

2.6

0.5

2.7

1.8

1.1

2.8

1.2

1.4

25.3

46.4

26.2

31.8

31.4

60.3

45.6

50.6

46.4

36.7

39.5

57.7

69.6

53.6

43.3

13.3

5.4

5.6

18.0

27.2

8.8

28.0

23.2

15.3

48.0

18.3

14.1

8.7

35.7

19.9

Percent
of
With
Banks

Real
Estate
Department
Violations
4.0
Only

6.5

Percent
With
Banks
of
Other
Credit
Violations
Only

Banks
of
Percent
With
Both
Types
of
Violations

660

10.3

APPEN
DIX
TO ION
QUEST
27

ALLEGING
DISCRIMINATION
COMPLAINTS
CONSUMER

-2ewk
N
Yor

Loans
Home
to
Related

Con
Other
to
Related

2
-

Redlining

Card
Bank

3

Religion
Redlining

1

‫| بیا‬

1Boston

REGION

Philadelphia

0

1
2

General

General
Age
-

661

-

-

-

1
-

TOTAL

17

*

15

68

33

70

33

4

REGION

Cleveland

5

6

Richmond

Atlanta
-

/Marital
Sex
Status

Loans
Home
to
Related

/Marital
Sex
Status

1
-

1
-

Age
-

arital
Status
/M
Sex

1

Other
to
Related
Con

General

General

1
1
2

General
Age

662

-

TOTAL

34

41

42

42

33

44

7
-

Con
Other
to
Related

UlWN

Redlining

0

Origin
NRace
/ ational1-

Origin
NRace
/ ational-2

Loans
Home
to
Related

M-9inneapolis

Memphis

Chicago

100

REGION

General

General

General

5
-

-

663

Age
-

TOTAL

47

27

10

28

10

52

Kansas
City

10

REGION

/Marital
Sex
Status

Loans
Home
to
Related

Con
Other
to
Related

1
-

General

11

Dallas

12

0

O

General

General

Denver

1
-

6
-11

664

1

1
-

34

21

34

20

에

20

20

이

TOTAL

TOTAL
REGION

13

Loans
Home
to
Related

Portland

14

Francisco
San

M
/ arital
Sex
Status

0

3

ๆ
Race
N
/ ational2
Origin
Redlining

Con
Other
to
Related

General
Age

5
10

25

General

665

2-

504

16

98

16

108

529

TOTAL

666

List of Exhibits

Exhibit A

Comptroller's Handbook for

Exhibit B - 1

Fair Housing Handout No. 2

Exhibit B - 2

Fair Housing Handout No. 3

Exhibit C

Fair Housing and ECOA Lectures

Exhibit D

Fair Housing Handout No. 1

Exhibit E

Examination Outline

Exhibit F

Statistical Sampling Handouts

Exhibit G

Office of the Comptroller of

Exhibit H

Position Descriptions

Exhibit I

Working Papers Checklist

Exhibit J

CCIS Blackbook

Exhibit K

Examining Circular No. 158

Exhibit L

CCIS Handout No. 8

Exhibit M

Federal Reserve Board

Certain portions of the following exhibits submitted to the subcom

mittee by the Office of the Comptroller of the Currency were judged not
relevant and were omitted from this volume :

Exhibit H was omitted entirely .

Exhibits A , C , D , F , and J.

All other exhibits are included in full .

Exhibit M , the Federal Reserve pamphlets on age and sex discrimination , is

included in Appendix 8 of this volume .

667

EXHIBIT

A

Comptroller of the Currency
Administrator of National Banks

COMPTROLLER'S
HANDBOOK
FOR CONSUMER
EXAMINATIONS
[ Excerpts applicable to examinations for
compliance with Equal Credit Opportunity
Act, Fair Housing Act , and Home Mortgage

Disclosure Act ]

United States Department of the Treasury
Washington , D.C. 20219

37-415 O - 79 - 43

668

Foreword

The Office of the Comptroller of the Currency ( OCC) is
responsible for enforcing compliance with state and
federal consumer laws as they apply to national banks.
This is accomplished through examinations and through
review and resolution of complaints from the public.
Consumer law, now a major factor in bank regulation ,

Civil liability under many of those laws may be substantial;
some, notably Truth in Lending, require total compliance.

What may appear to be a trivial, highly technical violation
may support civil actions exposing the bank to significant

liability for damages and to adverse publicity resulting in
the loss of the bank's goodwill and image.

continues to draw increasing interest from thepublic. The
role of the OCC in carrying out congressional mandates
relating to consumer law is significant.
Banks are chartered to serve a particular customer
market. Compliance with consumer protection legislation
is a prerequisite to successful bank ng and a bank is

acting in its own best interest by serving the public fairly
and within the scope of the law .

This handbook is not intended to be a complete legal
reference. It is a convenient working tool designed to
assist the examiner in understanding those selected
portions of consumer laws and regulations pertinent to
the examination. The examiner is also expected to be
familiar with all aspects of consumer law and regulatory
requirements.

669

Introduction
Table of Contents

1.1

Use of Handbook

1.2 Report of Examination

Section 1.0

670

Introduction
Use of Handbook

Section 1.1

The Comptroller's Handbook for Consumer Examinations
is divided into 14 sections, each relating to a specific law,

examination objectives. The procedures briefly indicate
what actions should be taken for working papers'

regulation or banking activity. Under each section, where
applicable, there are four areas of interest:

documentation, for discussion with management and for

the inclusion of violations and exceptionsin the report of
examination .

The verification procedures are the " how to do it" of the

examination. They are designed to verify the accuracy of
the conclusions drawn from the examination procedures
and to clarify the precision of the answers to the Internal
Controls Questionnaire. The verification procedures are

tools to be used by the examiner to satisfy the target
objectives . It may not always be necessary to perform all
of the verification procedures to arrive at conclusions set
forth in the examination procedures. However, each
verification procedure will be performed at the initial
consumer affairs examination and in subsequent exami

nations if the examiner decides it is necessary. For certain
banks , the performance of additional verification proce
dures may be appropriate. The examiner must document
in the working papers the procedures and information
used to arrive at the conclusion expressed in the report of
examination

The general examination objectives, the general exami
nation procedures, and the Internal Controls Question
naire at the end of this section apply to the entire
examination. They set the direction and tone for each
examination . The Internal Controls Questionnaire is
designed to give the examiner an overview of those
internal controls instituted by the bank to comply with
consumer laws and regulations. The examiner must
evaluate all aspects of a bank's internal controls to
accurately assess their adequacy. The questions are not
precise and should only be used as a guide. They should
be kept in mind while performing the examination and

verification procedures in each section. A " no " answer
may not indicate, by itself, problems with the bank's
internal controls . However, all " no " answers must be
considered in the appraisal of internal controls adequacy
and require comment in the report of examination .

671

Introduction
Report of Examination

Section 1.2

The consumer affairs report of examination is a separate

Noncompliance and Corrective Action

report equal in stature to all OCC reports of examination. It

This section should detail in narrative form specific

replacesany other report pages currently in use that deal

noncompliance problems by violation. The examiner

with consumer regulations. Its function is to provide

should state, in numerical order, the specific law or
regulation violated , using the appropriate USC or CFR
citation , and the reason for noncompliance. Cautionary
comments on questionable violations are to be reported
in the other matters section . The narrative should indicate

national banks and the Comptroller of the Currency with
an overall evaluation of a bank's compliance with

consumer statutes and regulations. As with the commer
cial report, the consumer report is written to the board of

directors and will state the findings of the examination .
Because it is written to the board, the term " subject bank ”
is not used. The report will be processed and counter
signed by the regional administrator or the deputy
regional administrator. The regional office will forward
final copies to the bank and to the OCC's Consumer
Affairs Division in Washington .

Reports consist of the following:
Open Portion

Open Portion
Letter to the Board of Directors
The examiner's letter to the board of directors summar

izes the content of the report and highlights only the most
important findings . Components of the letter are:

in which department( s) or function( s) the violation
occurred :

672

Introduction
Section 1.2

Report of Examination

the maintenance of procedures reasonably adapted to

The other matters section should include comments

avoid such errors.

relating to Consumer Complaint Information System

A comment is required for each negative answer reported

( CCIS) data. Those comments should include the number
of complaints received by the OCC and the bank.
Complaints concentrated in specific areas of the bank

in the Internal Controls Questionnaire; and any deficien
cies in staff knowledge, training and internal audit pro
cedures should be noted . The examiner should also
indicate those instances when internal control weak

nesses have caused violations noted in the noncompli
ance and corrective action or other matters sections.

Responses to the Internal Controls Questionnaire,
together with a review of written - policies and forms,
should indicate managements knowledge of consumer
protection laws. Since consumer loans are often made by
front line lending officers, their education in consumer
protection is imperative. The examiner assesses staff
knowledge of applicable laws by interviewing department
heads and selected lending officers about the operating

should be noted . This section will conclude with a list of

officers with whom the contents of the report were
discussed.

The preceding sections are in the open portion of the
report. Although those sections are written to the board of
directors, the information must also be useful tomanage

ment, to the regional office and to the Consumer Affairs
Division in Washington . All sections should be specific,
detailed and succinct.
Confidential Portion

Discriminatory Practices and Policies

procedures of each department. The examiner should
question officers concerning violations of law or substan

The confidential portion of the report begins with
discriminatory practices and policies. In that section the
examiner should discuss in detail any indications of

tive departures from consumer compliance procedures
noted during the review of selected loans, as wellas the

discriminatory lending practices or questionable policies.
Policies which possibly may discriminate againsta group,

lack of adequate documentation. If staff knowledge of
legal requirements is inadequate, appropriate comment
should be made in the internal controls section of the
report. The examiner should ascertain the way in which

that inadequacy is reflected in operations and the impact,
if any, upon consumers.
Other Matters

The other matters section of the open portion of the report
discusses questionable practices and includes caution
ary comments on matters not clearly in violation of law. If
substantial doubt surrounds the propriety of any practice
noted in a consumer examination, the practice should be
discussed here as " raising substantial questions,” etc.
The discussion should include in detail the nature of the
practice and a statement as to why the practice is

questioned. Banks should be encouraged to reconsider
such practices.

Significant information which may not fit neatly into the
preceding sections should be reported here as well as
penetration ratios of credit insurance.
Exceptions and deficiencies of electronic fund transfer

system ( EFTS) controls should also be reported in this
section. ( The basic controls suggested to maximize the
security of EFT systems are discussed in section 14 of

this handbook .) EFTS practices that have contributed to
violations of law should be discussed in conjunction with
the citation in the noncompliance and corrective action
section and summarized here. Similarly, when EFTS
exceptions are clearly manifested as internal controls

exceptions, they should be reported in the internal
controls sections and summarized here.

but do not constitute clearly defined violations of law
should be discussed here. Specific, well -defined discrimi

natory violations and practices should be reported in the
open section and only referenced here.
Impact of Noncompliance
The impact of noncompliance section is structured iden
tically to the noncompliance and corrective action
section; however, only those items that have had

significant impact upon the consumer or the bank are
discussed. The analysis of each area should include:

673

Introduction
Report of Examination

and the total dollar amounts of impact. That information
should be estimated for compilation in the Washington

office and for use in monitoring the health of the National
Banking System with respect to consumer protection.
Other Matters

The confidential portion concludes with an other matters
section. That section includes information which aug
ments findings in the open portion of the report but which

Section 1.2

should be disclosed only to the OCC. In all cases
involving overcharges, examiners should comment on
the standard of care exercised by the bank. This is merely
the degree to which they have tried to comply with the
laws. In particular, any evidence that indicates that bank
personnel might have been aware that customers were
being overcharged should be discussed in detail . The
section may be used to further elaborate on other matters
in the open portion of the report.

674

Introduction
Section 1.3

Working Papers

Working papers should document in writing the proce

the report of examination and to facilitate future review

dures followed and conclusions reached during the
examination. Accordingly, they are to include, but are not
necessarily limited to, the findings in the examination and
verification programs, memoranda, schedules, question
naires, checklists, abstracts of bank documents, analysis

and reference. The working papers should be retained in
a location that will allow for immediate reference.

prepared or obtained by examiners, and photocopies of
documents in violation of laws, rules and regulations.

The working papers should support the information and
conclusions in the report. The importance of highly

organized working papers which fully document the
findings of the report cannot be overemphasized. Working

papers should be prepared with the same diligence as the
report itself.

The working papers should be indexed according to the
working paper index for consumer affairs. The retained
data should be organized to facilitate the construction of

Permanent File

Not all working papers will be pertinent to future
examinations; eventually some will become obsolete. To
alleviate that situation , a permanent file should be
maintained for each bank that includes only those work

ing papers of continuing interest. An index to the
permanent file should be attached to the inside cover to
prevent the loss of items.
The contents of the permanent file are a matter of judg
ment. Lengthy documents should be summarized or high
lighted ( underlined) to facilitate reference to the im
portant provisions. It also may be desirable to have a

complete copy of the document in the file to support the
summaries or answer specific questions.

675

Introduction
Sampling Procedures

The examination procedures include tests of all relevant
forms, policy statements, internal controls and other
administrative procedures. In addition, the consumer

examiner analyzes certain loans and supporting docu
ments drawn from the loan portfolio through a specified
random sampling technique . Although the testing of blank

forms and administrative procedures may not reveal
violations, they may occur as a result of clerical,
typographical and computer errors, or from failure of
individual loan officers or other personnel to understand
or properly apply the bank's procedures.
The sampling of loans and other records should reveal
within a reasonable degree of certainty the existence of

Section 1.4

rejections must be carefully examined. However, strict
application of random sampling procedures in this area
may not be feasible.
Systematic errors should command greater attention
than clerical or typographical ones , e.g., a transposition of

digits. For example, theviolations may be attributable to a
particular dealer, loan officer, branch, bookkeeper or
processing procedure. In that event, the examiner should

select additional loans having that specific characteristic
for further analysis . The number of loans selected should
only be that number sufficient to determine the validity or

lack of validity of the examiner's preliminary finding. In
some cases, if may not be possible to determine sources

significant violations and possible sources of additional

of recurrent violations and the examiner should request

ones . A relatively modest-sized sample generally will
suffice. All applicable examination procedures must be
performed on every loan in the sample.

and correct the causes of the violations.

In the event that an analysis of the initial sample indicates
the presence of violations, further investigation should
reveal their sources and patterns. The qualitative factors

surrounding the violation should be isolated before any
numerical estimates are made .

Since the basic purpose of the examination is to ensure
compliance with existing regulations, the major focus

should be on the bank's current performance. Thus, the
sample should be selected from new loans or recent
applications rather than from the total portfolio of loans

outstanding and related records. This will avoid the risk of
sampling records that pre-date the regulation or its major
amendments.

management to investigate its operations in order to find
All relevant procedures must be performed for each loan,

unless forms and procedures are identical, e.g., compu
terized. Line sheets will serve as organizational tools for
those procedures .
As the population of loans includes branch loans, a
separate sample of loans from each branch will not be
required . However, evidence may suggest the possible
existence of violations at branches other than those

represented in the sample. If the analysis of the bank's
operations indicates that certain branches operate with
considerable independence and that standard forms and
procedures do not exist , those branches may require a
thorough basic examination , an evaluation of branch

personnel performance, and an analysis of a small
sample of individual loans.

The sample should assure a random selection of units. To
accomplish this, the organization of the bank's records
must be investigated to avoid the selection of a sample
unduly concentrated in loans of a particular type, in loans
originating at a single branch, or in loans processed by

Advertising, home mortgage disclosure, and interest on
deposits ( savings) do not require statistical sampling,
though random selection may be appropriate in choosing
samples for the savings work program .

one or a few loan officers.
Compliance testing also includes a review of rejected
loan applications. When a large number of those
applications are available, a recent group should be
analysed to determine whether they display characteris
tics for rejection on a prohibited basis such as age, sex or
race. Those should be retained and discussed with
management to determine possible discrimination . When
few, if any, recently rejected applications are available,
the evaluation of prescreening, creditscoring , and other

The sample design adopted by the OCC is taught in its

procedures becomes especially important, and such

auditors or other employees.

training schools. Since it does not have any allowance for
error, any error found in the sample is unacceptable and

should be investigated. The violation should be carefully
scrutinized for any pattern or suggestion of its nature or
source. If the nature or source of errors can be isolated ,
additional work may be directed to the affected areas . If
the error cannot be isolated , or time constraints prevent

the examiner from performing additional work, it may be
possible to arrange for assistance from the bank's internal

676

Introduction
Internal Controls

Compliance with consumer laws can only be accom
plished by the board of directors and bank management
acting together to adopt written policies and procedures.

Proper internal control programs to insure compliance
with all federal and state consumer laws cannot be

overemphasized in the examiner's review with manage
ment.

Each question on the Internal Controls Questionnaire
should be answered fully. As explained earlier, all " no "
answers should be fully explained in the report. In many
cases, the examiner should ask additional questions

about practices or policies peculiar to the bank being
examined.

Proper written policy and internal controls will serve the
bank in two ways: ( 1) in maintaining compliance with
complex and changing laws and regulations; and ( 2 ) in
proving that the bank is making a good faith effort to
comply with those laws where the possibility exists that

noncompliance may result in litigation.
To minimize the potential for loss, the bank should
designate an officer to insure compliance with consumer
laws and regulations and with its written policies. That

officer should possess the following qualifications:
• Familiarity with all aspects of consumer law and the

Section 1.5

Mathematical ability to discover programming errors
or errors in calculation by independently computing
Annual Percentage Rates, interest rebates, late

677

Introduction
Section 1.6

General Examination Objectives

1.

To determine compliance with applicable consumer

4.

To initiate corrective action when policies, practices,

678

Introduction
General Examination Procedures

1. Request written bank policies and procedures

Section 1.7

10. Use an appropriate sampling technique to gather

679

Introduction
Internal Controls Questionnaire

1. Has the board of directors adopted written policies

Section 1.8

6. Do the persons responsible for insuring compliance

.

680

Introduction
Section 1.9

Appendix A - Examiner's Study Guide
This study guide is to be used in reviewing the
Comptroller's Handbook for Consumer Examinations.
The material in the handbook is divided into 14 sections

pertaining to specific laws or banking activities.
The information contained in the handbook will be fully
discussed in lectures and in resource materials distribut
ed at the consumer affairs training sessions. Each section
contains text and procedures that conform with the new

examination procedures adopted by the OCC.
The introductions of each section contain extensive
background information on each area of the examination .
The examination and verification procedures focus on the

problem areas in which noncompliance may adversely
affect consumers.

The handbook includes supplementary materials to help
you understand the consumer protection laws. However,
you should refer to the complete acts and regulations.
The following summarizes the major areas to be studied
before attending the training sessions. The acts and

regulations are described briefly together with their
purposes and scope.
Advertising. Regulations exist to ensure consumer
protection through the prohibition of deceptive or
misleading advertising. In studying Regulation Z ( 12 CFR

226) , you will learnthe restrictions on advertising credit
and lease terms. Regulation Q ( 12 CFR 217) imposes

constraints on advertising for deposits. FDIC regulations
on advertising ( 12 CFR 328) require insured banks to
disclose in certain promotional activities the existence of
this insurance.

The major purpose of those regulations is to ensure that
the consumer will not be misled by ambiguous terminol

ogy in advertising. OCC Banking Circular No. 16, dated
June 6, 1969, provides retention requirements for national
banks.

In addition to studying the " trigger” terms of Regulation Z,
you should also concentrateon:

of interest-bearing deposits. As mentioned earlier, it
imposes certain constraints on advertising of interest on
deposits

You should study:

681

Introduction
Appendix A-Examiner's Study Guide

State Laws. The OCC is also responsible for examining
national banks for compliance with state laws . You should
review the state consumer protection codes for those

states in which the banks you examine are located. Pay
particular attention to the usury statutes for national
banks ( 12 USC 85 and 86 ) . National banks are granted a

varying degree of freedom in the rate of interestthey may
charge based on the rates allowed other creditors in the
particular state .

You should review state usury and consumer protection
laws for:

Section 1.9

Differentiation in approach to secured and unse

682

Introduction
Section 1.9

Appendix A- Examiner's Study Guide

internal controls are affected by consumer laws. Con
sumer examiners will share responsibility with EDP and
commercial examiners in evaluating EFTS controls and
processes in the bank.
In studying the EFTS section , the consumer examiner
should pay particular attention to the major considera

tions in the design of such systems with respect to the
following :

• Compatibility with consumer protection regulations.

683

Introduction
Appendix B- Reference Guide

Section 1.10

Citations of the applicable acts, regulations, interpreta

Consumer Credit Protection Act

tions and letters appear throughout the handbook. On this

page is a listing of consumer protection laws and
regulations and their corresponding United States Code

The Consumer Credit Protection Act ( CCPA ) was

and Code of Federal Regulations citations. Codification
means that Acts of Congress are compiled by subject
matter and numbered serially, e.g. , all banking matters are
found in Title 12 and all consumer matters are found in

effective on July 1, 1969. The law incorporates five major
pieces of legislation each of which is known separately by
its descriptive title . The act may be viewed as follows to
better understand the legislative format.

enacted by Congress on May 29, 1968, and became

Title 15. A " statute" is an individually numbered section in
• Truth in Lending Act ( TIL) . Title 1, Chapter 1 to 3. Truth

the U.S. Code, e.g., 12 USC 84. The following abbrevia
tions are used in the handbook citations:

.
Table of Citations

Regulation
NNN

Act or Subject
Consumer Credit Protection Act:
1601
1666
1667
1681
1691
2801
2601
3605
371a and b

12 CFR 226
12 CFR 226

12 CFR 226
12 CFR 202
12 CFR 203
24 CFR 3500

Q

USC
USC
USC
USC
USC
USC
USC
USC
USC

UX

15
15
15
15
15
12
12
42
12

Citation

12 CFR 217

Z

12 CFR 226

12 USC 85 and 86
15 USC 1661
12 USC 371
12 USC 1828( a)

FDIC

684

Equal Credit Opportunity ( ECOA)
Table of Contents

10.1 Introduction

Section 10.0

685

Equal Credit Opportunity Act ( ECOA)
Table of Contents

Relationship to State Law

Section 10.0

686

Equal Credit Opportunity Act ( ECOA)
Introduction

Section 10.1

The Equal Credit Opportunity Act ( ECOA) ( 15 USC 1691 )

Inquiries Concerning Marital Status

became effective on October 28, 1975 and is implement
ed by Regulation B ( 12 CFR 202) . ECOA was amended on
March 23, 1976, and the revised regulation was effective
on March 23, 1977. Regulation B prohibits

Individual Credit - Generally , when an 202.5( d) ( 1 )
applicant applies for individual credit, the
bank may not ask the applicant's marital status. There are

discrimination with respect to any aspect of

202.4

a credit transaction on the basis of race,
A 701 ( a)
color, religion, national origin, sex, marital
status, age ( provided that the applicant has the capacity

two exceptions to this rule:
• If the credit transaction is to be secured, the bank

to enter into a binding contract) , receipt of income from
public assistance programs, and good faith exercise of
any rights under the Consumer Credit Protection Act. '
Those factors are referred to throughout the regulation ,
and this section, as " prohibited bases. " In
addition, discrimination is unlawful if an ap- 202.2 ( z)
plication is declined because of the race of an
applicant's business associates or that of the persons
who will be related to the extension of credit, e.g., those
residing in the neighborhood where collateral is located.

Discrimination may be defined as the treating
of one applicantor group of applicants less

202.2 ( n)

favorably than another group for any of the reasons
discussed above. Regulation B sets forth certain acts and

practices which are specifically prohibited or permitted.
To prevent discrimination , Regulation B imposes a
delicate balance on the credit system , between the
bank's need to know about a prospective borrower, and
the borrower's right not to disclose information inapplica

ble to the transaction. The regulation deals with taking,
evaluating and acting on the application , and the
furnishing and maintenance of credit information. Regula
tion B does not prevent a creditor from determining any
pertinent information necessary to evaluate the credit
worthiness of an applicant.

Taking the Application
Discouraging Applications

Regulation B's concern with the application process
starts before the application is taken. Lending officers and
employees must be aware of the provisions of the
regulation and must take no action that would,
on a prohibited basis, discourage a reasona- 202.5 ( a )

ble person from applying for a loan. This
prohibition against discouragingapplicants applies to oral
and telephone inquiries as well as personalcontact. In
addition, advertising must not have the effect of

discouraging an applicant on a prohibited basis.
Regulation B does not distinguish between oral and
written applications in its prohibition of discriminatory
action . Therefore, in the interview prior to and during the
taking of an application , lending officers must refrainfrom
asking for prohibited information. Questions must be
neutral with regard to sex, and asked of all applicants who
desire the same type and amount of credit .

1

* The term user applies only to open - end accounts.

687

Equal Credit Opportunity Act ( ECOA)
Introduction

• The applicant is relying on a spouse's income to
repay the debt

Section 10.1

determine creditworthiness but not to deny credit merely

688

Equal
Credit Opportunity Act ( ECOA)
Introduction
• The bank may ascertain whether the applicant will

Section 10.1

The creditworthiness and credit history of the payor,
when available to the bank, in accordance with the

689

Equal
Credit Opportunity Act ( ECOA)
Introduction

Section 10.1

surname or combined surname . For example, Mary
Smith, who is married to John Jones, may open an
account in any of five different names: Mary Smith , Mary

to make the community property available to the

Jones, Mary Smith-Jones, Mary Jones-Smith or Mrs. John

manage or control sufficient community property to
establish creditworthiness or if the applicant has

Jones . However, the bank may require that
the applicant use one name consistently in

bank in the event of default. The creditor may not

require the spouse's signature if the applicant can
sufficient separate property to qualify without utilizing

690

Equal Credit Opportunity Act ( ECOA)
Section 10.1

Introduction
or marital status may be requested for the purpose of

When the bank offers credit to the ap-

offering insurance.

plicant, other than in substantially the

Notification

must notify the applicant of the adverse action within 90
days, if the applicant has not accepted the terms.
Whenever adverse action is taken, the 202.9 ( a) ( 2)
bank must furnish the applicant with:

Notification of Action Taken

202.9 ( a ) ( 1) ( iv)

amount or terms requested by the applicant, the bank

Other

In the case of two or more applicants, the
notification need only be given to one of
the primarily-liable applicants.

When more than one creditor is involved in
a transaction, and the applicant expressly

202.9( a) ( 3)

691

Equal
Credit Opportunity Act ( ECOA)
Introduction
accepts or uses credit offered by one of them, no
notification need be delivered. However, if all deny credit

Section 10.1

Examine every account to determine whether it is a
joint account held by married applicants. This should

or any counter offer is not accepted, each creditor must
make the required notification . The notification may be

provided by a creditor or indirectly through a third party if
the identity of all creditors taking the action is given . The

bank must see to it that all information is given accurately
and in a timely manner to the party providing the
notification.

Banks may meet the requirements of notification by delivering or mailing a written notice to
the applicant's last known address or by oral

202.9( f)

202.9( C)
202.9( e)

communication ( allowable only when the
bank had 150 applications or less during the preceding

calendar year) . Inadvertent errors resulting in failure to
comply with notification requirements will not be viola

tions of the regulation if the bank takes corrective action
, and begins complying on discovery of the error.
Inadvertent errors may be defined as either mechanical,
electronic or clerical.

Furnishing of Credit Information
Banks are not required to report credit

EC 0003

1

information on accounts. If the bank does
so, it must meet the applicable requirements of the
regulation .
Accounts Established On or After June 1 , 1977

For any credit account established on or after 202.10( a)
June 1 , 1977, the bank, if it furnishes credit
information , must determine whether the account may be

used by the applicant's spouse or whether both applicant
and spouse will be contractually liable. Contractual
liability in this case would not include secondary parties to
the account such as endorsers or guarantors. Any history
of such an account shared by the applicant and spouse
must be designated to reflect the participation of both
spouses . Information on an account supplied in response
to a request about a particular applicant must be
furnished in the name of the spouse about whom

Retention of Records

information is requested. Routine information on credit

All Accounts

accounts should be given to a Consumer Reporting
Agency in a manner which will enable that agency to
locate information on an account in the name of each
spouse. The bank need not change the namein which the

The bank must retain the original or a copy

account is carried nor designate whether the spouse is a
user or is contractually liable.
Accounts Established Prior to June 1 , 1977

202.12 ( b ) ( 1)

of the following information for 25 months
after the date it notified the applicant of action taken on
the application:
• Any application,any information required to monitor

For any account established before and in 202.10( b)
existence on June 1 , 1977, the bank must
determine whether the account is one used by the

applicant's spouse or an account on which both spouses
are contractually liable. To make that determination , the

* The references to " use " of an account may be deleted on the notice

bank has the following options:

sent to the closed - end accounts.

692

Equal Credit Opportunity Act ( ECOA)
Section 10.1

Introduction

• A copy of written documents and any recorded

Adverse Action

The bank must also retain the original or 202.12( b) ( 2)

a copy of the following information for 25
months after the bank informs the applicant of adverse
action regarding existing accounts:

• Any written or recorded information concerning such

Special Purpose Credit Programs
The following types of credit programs

A 701 ( c)

meet the definition of special purpose

credit programs:
• Any credit assistance program autho-

202.8( a) ( 1 )

credit in substantially similar terms as other

693

Equal Credit Opportunity Act ( ECOA)
Introduction

Specialized Credit
Dealer Paper
When a bank purchases indirect paper from a

Section 10.1

The bank must provide the notifications relating to
202.2 ( 1)

dealer in the regular course of business and

oral or written notification that adverse action was

the bank participates in the decision to extend credit, it is
the responsibility of the bank to maintain procedures to
determine whether the dealer is complying with the ECOA
in all aspects of the credit transaction .

If the applicant within 30 days accepts a

202.9( a) ( 4)

credit offer from the bank, no further noti
fication is required from either the bank or the dealer. If
credit is not extended by the bank or the applicant does
not accept the bank's offer of alternate terms , each

creditor taking adverse action must notify the applicant .

For example, if a dealer attempts unsuccessfullyto obtain
financing at several banks or the applicant does not

accept any alternate terms offered, all the banks and any
dealer acting as creditor in the transaction must give the
notices required for adverse action. Banks may enter into
contractual arrangements with dealers to provide all
appropriate notices. If the dealer provides a joint
notification, the bank will not be liable for actions or
omissions resulting in violations if it: ( 1 ) provided the
dealer with the information necessary to comply with
notification requirements, and ( 2) was maintaining
procedures to avoid any such violation . Any joint
notification must identify each creditor.
All creditors involved in an indirect credit 202.12 ( b ) ( 4)
transaction must retain all written or re

corded information in their possession for 25 months after
notice of action, including any notice of adverse action
taken .

Business Credit

All business credit, that is, credit extended for
business, commercial or agricultural pur

adverse action in business credit only when the
applicant requests in writing the reasons for such
action. The request must come within 30 days after

202.3( e)

poses, is subject to the general rule ( 12 CFR 202.4) under

Regulation B that: " a creditor shall not discriminate
against any applicant on any prohibited basis with respect
to any aspect of a credit transaction . " Banks are also

subject to the following provisions in connection with
business credit:

• Marital status may always be asked'in business

694

Equal Credit Opportunity Act ( ECOA)
Examination Objectives

1.

To determine the bank's knowledge of the provisions

Section 10.2

2. To further determine whether the bank has been

695

Equal Credit Opportunity Act ( ECOA)
Examination Procedures

Section 10.3

1. Request the following for review :

tion is taken, conducts an oral application
process. If so, perform verification procedure step

a. Sample loan application forms, credit scoring

‫ز‬

ces .

696

Equal Credit Opportunity Act ( ECOA)
Examination Procedures
12. Prepare comments on any factors listed in step 11 for

Section 10.3

13. Prepare a memo and update work program with any

697

Equal Credit Opportunity Act ( ECOA )
Verification Procedures

1.

Using the list of personnel obtained in examination

Section 10.4

b. In applications for individual credit,

.

202.6( b) ( 6)

698

Equal Credit Opportunity Act ( ECOA)
Appendix A-Form Letter

Section 10.5

STATEMENT OF CREDIT DENIAL, TERMINATION, OR CHANGE
DATE

Applicant's Name:
Applicant's Address:

Description of Account, Transaction or Requested Credit:

Description of Adverse Action Taken:

PRINCIPAL REASON( S) FOR ADVERSE ACTION CONCERNING CREDIT
_Credit application incomplete

DISCLOSURE OF USE OF INFORMATION OBTAINED FROM AN OUTSIDE SOURCE

_Disclosure inapplicable
_Information obtained in a report from a Consumer Reporting Agency
Name:
Street Address:

Phone:

_Information obtained from an outside source other than a Consumer Reporting Agency. Under the Fair Credit Reporting

( Continued on page 2)

1

699

EqualCredit Opportunity Act ( ECOA)
Section 10.5

( Continued from page 1 )

Creditor's name:
Creditor's address:
Creditor's telephone number:

37-415 O - 79 - 45

700

Equal Credit Opportunity Act ( ECOA)
Appendix B - Federal Reserve Staff Opinion Letters

Section 10.6

Unofficial Letters

1. Permissibility of terminating joint accounts in certain situations—.7( c)
2. Whether creditor may require signature of non-applicant spouse on an instrument — 7 ( d)
3. Creditor may require a customer to use same name on all accounts with that creditor—.7( b)

4. Applicability of Act and Regulation B to guarantees, including " continuing" guarantees and guarantees executed in

Official Letters

EC-0001 Official staff guidelines for creditors that printed or ordered printing of credit history notice for mailing between

701

EqualCredit Opportunity Act ( ECOA)
Appendix B- Federal Reserve Staff Opinion Letters

Section 10.6

No. 1 ( redesignated 3/11/77)

split the account and establish two individual accounts for

Sections

each spouse, maythe creditor require a new application
under $ 202.5 ( i) ( 2 ) ?

202.7 ( c)
( 202.5 ( i) of
original Reg. B)

Permissibility of terminating joint

RESPONSE: In this situationboth parties have, in effect,
asked that the existing credit agreement be terminated
and that two new agreements be established in its place.
The creditor is under no obligation to change a joint
obligation into two individual ones without being satisfied
that the individual applicants meet its standards of
creditworthiness. A creditor's requirement that both

spouses file new applications is permissible because it
would be done not because of a change of marital status,
but rather for the purpose of setting up a new account at
the request of the applicant.

1.5) QUESTION: If a cardholder's change of marital status
is accompanied by a loss of one cardholder's obligation
on the account, may the card issuer consider income
figures in the original application as evidence of the

remaining cardholder's ability or inability to pay? May the
issuer ask for updated information if the old figures

suggest inability to pay or if they suggest adequate ability
to pay ?
RESPONSE: The basic rule of $ 202.5( i) is that a creditor

may not, on the basis of a change of name or marital
status, require a reapplication, i.e., a new request for
credit, in the absence of evidence of inability or
unwillingness to repay. If a creditor has information in its
files indicating that the cardholder is unable to repay, the

creditor may require a reapplication or take either of the
other actions permitted under subparts ( ii) and ( iii) of that
section. If the information in the creditor's files is not

current, the creditor may request that the cardholder
furnish updated information whether or not the existing
information suggests an inability to repay. In other words,
a creditor's request for current information about a

cardholder is not necessarily tantamount to requiring a
reapplication and may be done upon learning of a change
of name or marital status.

No. 2 ( redesignated 3/11/77 )
Section

202.7 ( d )
( 202.7 of original
Reg. B)

702

EqualCredit Opportunity Act( ECOA)

Section 10.6

Appendix B - Federal Reserve Staff Opinion Letters

agreement without violating the provisions of section
202.7 of Regulation B.
It is our opinion that creditors may not as a matter of
course require the signature of a non - applicant spouse

We hope this information will be of assistance to you.
Sincerely,

Nathaniel E. Butler
Chief, ECOA Section

on a note. There are certain circumstances in which the

non-applicant spouse may be required to sign the note as
well as other instruments, but such signature may not be
required under a blanket rule. For example, the non

applicant spousemay be required to sign ifthat spouse's
creditworthiness is necessary to support the amount and

kind of credit sought. If the non-applicant spouse has
income which is necessary to repay the debt, that
spouse's signature could be required on the note. Of
course, thisdetermination would have to be made on a
case by case basis.

Another example of a situation in which a non-applicant
spouse can be required to sign the note occurs in certain
jurisdictions where it is necessary for both spouses to
sign not only security instruments, but also the instrument

evidencing the indebtedness in orderto create a valid and
enforceable lien. In those states, the non-applicant
spouse can be required to execute the note as well as the
security instrument.

Although the non -applicant's signature may not be
required on the note, it may be required on other
instruments. If the creditor reasonably believes it is
necessary to have the non-applicant spouse execute
certain documents to create valid liens, pass clear title,
waive inchoate rights to property, or assign earnings, the
creditor may require the signature of the non -applicant

spouse on the documents appropriate to accomplishing
these ends. For example, a creditworthy married female
seeking individual credit who offers a car which is owned
jointly with her husband as security could be required to
sign the integrated truth in lending disclosure statement,
security agreement and note. The husband could not be
required to sign the integrated instrument, but he could be

required to sign a separate security agreement and other
documents necessary to create an enforceable lien .

It should be pointed out, however, that a non -applicant
spouse may wish to execute the debt instrument even

though that spouse's signature could not and would not
be required to support the credit being sought. For
example, the spouse may want to be contractually liable
in order to reap the benefits of a credit history that would

reflect the note's having been paid according to its tenor.
In situations where the offer to become liable on the debt

is truly voluntary, creditors should permit those spouses
to sign the note.

The views expressed above as well as those in the
enclosed Public Information letters are those of the staff
and are in no way binding upon the Board .

No. 3 ( redesignated 3/11/77 )
Section

202.7 ( b )
( 202.4 ( e) of
original Reg . B)

Creditor may require a customer to

703

Equal Credit Opportunity Act ( ECOA)
Appendix B - Federal Reserve Staff Opinion Letters

Section 10.6

No. 4 ( redesignated 3/11/77)

between the creditor and the obligor. Such a guarantee

Section

may remain in effect for an indefinite period or for a given

202.7 ( d)

upon such a guarantee provided the line of credit has not

( 202.7 of
original Reg . B)

been renegotiated or the creditworthiness of theobligor

period. It is our view that a creditor may continue to rely
Applicability of Act and Regulation

reevaluated subsequent to October 28, 1975. If a
renegotiation or reevaluation has occurred after October

28, the transaction would of course become subject to the
ECOA, and the guidelines expressed above would apply .
Note: This letter was originally
issued as Public Information letter

Applying Regulation B to guarantees executed in
community property States, creditors have voiced
concern over the possibility that access to community
assets will be lost after divorce, unless a guarantee is
received from a non-applicant spouse. One of the
purposes of the ECOA is to make separate credit more
readily accessible to married women . In view of this
purpose, $ 202.7( b ) of Regulation B provides that in a
community property State, a creditor may not require the
signature of the non -applicant spouse if the applicant is
empowered by State law to manage and commit
community assets. The staff is of the opinion that
permitting a creditor to obtain the signature of the non
applicant spouse in all cases would defeat the intent of
Congress as expressed in the Act.
It should be noted , however, that where the separate
assets or income of a spouse are pledged or used to

establish creditworthiness, the spouse may be required to
sign the note or execute a guarantee. Also, where a
spouse's offer to guarantee the loan is truly voluntary,
creditors should permit the spouse to undertake this
obligation .

The opinions expressed above are those of the staff and
are not binding upon the Board. We hope they will be of
assistance to you .
Sincerely ,

Anne J. Geary
Senior Attorney
No. 5
Section

202.7 ( d )
( 202.7 of
original Reg . B )

Requests for signature of co

704

Equal Credit Opportunity Act ( ECOA)
Appendix B - Federal Reserve Staff Opinion Letters

recently completed rule-making proceeding. Since the
regulatory provisions relating to requests for signatures
have been expanded and , we believe, clarified, a Board
interpretation on the subject does not appear to be
necessary . This letter will describe the application of the
general regulatory provisions to the specific situations
mentioned in your letter.
You asked whether a creditor may establish a blanket
policy of either ( 1 ) requiring all co-owners of property that

has been pledgedto secure an obligation or relied upon in
establishing creditworthiness to execute the note evi

dencing the obligation or ( 2) excluding jointly owned
assets from consideration in evaluating applications . As
explained more fully below, the staff believes that such
blanket policies contravene the general rule set forth in
both the existing and amended Regulation B.

Section 202.7 of the regulation is based upon subsections
( a ) and ( b) of section 705 of the Equal Credit Opportunity
Act which provide:

( a) A request for the signature of both parties to a

Section 10.6

unsecured transaction , creditors are free to consider the

form of ownership, the property's susceptibility to
attachment, execution, severance, partition, the cost of
such action and other factors that may diminish the value
of the applicant's interest. After having considered the

applicant's interest in the property and having concluded
that the individual applicant does not qualify for the
amount and terms of credit sought, the creditor may give
the applicant the option of providing additional support for
the extension of credit which may include, but may not be
limited to, the personal liability of the co-owners of the
property. Requesting the signature of all co- owners of

property or disregarding jointly held property without
regard to its bearing on the creditworthiness of the
individual applicant , however, is inconsistent with the
stated purpose of the Act and violates Regulation B.
We hope this response willbe helpful.If you have further
questions, please do not hesitate to contact us.
Sincerely ,
Griffith L. Garwood

Assistant Secretary to the Board
Sections

202.2 ( f)
202.9

705

Equal Credit Opportunity Act ( ECOA)
Appendix B - Federal Reserve Staff Opinion Letters

the variety of practices used by the credit industry. Thus,
one creditor may have a policy or practice of not

accepting oral applications; that is, the creditor will not
decide whether to grant or deny credit in the absence of a
written application. If this creditor receives a telephone

inquiry, that inquiry would not constitute an application
according to that creditor's procedures and would not be
an application under $ 202.2( f) . Therefore, the creditor
would not be required to supply any notices under $ 202.9 .
Another creditor may have a practice or policy of making
a credit decision without completion of a written
application . If this creditor receives enough information
on which to make a credit decision, an application has
been received and the $ 202.9 requirements must be
satisfied. This does not mean that a creditor that accepts

oral applications must comply with $ 202.9 each time a

Section 10.6

the deferral of the effective date of section 202.6 ( b ) ( 1) ( ii) ,
your client ordered the printing of the specified Credit

History for Married Persons Notice and arranged with a
data processing company to insert the notice in mailings
to active accounts between November 1 , 1976 and
February 1 , 1977. The notice contains a reference to
November 1976, which renders it unusable between June
1 and October 1 , 1977. You have asked whether your

client may distribute these notices during the period
November 1 , 1976 through February 1 , 1977 instead of

during the period June 1 through October 1 , 1977.
The answer to your inquiry is, yes. A creditor that has
printed or ordered the printing of the notice specified in
the previous version of section 202.6 ( b ) ( 1 ) ( ii) may mail or
deliver that notice to all ( or all married) holders of active

telephone call is received. In our opinion , a general inquiry

accounts ( for open - end accounts) or existing accounts
( for closed -end accounts) between November 1 , 1976

concerning availability of funds, prevailing interest rate or
the lender's credit policies would not trigger the
notification requirements since the creditor would not

creditor may elect to postpone sending the notice or

have received sufficient information on which to base a
credit decision .
Of course, all creditors must take care not to violate

$ 202.5( a) by discouraging applications on a prohibited
basis over the telephone.
I hope you will find this information helpful.
Sincerely,

Anne Geary
Chief

Equal Credit Opportunity Section

and February 1 , 1977.This is not required, however, and a
taking any other action regarding the furnishing of credit
information under section 202.6 untilJune 1 , 1977. The

following comments apply only to those creditors that
have had the notices printed or have ordered their printing
and choose to distribute them between now andFebruary
1 , 1977.

Since the notice provided for in the previous version of
section 202.6( b) ( 1 ) ( ii) relates only to accounts estab
lished prior to November 1 , if a creditor chooses to
distribute copies of that notice now, the question arises
concerning what action the creditor should take regard
ing new accounts that are established between No

vember 1 , 1976 and June 1 , 1977. If a creditor provides
EC - 0001
Section
202.6

the notice now, but does not record whether new
accounts set up between November 1 , 1976 and June 1 ,

1977 involve spouses who are both contractually liable or
users, then, in June 1977, the creditor will have an

information gap in its records. It will not be able to tell
whether any of the accounts established between
November and June involve contractually liable or user
spouses and, therefore, will have to send notices to those
account holders in order to obtain the necessary

information to comply with section 202.6( b) ( 1 ) .
To avoid having to provide any further notices, any
creditor that has furnished or is in the process of

furnishing credit history notices may elect to follow the
designation procedures of section 202.6( a) ( 1 ) for each
account established after November 1 , 1976. If a creditor
so elects, for each account established after that date, the
creditor should determine whether the account is one that

an applicant's spouse, if any, will be permitted to use or
upon which both spouses will be contractually liable, if
either of those types of accounts is offered by the creditor.

If the account does involve a user spouse or if both
spouses are contractually liable on the account, then the
creditor should designate the account to reflect the fact of

706

Equal Credit Opportunity Act ( ECOA)
Section 10.6

Appendix B - Federal Reserve Staff Opinion Letters

participation of both spouses; that is, the creditor should
indicate on its records the names of both spouses and the
fact of their joint participation , which entitles them to share

the credit history relating to the account.
Two further questions arise if credit history notices are
sent out between November 1 , 1976 and February 1 ,

1977: ( 1 ) how to handle requests to change the manner of

involvement of both spouses on its records at the time
that the account is established. Once that has been
done, then , as in the previous example, the creditor has
the choice until June 1 , 1977 of either reporting credit
information relating to the account in the name of each

spouse or continuing to report that information as it does
presently.

reporting credit history information relating to an account;
and ( 2 ) how to furnish credit information relating to

Again, the procedures set forth in this letter are volun
tary, but any creditor that follows allof the outline steps

appropriately designated accounts.
Addressing the first question, if, after November 1 , 1976, a

will be deemed to have complied fully with the require

creditor receives a properly completed request to change
the manner in which credit information is furnished
regarding a joint or user account, then , within 90 days
after receipt of that request, the creditor should designate
the account to reflect the participation of both spouses as
provided in section 202.6 ( b ) ( 2 ) .
Regarding the second question, once an account has
been appropriately designated, either as a new account
pursuant to section 202.6 ( a ) ( 1) or by virtue of a change
request pursuant to section 202.6( b) ( 2 ) , a creditor has an
option regarding the manner of reporting credit informa
tion relating to that account prior to June 1 , 1977. A
creditor may immediately begin reporting the information
as provided in sections 202.6( a) ( 2) and ( b ) ( 2) , or a
creditor may continue to furnish the information in the
same format as it has in the past, deferring compliance
with the reporting requirements of section 202.6 until June
1 , 1977 .
The following two examples illustrate the operation of the
interpretations set forth in this letter. Assume that a
person established an open -credit card account in 1975
and that the person's spouse is authorized to use the
account, but the creditor's records do not reflect the

spouse's use. If the creditor sends a Credit History for
Married Persons Notice to the account holder by
February 1 , 1977, it will have complied with section
202.6( b ) ( 1 ) ( ii) and need not send another notice relating
to that account between June 1 and October 1 , 1977. If

the account holder or the spouse submits a properly
completed request to change the manner of reporting
credit information relating to the account, then the
creditor, within 90 days after receipt of the request,
should indicate on its records the names of both parties
and the fact that they want credit information relating to
the account furnished in both their names. The creditor
then has the option of either immediately beginning to

report the information in both names or waitinguntil June
1 , 1977 to do so.

The second example assumes that a creditor has sent
the notice and a person establishes an open -end credit
card account on December 1 , 1976 under which the
person's spouse will be permitted to use the account . In
that situation, the creditor should indicate the names and

ments of the amended version of section 202.6( b) ( 1 ) as
of June 1 , 1977. Thereafter, such a creditor will only have

to comply prospectively with the designation and report
ing requirements of sections 202.6 ( a ) and ( b) ( 2) .
We trust that this interpretation clarifies your client's
responsibilities under section 202.6 and answers your
questions. If we can be of further assistance, please let
us know.

Sincerely,
Janet Hart
Director

12 CFR 202 , EC -0002
Section

202.5 ( b ) ( 2 )

Creditor may ask whether appli

707

Equal Credit Opportunity Act ( ECOA)
Appendix B - Federal Reserve Staff Opinion Letters

EC - 0003
Sections
202.10

202.7 ( b)

Section 10.6

creditor must have the capability to identify accounts on
which a spouse is a user or contractually liable and to

report information as required by section 202.10. Any
system of designation or indexing that facilitates com

pliance with this section is permissible. Section 202.10
does not require the maintenance or billing of accounts or
the issuance of credit cards in more than one name.
Neither does the regulation require the creation of
separate files in the name of each partcipant on a joint
account.

Wehope this response has been helpful.If we may be of
further assistance, please do not hesitate to contact us.
Sincerely .
Janet Hart
Director

EC -0004
Section

202.8 ( Original
Regulation B)

202.11( c) ( amend
ed regulation )

Effect of ECOA and Regulation B

708

Equal Credit Opportunity Act ( ECOA)
Appendix B - Federal Reserve Staff Opinion Letters

higher interest rates may be obtained than
CLASS II.

Class I.

Section 10.6

Regulation B willpreempt laws in this class

would otherwise be permitted under State
law ( New York, for example) .'
State laws which forbid two extensions of
credit when the second is made for the
purpose of obtaining higher interest rates.
Class II laws are to be distinguished from
Class I laws in that the purpose of the
second extension of credit in Class I states
is irrelevant; the second extension must not
result in higher interest rates. It is permissi
ble to make the second extension of credit

in Class || states providing it is made to

accomodate the debtor's voluntary request
and not for the purpose of obtaining higher
interest rates, even though higher rates

may result ( Wisconsin, for example) .?
CLASS III .

State laws which have flat prohibition
against any person or husband and wife
having more than one loan from a creditor

( Illinois, for example) .3
In staff's opinion, the following represents the correct
application of Regulation B to the State laws classified
above:
I New York Small Loan Act, Sec. 352 ." ... No licensee shall permit

To illustrate these three classifications, assume the

following facts:

709

Equal Credit Opportunity Act ( ECOA)
Appendix B - Federal Reserve Staff Opinion Letters

A and B are married; the applicable loan ceiling is $ 300; a

( b) each may borrow up to $ 300

finance charge of 30% per annum may be imposed upon

the unpaid balance ofany loan up to $ 100, and 24% per
annum on the remaining balance to $ 300.
After each example the following questions will be
answered :

EC -0005

Section
202.13

Section 10.6

710

Equal Credit Opportunity Act ( ECOA)
Appendix B- Federal Reserve Staff Opinion Letters

for both a temporary loan to finance the construction of a
residential dwelling and a permanent mortgage loan to

Section 10.6

EC -0006
Section

take effect when the construction is successfully
completed, then the lender has received an application
covered by $ 202.13 and must comply with the require

202.2 ( p )

ments of that section.

In any event, if a mortgage lender uses an application

form that contains a monitoring information section
pursuant to $ 202.13 and an applicant inadvertently
supplies the information in a situation not covered by

$ 202.13, the creditor nevertheless may act on and retain
the application without violating Regulation B. The

creditor would be protected by $ 202.12 ( a) ( 3) since the
information would not have been obtained in response to

a specific request of the creditor.

Your second question is whether a creditor should
include questions about marital status and age on a

separate form that is used, pursuant to $ 202.13( b ) , for the
purpose of collecting monitoring information. You note
that the section of the model mortgage loan application

relating to monitoring does not include questions about
marital status or age;those questions appear on the front

of the model form . You indicate, however, that you think
that any creditor using a separate form should include

questions on that form concerning an applicant's age and
marital status.

Section 202.2( p) , therefore, contemplates that a demon

If a transaction is subject to $ 202.13, a creditor must
request information about an applicant's age and marital
status either on an application form or on a separate
monitoring form. If the information is requested on an

application form for appropriate consideration under
$ 202.6, then the creditor need not request the information
again for monitoring purposes and need not inform the
applicant under $ 202.13( c) that age and marital status

information is being voluntarily requested for government
monitoring purposes. If, however, age and marital status
information is not sought for credit-related purposes on
an application form, then the creditor must ask for that

information either in a monitoring section on the
application or on a separate monitoring form; and the
creditor must provide the disclosures required by
$ 202.13( c ) .

strably and statistically sound, empirically derived credit
system is composed of a scoring component and that
may also have a non-scoring component. The scoring
component of the system is required to pass certain
statistical standards, which are prescribed in detail in
$ 202.2( p) ( 2 ) of Regulation B. If it passes those tests, then

age may be used in the scoring system. If age is used as
an attribute which is scored, elderly applicants may not
receive a negative factor or value for their age.
The non-scoring component is optional . If the system
does have a non -scoring component, that component
must comply with the requirements imposed upon
judgmental systems of evaluating applicants. In particu
lar, the non -scoring component of the demonstrably and

statistically sound,empirically derived credit system may
not consider the applicant's age directly.The non - scoring
component may consider “ pertinent elements of credit

I trust that this official staff interpretation answers your
questions. If we can be of further assistance, please let us

worthiness" which may incidentally be correlated with or
dependent upon age.

know
Sincerely,

The non -scoring component of a demonstrably and

Nathaniel E. Butler
Associate Director

As we understand it, these factors might include obtaining

statistically sound, empirically derived credit system may
consist of one or more additional credit analysis factors.

711

Equal Credit Opportunity Act ( ECOA)
Appendix B - Federal Reserve Staff Opinion Letters

a credit report, undertaking a cash flow analysis,
consideration of events such as bankruptcy which occur
too infrequently for development as a scored attribute but
which are highly pertinent to creditworthiness, appraisal
of collateral , and exercise of discretion by a credit officer.

Section 10.6

an applicant's religious affiliation is included on the credit
application, you state that your client does not consider
that information in any manner in deciding whether to
extend credit to an applicant . No applicant is denied or

discouraged from seeking credit based upon religious

The components may interact in any way that the creditor

affiliation

finds useful in evaluating creditworthiness, so long as the
scoring component conforms to the requirements of
$ 202.2( p) ( 2 ) and the non-scoring component conforms
to the rules for judgmental systems.

Given the nature of your client's business, you state that

The entire system including the scoring and non-scoring
components is, of course, subject to the general rule of
$ 202.4, prohibiting discrimination, and to the full impact of
the effects test .

We hope that the foregoing responds fully to your inquiry.
This is an official staff interpretation of Regulation B.

information about a customer's religious affiliation is
essential to selling your client's books in an effective, non
offensive way. You express concern, however, that
asking information about a credit applicant's religious
affiliation, even for non -credit purposes, might violate

$ 202.5( d) ( 5) of Regulation B, which specifies in relevant
part: " A creditor shall not request the ...religion ...ofan
applicant or any other person in connection with a credit
transaction ."

Sincerely,

The purpose of the informational bars contained in

Nathaniel E. Butler

$ 202.5 ( the restriction on inquiries about religion being
one of those bars) is two-fold. First, they are linked to

Associate Director

the limitations in $ 202.6 concerning informationthat may

EC -0007

not be considered in making a credit decision. Thus, they
underscore that certain demographic information about
an applicant is irrelevant in deciding whether to extend

Section
202.5 ( d ) ( 5 )

Creditor may inquire about charac

credit to that applicant. Second, by prohibiting the
gathering of information that may not be considered in a
credit decision , the information bars should reduce the
possibility that a creditor will be accused of impermissibly

discriminating against an applicant based upon informa
tion contained in the creditor's files .
If, however, a creditor does not consider prohibited
information in making a credit decision and is willing to
assume any risk attendant upon its having otherwise
prohibited information in its files, then, in the staff's
opinion, the creditor can inquire about any characteristic

of an applicant that is specifically and directly related to
the product or service offered by the creditor. Thus, the
staff believes that your client, as a seller of religious
books, can ask about a credit applicant's religious
affiliation for non -credit-related purposes.

Your client may not inquire about the race, color, national
origin , or sex of an applicant since those characteristics
do not specifically and directly relate to the product

offered - religious books. Also, in asking about an
applicant's religious affiliation, your client assumes the
risk of having to demonstrate that it did not discriminate
against an applicant on the basis of religion even though it

possessed information concerning religious affiliation.
The decision whether to accept that risk, of course, lies
with you and your client.
I trust that these comments answer your question. If we
may be of further assistance , please let us know.

Sincerely,
Nathaniel E. Butler
Associate Director

712

Equal Credit Opportunity Act ( ECOA)
Appendix B - Federal Reserve Staff Opinion Letters

EC - 0008
Section

202.2( c)

Section 10.6

a previously established credit limit. " Thus, the use of a
credit card account to obtain cash , goods , or services ,
where the amount of the charge does not exceed any
previously established dollar limit on the account, is not
an application for credit under Regulation B.
Since the use of an account where the amount to be
charged does not exceed an overalldollar limit is not a
credit application , a refusal or failure to honor or authorize
the use of the account is not adverse action under

$ 8202.2( c ) ( 1 ) ( i) and ( iii) , both of which relate to applica
tions. Nor is such a refusal or failure adverse action under
$ 202.2( c ) ( 1 ) ( ii ) if the account,although temporarily un
usuable, remains in existence, subject to its original
terms .

The Federal Register explanatory material relating to
$ 202.2( c) of revised Regulation B ( 42 FR 1242) includes
the statement: " However, a point of sale refusal of credit is
adverse action if the refusal occurs for a reason other

than exceeding the pre -established credit limit.” The

analysis presented in this letter supersedes the Federal
Register statement.
Turning to a different situation, the attempted use of an
existing account to obtain cash, goods, or services in an

amount exceeding a previously established credit limit
may be a credit application . A refusal to extend the credit
requested in that situation is nonetheless not adverse
action because it is excluded from the definition of

adverse action in $ 202.2( c ) ( 2 ) ( iii ) , which is derived
directly from $ 701 ( d ) ( 6) of the ECOA.
To summarize the matter from a different perspective,
there are only three instances in which adverse action
may be taken regarding an open end credit account . First,
a creditor may decline initially to offer such an account on
terms acceptable to an applicant ( $ 202.2( c ) ( 1 ) ( i ) ) .
Second a creditor may terminate or adversely change the
terms of an existing account without affecting a
substantial portion or classification of accounts, without

the consent of the account holder, and not in connection
with current inactivity, default

1

713

Fair Housing Act
Table of Contents

12.1 Introduction

Section 12.0

714

Fair Housing Act
Introduction

A section of Title VIII of the Civil Rights Act of 1968 ( 42

USC 3605) prohibits national banks from denying a
mortgage or home improvement loan to anyone for
reasons of race, color, religion, sex or national origin. This

includes loans for the purpose of purchasing, construct
ing, improving, repairing or maintaining a dwelling.
Discrimination in the fixing of the amount, interest rate,

duration or other terms, such as application and
collection procedures, is illegal . " Discrimination " is
generally considered as treating one person or group less
favorably than another.
Since there is no Fair Housing regulation, discriminatory

patterns and individual instances of discrimination are
often hard to find and even more difficult to prove. The

examiner must realize that fair housing lending practices
involve using objective criteria in an objective manner.
This portion of the examination is concerned primarily
with a bank's internal controls . Has the bank established
procedures to prevent discriminatory actions? Have
policies been adopted that, if followed consistently, would

achieve nondiscriminatory lending? Are those proce
dures and policies being consistently followed?
Lending Practices
Sound Practices

Nondiscriminatory lending does not require that appli
cants who appear to be similarly qualified according to an
objective criterion will receive loans on identical terms .
However , denying loans , or granting loans on more
stringent terms and conditions, must be justified on the
basis of such factors as the following , provided they are
applied equally to all applicants:

services.
• The need of the bank to hold a balanced real estate

Section 12.1

Other banking factors which also affect the
availability and allocation of bank credit. For
example, tight money conditions may dictate that

715

Fair Housing Act
Examination Objectives

1.

To determine that the bank is complying with

Section 12.2

underwriting standards and that the bank adminis
ters, without bias, application procedures, collection
or enforcement procedures and all other lending

37-415 O - 79 - 46

716

Fair Housing Act
Section 12.3

Examination Procedures

1. Test for compliance and adequacy of written policy

a. Adequacy of written policy and internal controls.

b. Deficiencies or discrepancies in loan application

ces .

6.

Prepare comments on any factors as listed above for

717

Fair Housing Act
Section 12.4

Verification Procedures

1.

In reviewing the bank's lending policies, the

2.

Interview bank personnel to determine the objective

.

.

a. Check the application to determine that there are

Income of one group not given the same
consideration as another group.
More onerous terms required of one group
than another.

Variances in applying criteria , including
minimum incomes , amount of loans, ratios,
etc.

718

Home Mortgage Disclosure Act of 1975
Table of Contents

13.1 Introduction

Section 13.0

719

Home
Mortgage Disclosure Act of 1975
Introduction
The Home Mortgage Disclosure Act of 1975 ( 12 USC
2801 ) is implemented by Regulation C ( 12 CFR 203 ) , and

became effective on June 28, 1976. The act grew out of
public concern over credit shortages in certain urban
neighborhoods . The denial or limitation of credit based
upon neighborhood characteristics is known as " redlin
ing ," after the presumed practice of drawing a red line on
a map around borders of a supposedly undesirable area
and refusing to make housing loans there.

The purpose of the legislation is to make mortgage
lending policies more visible through disclosure state

ments . It does not prohibit any activity, nor is its purpose
to allocate credit or encourage unsound
lending practices . As its name implies, it is

merely a disclosure act, relying upon public

12 CFR
203.1 ( a)

scrutiny for its effect. The disclosures must
be made available to the public at certain bank offices

and are not sent to regulatory agencies.
The act will affect an estimated 3,500 national banks, as
well as other kinds of depository institutions, which

originate residential mortgage loans.

Institutions Covered
Requirements
A national bank is subject to the act if it meets all of the
following requirements:
• Total assets of more than $ 10 million

12 CFR

Section 13.1

• A notice inserted in a periodic statement or other

720

Home Mortgage Disclosure Act of 1975
Introduction

Section 13.1

terms of number and aggregate dollar amounts for

1976, if compiled by September 30, 1976,
and requires census tractreporting there-

each census tract in the area or, in certain cases,

after. The only occasion when ZIP

of the reporting bank is located) to be reported in

codes will be used is when an area is in-

12 CFR
203.4 ( a )
( 2 ) ( iii )

cluded in a currently designated SMSA,
but was not tracted for the 1970 census .

The advantage of census tract as opposed ZIP code
reporting is that census tracts define more specifically the
location of the property, in terms of both geographic and
socio-economic characteristics.
Availability of Data

If an institution has offices in only one

12 CFR

SMSA, the entire disclosure statement
relating to that SMSA must be available

203.5 ( b ) ( 1) ( i)
and ( ii)

at the institution's home office and at

a branch office within the SMSA. If an institution has
offices in more than one SMSA, all of the statements for
all of the SMSA's in which the institution has offices must
be available at the home office . Also, the disclosure

statements relating to each relevant SMSA must be
available at a branch office in that SMSA, except that
data outside the relevant SMSA need not be itemized

provided aggregate data is furnished.

Special Situations

721

Home Mortgage Disclosure Act of 1975
Section 13.1

Introduction

intends to reside in the property ( one -to-four family

code for a part of the fiscal year ending June 30,

dwelling) securing the mortgage, unless the bank's

1976. Exercise of that one-time option results in two
statements being made available by September 30,
1976, one for the preceding full fiscal year and

records contain information to the contrary.
Amounts to be reported for purchased
12 CFR
home improvement loans may include 203.4( a) ( 3)

another for the first-half of fiscal year 1976. A
separate statement by census tract must thereafter

be made available for the remaining part of 1976 ( by
March 30 , 1977 ) .

Loans made or purchased after

722

Home Mortgage Disclosure Act of 1975
Examination Objectives

1. To determine that home mortgage disclosure data is

Section 13.2

2. To determine, by testing, that the bank complies with

723

Home Mortgage Disclosure Act of 1975
Examination Procedures

1. Determine whether the home or branch offices are

Section 13.3

8. Review data with responsible bank officer( s) to

12. Prepare comments for inclusion in the report of

will facilitate future examinations.

724

Home Mortgage Disclosure Act of 1975
Verification Procedures

1. Verify that the bank annually notifies

Section 13.4

203.5 ( b ) ( 3 )

4.

Review the loan disclosure statement

203.4 ( a) ( 1 )

725

EXHIBIT

B- 1

FAIR HOUSING

CaseStudies

Section 12

Handout No. 2

Section 12

FAIR HOUSING
Case Study A

Attached are 10 mortgage loan files .

Five were approved and five were

Whether it is approved or rejected is indicated on the back of
the application under " For Lender's Use Only" . If rejected , the reason for
the rejection is given .
rejected .

Complete a set of line sheets for all files , recording what information

you consider valuable . Also indicate on the line sheet which loans you wish
to discuss with management and indicate under " Examiner's Comments" the
questions you wish to ask management .
OBJECTIVE CRITERIA - First National Bank of Podunk
-

Limits loans to bank customers
Loan cannot exceed 95%

of appraised value

Loans must not exceed 2 1/2 times annual income

Monthly payments must not exceed 20% of monthly income
Monthly payments for other debt must not exceed 20% of monthly income
Lending territory limited to Leon County

Duration cannot exceed 30 years
Interest rates

30 years 8 - 8 3 /4%
-

25 years 8 - 3 1 / 2%
20 years 7 3/4 - 8 1 / 2 %
below 20

Down payment

7

10%

Min . 5% , new homes only

houses 1-5 years 10%

Minimum employment in same field

2 years

Mortgage insurance required for loans until loan balance equals 80%
appraised value

If employed at same part - time job over 1 year , part - time given full
weight .

Otherwise not considered .

726

CORPORATION
RESIDENTIAL LOAN APPLICATION
MORTGAGE

Typo

No. of

Interest

Months

8 99741
Property Street Address

Monthly Payment
Principal & Interest

Escrow /Impounds ( to be collected monthly )

" 588

County

.
0

Cost : $ .
How Will Title Be Held ? ( Tenancy

Yr20

Down

O Rent

Down

GROSS MONTHLY INCOME :

IF EMPLQYED IN CURRENT POSITION FOR LESS THAN TWO YEARS COMPLETE THE FOLLOWING
.

? C

POR

Previous Employer /School

QUESTIONS APPEE TO BOTH BORROWERSHEN
i ! Yes , explain on attached sheet

No

Eny portion of the down payment borrowed ?

No

727

30
This Statement and any applicable supporting schedules may be completed jointly by both married and unmarriesce burravers if their assets and tab
sufficiently joinedso that the Statement can be meaningfully and fairly presented or a combined basis; otherwise sepulall Statements and Sihedules wieguirea

( FHLMC65A /FNMA 1003A ) . If the co-borrower section was completed a Jout spouse,complete the statement and supporting schedules aboutspouse ans.

SUBTOTAL LIQUID ASSETS

164,000

6,000

This bank

Real Estate Owned ( Enter Total Market Value

VAN

from Real Estate Schedule )

65,000

Real Estate Loans ( Itemize and Identify Lender )
15,000
20,000

Vested Interest in Retirement Fund

Dental
( ATTACH FINANCIAL STATEMENT ) Prtc .

Net Worth of Business Owned

15,000

400,000

Auto ( Make and Year )

Furniture and Personal Property

13,000
4,000

Other Debi Including Stock Pledges ( itemize)

15,000

Alimony and Chiid Support Payments

Other Assets ( itemize)

TOTAL MONTHLY PAYMENTS
B.

$ 56,000
N !
Rental
income

TOTALS →

♡

B Borrower

C - Co Borrower

Purpose

Dałe Paid

Highest Balance
$

AGREEMENT: The undersigned hereby applies for the loan described herein to be secured by a first mortgage or trust deed on the property described herein and
represents that no part of said premises will be used for any purpose forbidden by law or restriction and that all statements made in this application are true and
made for the purpose ofobtaining the loan. Verification may be obtained from any source named herein. The original or : copy of this application will be retained
Ly the lender even if the loan is not granted.

I fully understand that it is a federal crime punishable by fine or imprisonment or both to knowingly muke any fats : statements concerning any of the ahuve lucts,
as applicable under the provisions of Title 18. United States Code, Section 1014 .
MarshallTooth
Date 8/2/76

Signature ( Borrower ) .
Home Phone

Business Phone

Date
Home Phone

business Phone

The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of sex or marital status. The Federal Agency
which administers compliance with this law concerning this
( regulatory agency and address )

Rejected 8/8/76

TWT

; ;VA 179 ?

- . 3176

728

APPRAISAL

Date 8/3/76
Owner

Killearn Properties

Location of Property

2607 Killarny_Way
Tallahassee ,

Description

FL

House

Improvements

Other data

Value of Land ....... $ _ 5,000

Recommended for loan of $ 35,000

Value of Buildings .. $ _ 35.000
Other .

‫ههههه ه‬

Total Valuation .....$ 40.000
I certify the foregoing to be true and correct to the best of my
knowledge and belief .

ThomasW. Taylor

John J. Cliponas

729

CORPORATION
RESIDENTIAL LOAN APPLICATION
MORTGAGE

Interest
Rat

Type

No. of
Mooths
360

Escrow /Impounds ( to be collected monthly )
XTaxes

Monthly Payment

899194 Mg889 .22isgjpal & interest
Property Street Address

30303

1

!

Age

Yrs 16

Yrs 16

D ] Rent

PREVIOUS

PROPOSED

$

250

IF EMPLOYED - IN CURRENT POSITION FOR LESS THAN TWO YEARS COMPLETE THB FOLLOWING
B /C

Previous Employer/School

QUESTIONS APPLY TO BOTH BORROWERS
• !! Yes, explain on attached sheet

$

Complete this section and all other co -borrower questions about spouse if the spouse will be jointly obligated with the borrower on the loan or if the borrower
is relying on the spouse's income or on community property in obtaining the loan .
This information is requested only for statistical purposes in accordance with the intent of fair housing law . Furnishing this information is voluntary , but borrowers

730

This Statement and any applicable supporting schedules may be completed jointly by noin married and unmarriea co borrowers in their assets and liabilities are

sufficiently joined so that the Statement can bemeaningfully andfairly presented on a combinedbasis; otherwise separate Statements and Schedules are required
( FHLMC 65A /FNMA 1003A) . Mthe co -borrower section was completed about spouse,complete this statement and supporting schedules about spouse also .

-

National Bank of Atlanta

840

35 / 24

Stocks and Bonds ( Nd./description)

/
900

E bonds
Life Insurance Net Cash Value

Face Amount ( $

Automobile Loan

4,600

Real Estate Owned ( Enter Total Market Value
from Real Estate Schedule )

25000

GMAC
135

/ 12

Real Estate Loans ( I temize and Identiy Lender)

Vested Interest in Retirement Fund

2000

C& S Realty

WA

SUBTOTAL LIQUID ASSETS

1,620

k0,000

Net Worth of Business Owned

( ATTACH FINANCIAL STATEMENT)

Auto ( Make and Year)
Other Debt Including Stock Pledges ( itemize)

2,000
1,000

1975 Chevelle
1971 Vega
Furniture and PersonalProperty

Alimony and Child Support Payments

Other Assets ( itemize )

TOTAL MONTHLY PAYMENTS

B.

s 21,780

TOTALS

M

Net
Rental
income

-

25
Borrower

B6

Highest Balance

Purpose

C - Co - Borrower

First State Bank of Cobb County

11456-78321

$

Personal

500

Date Paid

2-2-24

AGREEMENT : The undersigned hereby applies for the loan described herein to be secured by a first mortgage or trust deed on the property described herein and
represents that no part of said premises will be used for any purpose forbidden by law or restriction and that all statements made in this application are true and

made for the purpose of obtaining theloan. Verification may be obtained from any source named herein. The original or a copy of this application will be retained
by the lender even if the loan is not granted.

I fully understand that it is a federal crime punishable by fine or imprisonment or both to knowingly make any false statements concerning any of the above fucts,
as applicable under the provisions of Title 18, United States Code, Section 1014.

Signature ( Borrower)

Marvin Mead

Date8/2/76

The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of sex or marital status. The Federal Agency

which administers compliance with this law concerning this

Rejected 8/20/76
Income

ca

PVMA 10031.3/76

731

APPRAISAL
Date
Owner

3/9/76

Nelson Builders , Inc.

Location of Property

740 Raintree Circle

Tallahassee ,

FL

Description_3 BR , 2 Bath , Brick Veneer , Fireplace ,
1/2 acre lot

house 95%

new subdivision

complete

Improvements

Other data

Value of Land....... $

5,000

Recommended for loan of $ 32,000

Value of Buildings .. $ 32,000
Other ..........

.3

Total Valuation ..... $ 37,000 .
I certify the foregoing to be true and correct to the best of my
knowledge and belief .

Thomas Ww Taylor

John J. Chipomas

37-415 O - 79 - 47
-

732

CORPORATION
RESIDENTIAL LOAN APPLICATION
Type

MORTGAGE

Interest

Escrow /Impounds ( to be collected monthly)
XTaxes

Monthly Payment
Principal & Interest

No. of
Months

799441 240

$

Property Street Address

[ Ζιρ

Yrs

20

X Rent

Rent

PROPOSLO

50

*
BIC

$

176

IF EMPLOYED INCURAENEPOSETION FORLESS THAN TWO YEARS COMPLETE THE FOLLOWING

Previous Employer /School

B

с

QUESTIONS APPLY TO BOTES BORROWERS
It Yes, explain on attached sheet

Borrower
Yes or No

No

$ N/A

$ N /A

are urged 's do 50. Nolending decision will be madeonthe basis of this information or on whether ornotit * furnishest .
*FHLMC equires self employed to furnish signed copies of one or more most recent Federal Tax Returnsor audited Profit and I ossStatements I NMA requres

733

This
Statement and any applicable supportingschedules ingy be completed jointly by botn inarried and unnamniej co -bullowers if their assets and habilities are
sufficiently joined so that the Statement can be reaningfully and fairly presented on a

Z
Checking and Savings

/
Stocks and Bonds ( No./description)
Auto Train 100s / s

700
800

Fugua Ind . 100s / s
Life Insurance Net Cash Value
Face Amounit ( S

Automobile Loan

SUBTOTAL LIQUID ASSETS

13,400

Real Estate Owned ( Enter Total Market Value
from Real Estate Schedule )

Real Estate Loans ( itemize and Identity Lender )

Vested Interest in Retirement Fund
200
Net Worth of Business Owned

( ATTACH FINANCIAL STATEMENT )
Auto ( Make and Year)

1,000

1972 Pinto

OtherDebt Including Stock Pledges ( I temize)

Furniture and Personal Property

Alimony and Child Support Payments

8,000
Other Assets ( itemize)

TOTAL MONTHLY PAYMENTS
8 .

$

0

Net

Rentai
Income

TOTALS -

I fully understand that it is a federal crime punishable by fine or imprisonment or both to knowingly make any false statements concerning any of the above fucts,
as applicable under the provisions of Title 18, United States Code, Section 1014 .

Lawrence Steinhauer
Home Phone

222-1781

Business Phone 244-1010

Home Phone 222-1781

Business Phone 385-6011

The Federal Equal Credit Opportunity Act prohibits creditors from discriminating ayainsi credit applicanis on the husis of sex or marital status. The Federal Agency
which administers compliance with this law concerning this

Rejected 8/12/76

Appraisal

: VMA 1007.v. 3/76

734

APPRAISAL

Date
Owner

8/5/76

Wilson Pickett

Location of Property

414 College Avenue
Tallahassee ,

Description

FL

3 BR , Wood Frame house , 1 Bath
University Neighborhood

Improvements

Other data

Value of Land ....... $

500

Recommended for loan of $ 10.000

Value of Buildings .. $ 10,000
Other .....

Total Valuation .....$

10,500 ,

I certify the foregoing to be true and correct to the best of my
knowledge and belief .

ThomasW. Taylor

John J. Chipomas

735

CORPORATION
3ESIDENTIAL LOAN APPLICATION
MORTGAGE

Type

interest

giang

Monthly & Payment
mangho Principal
Interest Escrow /Impounds( to be collected monthly)
No. of

Property Street Address

54'ta

Name

ABS

Yrg 16

Down

O Own

PREVIOUS

Rent

PROPOSED

12

TICHEZO

$

330

IF EMPLOYED IN CURRENT POSITION FOR:LESS THAN TWO YEARS COMPLETE THE FOLLOWING
BIC
T

Previous Employer /School

QUESTIONS APPLETO BOTH BORROWERS
li Yes, explain on attached sheet

are urged in do 50. No lending decision will be made on the basis of this information or on whether or not it is furnished
***FHLMC
requires sell employed to furnish signed copies of one or more most recent Federal Tax Returns or audited Protit und Loss Statements . FNMA requires

736

This Statement and any applicable supporting schedules may be completed jointly by both married and unmarried co borrowers if their asset , and habilities se
sufficiently joined so that the Statement can be meaningfully and fairly presented on a combined basis ; otherwise sepurate Statements and Schedules are required

( FHLMC 65A / FNMA 1003A ) . If the co -borrower section was completed about spouse , complete this staternent and supporting schedules about spouse also .

20 25

Stocks and Bonds ( No./description )

Life Insurance Net Cash Value
Face Amount ( $
20,000

1

SUBTOTAL LIQUID ASSETS

1,000
10,500

Automobile Loan

135

GMAC

30

4050

/

Real Estate Owned ( Enter Total Market Value
from Real Estate Schedule )

Real Estate Loans ( itemize and Identify Lender)

Vested Interest in Retirement Fund

5,000
Net Worth of Business Owned

( ATTACH FINANCIAL STATEMENT )
Auto ( Make and Year )

Other DebtIncluding Stock Pledges ( Itemize)

250

1969 Ford

3,000
Alimony and Child Support Payments
Other Assets ( itemize)

TOTAL MONTHLY PAYMENTS
B.

$

4,150
Net
Rentai
Income

TOTALS

B - Borrower

BC

Highest Balance

C - CO - Borrower

s 1,000

Rhodes Furniture

Date Paid

$ / 4 / 76

AGREEMENT: The undersigned hereby applies for the loan described herein to be secured by a first mortgage or trust deed on the property described herein and
represents that no part of said premises will be used for any purpose forbidden by law or restriction and that allstatements made in this application are true and
made for the purposeof obtaining the loan. Verification may be obtained from any source named herein. The origina! or a copy of this application will be retained
by the lender even if the loan is not granted.

I fully understand that it is a federal crime punishable by fine or imprisonment or both to knowingly make any false slat-ments concerning any of the above fucts ,
as applicable under the provisions of Title 18, United States Code, Section 1014.
Dave Smith
Date 6/6/76

Signature ( Borrower ) ,

The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of sex or marital status. The Federal Agency

Rejected - Not enough income to support debt
6/8/76

WA0031.3/76

737

APPRAISAL
Date

Owner

6/7/76

Nelson Builders

Location of Property

738 Raintree circle

Tallahassee , FL

Description
new

3 BR . 1Bath ,
subdivision

Wood veneer ,

1 acre lot

next to Killearn

Improvements

Other data

Value of Land....... $ _ 5,000

Recommended for loan of $ 25.000

Value of Buildings .. $ 30,000
Other ..

Total Valuation .....$ 35,000 ,
I certify the foregoing to be true and correct to the best of my
knowledge and belief .

ThomasW.Taylor

John & Chipomas

738

CORPORATION
RESIDENTIAL LOAN APPLICATION
MORTGAGE

Type

Interest

No. of
Mopths

ago

Monthly Payment Escrow /Impounds ( to be collected monthly
Pelocigal
PP122180 & Interest
Taxer

PROPERTY
SUBJECT

Property Street Address

Yrs 12

Down

Down

ORent

PREVIOUS

: B/C

PLOYED
IF
Previous Employer /School

IN CURRENT

Rent

P1020930

SITION FOR LESS THAN TWO YEARS COMPLETE THE FOI

INGA

QUESTIONS APPLY TO BOTH BORROWERS,
If Yes, explain on attached sheet

외
Yes
Any portion of the down payment borrowed ?

739

This Statement and any applicable supporting schedules may be completed jointly by both married and unmarried co -borrowers if their assets and liabilities are
sufficiently joined so that the Statement can be meaningfully andfairly presented on a combined basis; otherwise separate Statements andSchedules are required
( FHLMC 65A / FNMA 1003A ) . 11 the co -borrower section was completed about spouse , complete this statement and supporting schedules about spouse also

L
/
Stocks and Bonds ( No./description)

Life Insurance Net Cash Value

25,000

4,000

SUBTOTAL LIQUID ASSETS

15,600

Face Amount ( S

Automobile Loan

Real Estate Owned ( Enter Total Market Value

25,000

from Real Estate Schedule )

Real Estate Loans ( Itemize and Identiły Lender )

Vested Interest in Retirement Fund

7,000

Commonwealth Corporation

115,000

SEWER

Net Worth of Business Owned

( ATTACH FINANCIAL STATEMENT)
Auto ( Make and Year )
2500
2300

1974 Ford
1972 Mercury

Other Debt IncludingStock Pledges ( Itemize )

Property
Furniture and Personal

B.

$ 33,040
Net
Rental
Income

TOTALS

I fully understand that it is a federal crime punishable by fine or imprisonment or both to knowingly make any false statements concerning any of the above facts,
18 applicable under the provisions of Title 18, United States Code, Section 1014 .

Date 8/2/76

Date

The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of sex or marital status. The Federal Agency
which administers compliance with this law concerning this

Rejected 8/12/76
Income
TWT
-

FVMA 1003

n . 176

740

APPRAISAL
Date
Owner

August 10 , 1976

John Wise

Location of Property

208 Blair Road

Tallahassee , Florida
Description

4 br , 2 bath , brick veneer , fireplace

adjoining garage , wall- to-wall carpeting , well - established
neighborhood

Improvements

Other data

House , 9 years old

Value of Land ....... $

5,000

Recommended for loan of $ 32,000

Value of Buildings .. $ 37,000
Other .

3

Total Valuation ..... $ 42,000
I certify the foregoing to be true and correct to the best of my
knowledge and belief .
Thomas W. Taylor

John J. Chipouras

741

-ORPORATION
RESIDENTIAL LOAN APPLICATION
MORTGAGE

Typo

interest

No. of

Months

Monthly Paymont Escrow /Impounds ( to be collected monthly )
Principal
&

11

Interest

300

PROPERTY
SYBJECT

11

Property Street Address

City

Age

O Rent

11

OUS

1

TECNO

s 220
50
s 2120

$ 320
(

O

1,000

$ 270

IF EMPLOYED IN CURRENT POSITION FOR LESS THAN TWO YEARS COMPLETE THE FOLLOWING:
BIC

Previous Employer / School

QUESTIONS APPLY TO BOTH BORROWERS
If Yes , explain on attached sheet

$

N / A

1

1
1

742

This Statement andany applicable supportingschedules maybe completed jointly by both married and unmarried co-borrowers if their assets

LIABIL
AND
ASSETS
OR
ATEMENT

Stocks and Bonds ( No./description)

4,000

Dupont 1008 / s
Life Insurance Net Cash Value

Face Amount ( S

Automobile Loan

SUBTOTAL LIQUID ASSETS

19,000

Real Estate Owned ( Enter Total Market Value
from Real Estate Schedule )

Vested Interest in Retirement Fund

Real Estate Loans ( Itemize and Identify Lender )

2,500

( ATTACH FINANCIAL STATEMENT)
Auto ( Make and Year )

5,000

1973 Corvette
Furniture and Personal Property

Other Debt IncludingStock Pledges ( itemize)

MA

Net Worth of Business Owned

Alimony and Child Support Payments

10,000
Other Assets ( itemize )

TOTAL MONTHLY PAYMENTS

B.

so
Net
Rental
Income

TOTALS

Purpose

Borrower

Date Paid

I fully understand that it is a federalcrime punishable by fine orimprisonment or both to knowingly make any false statements concerning any of the above lucts,
as applicable under the provisions of Title 18. United States Code, Section 1014.
Signature ( Borrower)
Robert Panoff
Date

Date
Home Phone

Business Phone

The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of sex or marital status . The Federal Agency
which administers compliance with this law concerning this

Interviewer

Approved TWT
w
***

FNMA 10A3 R - .3776

743

APPRAISAL
Date

9/11/76

Killearn Properties

Owner

1206 Offaly Court

Location of Property

Tallahassee , Florida

Description

4 Br , 2 bath , brick veneer

dining room , family room w/ fireplace
large living room located in Killearn
Built 1973 acre lot

Improvements

Other data

10,000

Value of Land .....

Recommended for loan of $ 40,000

Value of Buildings.. $ _ 40,000
Other ...

$

Total Valuation ..... $

50,000

I certify the foregoing to be true and correct to the best of my
knowledge and belief .

Thomas W. Taylor

John J. Chipouras

744

This Statement and any applicable supporting schedules may be completed jointly by both married and unmarried cu -borrowers If their assets and liabilities are
sufficiently joined so that the Statement can be meaningfully and fairly presented on a combined basis ; otherwise separate statements and schedula are requirea
( FHLMC 65A / FNMA 1003A ) . If the co -borrower section was completed about spouse, complete this statement and supporting schedules aboutspouse also .

46
Stocks and Bonds ( No./description )

Life Insurance Net Cash Value
Face Amount ( s

Automobile Loan

SUBTOTAL LIQUID ASSETS

GMAC

Real Estate Owned ( Enter Total Market Value
from Real Estate Schedule )

130

3,120

24

Real Estate Loans ( I temize and Identify Lender )

Vested Interest in Retirement Fund

Net Worth of Business Owned
( ATTACH FINANCIAL STATEMENT )

Auto ( Make and Year )
Other DebtIncluding Stock Pledges ( Itemize)

7
Alimony and Child Support Payments

Furniture and Personal Property

Other Assets ( itemize )

TOTAL MONTHLY PAYMENTS
B.

$

3,820
Net

Rental
income

TOTALS

♡
BC

# -Borrower

Highest Balance

C - Co - Borrower

Lafayette Electronics

s 500

Date Paid

7/2/75

AGREEMENT : The undersigned hereby applies for the loan described herein to be secured by a first mortgage or trust deed on the property described herein and
represents that no part of said premises will be used for any purpose forbidden by law or restriction and that all statements made in this application are true and

made for the purpose of obtaining the loan . Verification may be obtained from any source named herein . The original or a copy of this application will be retained
by the lender even if the loan is not granted.

I fully understand that it is a federal crime punishable by fine or imprisonment or both to knowingly make any false statements concerning any of the above fucts,
as applicable under the provisions of Title 18, United States Code, Section 1014,
Charles Richards
Date 9/4/76

Date_9 / 4 / 76

Signature ( Borrower ) ,
Home Phone

Business Phone

Home Phone

The Federal Equal Credit Opportunity Act prohibits creditors from discriminatingagainst credit applicants on the basis of sex or marital status. The Federal Agency
which administers compliance with this law concerning this bank

AH pproved TWT
OVESE

FNMA 1003R2.3176

745

CORPORATION
RESIDENTIAL LOAN APPLICATION
MORTGAGE

Type

Interest

No. of
Months

Monthly Payment Escrow /Impounds ( to be collected monthly )
Principal & Interest

81394, 360

PROPERTY
SUBJECT

FOR

$

248

Property Street Address

Age

16

Yrs 16

$

$

is 1,000

250

220

$ 1,835

IF EMPLOYED IN CURRENT POSITION FOR LESS THAN TWO YEARS COMPLETE THE FOLLOWING
B/C

Previous Employer /School

QUESTIONS APPLY TO BOTH .BORROWERS
If Yes , explain on attached sheet

$ N /A
$

NA

Complete this section and all other co -borrower questions about spouse if the spouse will be jointly obligated with the borrower on the loan or if the borrower
loan .
community property in obtaining

is relying on the spouse's income or on
the
This information is requested only for statistical purposes in accordance with theintent of fair housing law . Furnishing this information is voluntary , but borrowers

746

APPRAISAL

Date_9/ 6 / 76
Owner

Meridian Properties

Location of Property

1760 Meridian Road
Tallahassee , Florida

Description

3 Br Brick Veneer , 2 bath
Great room fireplace
1/2 acre lot

Improvements

Other data

Value of Land....... $ 5,000

Recommended for loan of $

30,000

Value of Buildings.. $ 30,000
Other ....

Total Valuation ..... $ 35,000

I certify the foregoing to be true and correct to the best of my
knowledge and belief .
Thomas W. Taylor

John J. Chipouras

747

CORPORATION
AESIDENTIAL LOAN APPLICATION
MORTGAGE

Type

Interest

No. of
Mopths

843894 MB

Monthly Payment Escrow /Impounds ( to be collectedmonthly )

prizsigel & interest

PROPE
SUBJECT

Property Street Address

Yrs 16
15

O

I own

Rent

PROPOSED

$ 36,500

IF EMPLOYED IN CURRENT POSITION FOR LESS THAN TWO YEARS COMPLETE THE FOLLOWING
B/C

Previous Employer/School

QUESTIONS APPLY TO BOTH BORROWERS
If Yes, explain on attached sheet

37-415 O - 79

48

748

This Statement and any applicable supporting schedules may be completed jointly by both married and un married co -borrowers if their assets and liabilities are
sufficiently joined so that the statement can be meaningfully andfairly presented on a combined basis; otherwise separate Statements and Schedules are required
( FHLMC 65A / FNMA 1003A) . If the co -borrower section was completed about spouse, complete this statement and supporting schedules about spouse also .

Gayfer's /Tallahassee pay balance monthly

STATEMENTS

ITIES

36

Net Worth of Business Owned
( ATTACH FINANCIAL STATEMENT )
Auto (Make and Year )

Other Debt Including Stock Pledges ( I temize )

1973 Chevelle

2,000

Furniture and Personal Property

Alimony and Child Support Payments
500

TOTAL MONTHLY PAYMENTS

B.

$

2,450
Net
Rental
Income

TOTALS -

♡

#Borrower

C - Co - Borrower

Purpose

Highest Balance

Date Paid

$

AGREEMENT : The undersigned hereby applies for the loan described herein to be secured by a first mortgage or trust deed on the property described herein and
made for the purpose of obtaining the loan. Verification may be obtained from any source named herein. The original or a copy of this application will be retained
represents that no part of said premises will be used for any purpose forbidden by law or restriction and that all statements made in this application are true and
by the lender even if the loan is not granted.

I fullyunderstand that it is a federalcrime punishable byfine or imprisonmentor both to knowingly make any false statements concerning any of the above fucts,
as applicable under the provisions of Title 18, United States Code, Section 1014.

Signature ( Borrower) _Lucy A. Bell

The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of sex or marital status. The Federal Agency
which administers compliance with this law concerning this

Approved

7/10/76
TWT

ur. 5.3

749
APPRAISAL
Date
Owner

7/5/76

Nelson Builders , Inc.
736 Raintree Circle

Location of Property

Tallahassee , Florida
3 Br , 2 bath , brick veneer , fireplace
Description

House 75%

complete

Improvements

Other data

Value of Land ....... $

5,000

Recommended for loan of $ 32,000

Value of Buildings ..$ _ 32,000
Other ....

.$

Total Valuation ..... $

37,000

I certify the foregoing to be true and correct to the best of my
knowledge and belief .

John J. Chipouras

750

CORPORATION
AESIDENTIAL LOAN APPLICATION
MORTGAGE

interest

Type

No. of

Monthly Payment Escrow /Impounds ( to be collectedmonthly

Rato

8 +394 negothe springog'& interest
$

Property Street Address

Down

Rent

O Rent

PROPOSE O

PREVIOUS

s 500
15

188
$

$

S6,735

238

$

530

s 530

IF EMPLOYED IN CURRENT POSITION FOR LESS THAN TWO YEARS COMPLETE THE FOLLOWING :
B/C

Previous Employer/School

QUESTIONS APPLY TO BOTH BORROWERS

22222

1: Yes, explain on attached sheet

No

No
Have you previously owned a home ?

| Any portion of the down payment borrowed ?

No

751

This Statement and any applicable supporting schedules may be completed jointly by both married and unmarried cu -borrowers if their assets and liabilities are
sufficiently joined so that the Statement can be meaningfully and fairly presented on a combined basis ; otherwise

/

Stocks and Bonds ( No./description )

27,000
97,500
25,000
SUBTOTAL LIQUID ASSETS

Automobile Loan

177,500

6,000

This bank

Real Estate Owned ( Enter Total Market Value

ASSE
OF
ENT

from Real Estate Schedule)

85,000

Vested Interest in Retirement Fund

Real Estate Loans ( itemize and Identify Lender)
15,000
20,000

11,000

Net Worth of Business Owned

This bank , personal

( ATTACH FINANCIAL STATEMENT )
Auto ( Make and Year)

Other Debt Including Stock Pledges ( itemize)

1976 Lincoln Mark Iv
1975 Mercury Cougar

13,000

This bank , personal loan
10,000

Secured by Xerox stock
Alimony and Child Support Payments

20,000
Other Assets ( Itemize)
TOTAL MONTHLY PAYMENTS
B.

A.

Net
Rental
income

TOTALS

6 - Borrower
♡

Purpose

C - CO - Borrower

Highest Balance

Date Paid

AGREEMENT : The undersigned hereby applies for the loan described herein to be secured by a first mortgage or trust deed on the property described herein and
represents that no part of said premises will be used for any purpose forbidden by law or restriction and that all statements made in this application are true and

made for the purpose of obtaining the loan . Verification may be obtained from any source named herein. The original or a copy of this application will be retained
by the lender even if the loan is not granted .

I fullyunderstand that it is afederal crime punishable by fine or imprisonment or both to knowingly make any false statements concerning any of the above lucts,
as applicable under the provisions of Title 18. United States Code, Section 1014.

Signature ( Borrower) _John Rich
Business Phone

The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of sex or marital status. The Federal Agency
is
which administers compliance with this law concerning this

Approved
8/10/76 TWT

*

1.99

752

APPRAISAL
Date

Owner

August 3 , 1976

Killearn Properties

Location of Property

2605 Killarny Way
Tallahassee , Florida

Description

Two story , 4 Br , 3 baths , brick veneer

colonial type .

2 fireplace family room , living room , acre lot .

Improvements

Other data

10,000
Value of Land ....... $

Recommended for loan of $ 80,000

Value of Buildings .. $ 95,000
.

Other ..

$

105,000

Total Valuation .

I certify the foregoing to be true and correct to the best of my
knowledge and belief .
Thomas W. Taylor

John J. Chipouras

753

CORPORATION
BESIDENTIAL LOAN APPLICATION
MORTGAGE
APPLIED
FOR

Typo

conv.

No. of

Interest

Amount

Rato

FHA OVA 930,000

Months

360

Monthly Payment Escrow /Impounds ( 10 be collectedmonthly)
Principal & Interest
s

240

Prepayment Option

Property Street Address

Yrs 12

No. Years 10

Down

O Own

PREVIOUS

PROPOSED

s 240

100

DE SCHO .

s 112
Total

IF EMPLOYED INCURRENTPOSITION FOR LESS THAN TWO YEARS COMPLETE THE FOLLOWING*****
RC

Previous Employer /School

QUESTIONS APPLY TO BOTH . BORROWERS
If Yes, expiain on attached sheet

CO - 90. ruwer
Yes or NO

No

Value of previously owned home

754

This Statement and any applicable supporting schedules may be completo jointly by both marries and urinarnicu-burrowers in their lisets and liabuit: die
sufficiently joined so that the Statement can be meaningfully and fairly presented on a combined buss; otherwise Sepiac Statements and schedules ure required:

( FHLMC 65A /FNMA 1003A) . If the co -borrower section was completed about spouse , complete this statement and supporting schedules about spouse also

2
Life Insurance Net Cash Value

35,000

Autornobile Loan

5,000

SUBTOTAL LIQUID ASSETS

21,900

Real Estate Owned ( Enter Total Market Value
from Real Estate Schedule )

Real Estate Loans ( itemize and Identily Lender )

25,000

Vested Interest in Retirement Fund

8,000

Common Wealth Corporation

1974 Ford

2,500

Other Debt including Stock Pledges ( Itemize )

1972 Mercury

2,300

Net Worth of Business Owned
( ATTACH FINANCIAL STATEMENT )
Auto ( Make and Year)

.

WA

Face Amount ( S

15,000

Furniture and Personal Property

B.

$ 33,040
Net
Rental
Income

TOTALS

CIST PREVIOUSICREDIO. REFERENCES

I fully understand that it is a federal crime punishable by fine or imprisonment or both to knowingly riske any false statements concerning any of the above fscts,
es applicable under the provisions of Title 18, United States Code , Section 1014 .
Signature ( Borrower ) , Norman White

The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of sex or marital status . The Federal Agency
which administers compliance with this law concerning this.

.

AVMATO.

w . 376

755

AFFRAISAL

Date 8/10/76 .
Owner

George Maynard

Location of Property .

206_Blair Road
Tallahassee ,

FL

Description_4 BR , 2 Bath , Brick Veneer , fireplace , adjoining

garage , wall to wall carpeting - well established
neighborhood

Improvements

Other data

Value of Land ...

house 10 years old

. $ _ 5,000

Recommended for loan of $ 30,000

Value of Buildings.. $ _ 37.000
Other ....

Total Valuation .....$ 42,000 ,
I certify the foregoing to be true and correct to the best of my
knowledge and belief .

TomasW. Taylor

John J. Chipouras

756

FAIR HOUSING

Case Study B

Section 12

Mortgage Discrimination

You have just completed your regularly scheduled examination of Federal
Savings Bank , the largest and most prestigious bank in the Southwest .

Television

advertisements are done for this Savings and Loan by Robert Young and Jane Wyman .
Everything is in order and you are ready to prepare your report when you receive

a memorandum from Washington conveying a sex discrimination complaint against
Federal .

The complaint was made by a 30 year old black female lawyer employed

by the EEOC in Tucson , Arizona .

She has just obtained this job and had worked

previously in Washington for three years with the Civil Rights Commission .

The

memorandum from Washington advises you that the complaint made to the Board was
endorsed by the Chairman of both the House and Senate Committees on Housing ,

Banking and Urban Affairs who have each requested an immediate report " as to the
steps taken by the Federal Reserve Board to assure equal opportunity" in this
instance .

You are given only the following letter from the complainant , Ms. Mary

Jones .
Chairman
Federal Reserve Board

Washington , D.C.
Dear Sir :

On Monday , May 5th , 1976 I applied for a loan at Federal
Savings Bank to finance the purchase of a three bedroom con
dominium in Tucson , Arizona . After a very difficult time , I
was rejected by this organization because of my race and sex .
I wish to file a complaint , and if immediate steps are not

taken to correct this outrageous situation , I will have taken
no recourse but to go to Court against Federal , and possibly ,
against the FRB for non- enforcement of the law .
as follows :

The facts are

757
- 2 -

I am employed as an attorney at a salary of $ 20,000
per year .

My monthly gross income is $ 1,666 .

I was divorced

two years ago and I have a four year old daughter . I pay three
hundred dollars a month for child care and receive three hundred
and seventy five dollars a month in child support . My former
husband is also an attorney .

I have always paid my bills on time , but have never owned
real estate before .
I signed a contract to purchase a luxury condominium unit
costing $ 53,000 , with twenty percent down . I applied for $ 42,000,
7 3 / 4 % " Fannie Mae Mortgage " . I was told that the " PITI " on this
property was $ 390 per mo .
I filled in
officer who took
he was trying to
examination . He

an application at Federal Savings . The loan
the application , Mr. Pleasant, acted as though
be friendly , but was really giving me a cross
asked why a " little gal" like me needed such

a " big ol ' expensive place with three bedrooms" . He asked if I
" partied " a lot . He said he really
many mothers would ordinarily leave
Of course , I was highly offended by
because I didn't want to jeopardize

" admired me " because not
their children with a stranger .
this , but did not say anything
the loan .

A week later I received a form letter from the bank saying
they could not make a loan because the loan " did not conform to
requirements established by Federal Savings " . On May 13 I visited
Mr. Pleasant and asked why I was rejected . He said he did not
reject me , but it was the loan committee, and I would have to
write to them . I did , and two weeks later I was sent a letter
saying that I did not meet the " income requirements established
by Federal " .

I then tried to make an appointment with the head of the loan
committee . He told me on the phone that he could not meet with me .

He said that I did not meet the income requirement of a debt to
income ratio of 22 % and also , that they did not have " any more
Fanne Mae Money " .
At this point I was outraged . I wrote to the President of
Federal Savings and demanded a meeting and a copy of my loan file .
I was contacted by the bank's lawyer who met with me . He gave me
only a copy of my application . I noticed that my race was noted
in the box provided . The lawyer , Mr. Smiley told me that there
was a terrible mix-up , but that it wasn't anything racially or
sexually discriminatory . He said it was just a case of " bad
customer relations " . He said that Mr. Pleasant was severely
admonished for asking me those personal questions and that the

bank was truly sorry , and it would never happen again . However ,
Mr. Smiley explained that the bank had a policy of requiring that
the ratio of PITI to income must be 22% in order to qualify for
a loan .

My monthly income was $ 1,666 .

My monthly PITI would be

$ 390 . The ratio is 23.7% and thus I did not qualify . Mr. Smiley
said , however , that in order to show the bank's good faith , they

758

- 3 -

would be willing to make me a $ 35,000 loan at the going rate of
9 1 /4% .
I told Mr. Smiley to keep his loan and I am writing to
your office for assistance .
Sincerely ,

Mary Jones , Esq .
Before calling the President of Federal , you check previous examiner reports

and you find that in November of 1975 the bank's Board of Directors adopted a
resolution requiring a debt to income ratio of 22 % .

There have been no other

equal opportunity complaints involving this organization .

You call the organ

ization and speak with the President , Mr. Joyful who confirms that there is a

22% ratio and that it is " applied uniformly" .

He says that he remembers the

Jones case well and that " that gal sure got excited over nothing " .

He tells

you that she simply didn't meet the 22% criteria and that , at any rate , she
applied for a type of loan which wasn't available :

a FNMA 7 3 /4 %

decide to call and speak with Mr. Pleasant , the loan officer .

loan " .

He gives you the

same version and adds that he " got into a mess of hot water over her .

people think everybody is out to discriminate" .

You

Some

What do you do?

You re-read the part of the memo from Washington that tells about the interest
expressed by Congress , and decide to schedule a special examination .
At the offices of the bank , you ask for the Jones file .
worksheets and data confirm that the ratio was 23.7% .

You find that the

You also find the following

memo :

Monthly income :

$ 1,666
375
- 300
$
75

Total monthly income
Ratio : 390/1741 - 22.4 %

$ 1,741

759

- 4 -

$ 1,666

Monthly income
Minus child care
Ratio :

28 %

Go with this - - 390/1666 = 23.7%
This memorandum alerts you to the possibility that the bank may not be
fully conversant with Equal Opportunity Laws.
You visit the President again and ask about the measures taken to acquaint
employees with the law .

He shows you a memorandum dated June 1976 , which reads :

As a result of a recent unfortunate incident , it is
necessary to inform all personnel who deal with the public
that new changes in the Privacy Act forbid employees from
inquiring into personal facts about applicants , particularly
childbearing or child raising plans.
You ask about the 22% ratio rule and inquire as to why the institution does
not use the general 25% rule .

You are told that the Board of Directors felt

it was " more prudent " to change to 22% .
ate Board meeting.

You ask for the minutes of the appropri

You are shown the following :

November 10 , 1975
Be it resolved :

Due to recent federal legislation which

in certain circumstances may enhance the exposure and

risk for lenders the Federal Savings Bank hereby changes
from 25% to 22 % the debt to income ratio necessary to
qualify for a home mortgage loan .
You conduct a random sampling of file and find :
a)

Several loans to couples , in which only the husband is

working , where the ratio is between 24 and 26% ;
b)

Several loans to couples , in which both spouses

work , where the ratio is 22% or less ;

760

- 5 -

c)

Three loans to single men where the ratio is about 28% .

One is to the President's wife's nephew .

As for the other

two , Mr. Pleasant explains that they are single and have
" less responsibility " ;
d)

Six Fanne Mae 7 3 /4 %

loans made between May 5th and

May 20th , when the last such loan was made .
1.

What findings do you report ?

2.

What steps do you recommend be taken ?

3.

Is there additional investigation to be done ?

P. S. You have also found the following paragraph in the bank's manual
* No real estate loan will be made where the sum of the term of

years of the loan , plus the borrower's age exceeds the number 70 ,
unless the borrower can demonstrate sufficient expected income
after age 62 to sustain loan payments .
4.

Does this provision require attention ?

761

FAIR HOUSING

Section 12

Case Studies C

AGE

1.0

The Perpetual Corn Exchange and Cattlemen's Trust has a loan manual .
a .

It

We will not make mortgage loans in circumstances where the age
of the borrower and term of the loan exceed 60 years , unless
the applicant can demonstrate the probability , amount and
stability of income after age 65 .
and

b.

Loans to youthful borrowers are to be avoided unless a
parent is available and willing as a co- signor .

Do these provisions violate ECOA and Regulation B?
BROKERS AND DEALERS

2.0 The First National Bank of Piggy ( Piggy Bank ) makes real estate loans

nas a different relationship with
When a customer needs financing , Wheely -Dealy " shops"

The Wheely-Dealy Used Car Emporium

the Piggy Bank .

several banks and offers the paper to whomever will take the loan , on
the best terms .

Harry and Martha NewRich just purchased a home from Make-a-Buck and a
car from Wheely-Dealy . Harry works as a receptionist in a law office
and Martha repairs trucks for the telephone company . They each make
about $ 12,000 per year .

The NewRich's asked the agent for Make - a - Ruck if the company would send
their loan application to the First National Bank of Piggy , where the
NewRich's had an account .

The agent said no , because it was his under

standing that Piggy would discount a wife's income and this might
jeopardize the deal . ( Piggy had actually changed this policy but none
of the speakers at the monthly sales meetings had mentioned this to
Make-a-Buck's employees - the speakers assumed it was common knowledge . )
The NewRich's application for a car loan was " shopped " to Piggy and to
the Carefree Trust Bank .

Carefree said it would make the loan , but

Piggy turned it down because they do not make loans on souped-up Edsels
with racing stripes , double-wide tires , raised rear-end and spiked hubcaps .
Is Piggy liable for discrimination in either instance? Does Piggy have

any, adverse action notification obligations in either situation ?

762

-2

OBTAINING PROHIBITED INFORMATION THROUGH CREDIT REPORTS

3.0

Sally Sweet applied for a mortgage loan at Solid Rock Savings and Loan

Ms. Sweet appeared qualified for the loan , but Thomas Doubting , the loan
officer , called his best friend who worked at Ace Credit Reporters , and
asked him to check on Ms. Sweet's " complete credit history ." Two weeks
later , Sally Sweet received a denial letter from Solid Rock , stating that
her loan was denied for insufficient income . Not believing a word of it ,
she wrote to the Federal Home Loan Bank Board alleging discrimination based
on her sex ( female ) and marital status ( divorced ) .

A comparison of loan files showed that Ms. Sweet's income and
obligations compared favorably with the approved files .

- Only one other file contained a report from Ace Credit Reporters ;

- The managing officer stated that the association used Second

The Ace report stated that Sally Sweet was divorced .
- Second Best Reports appearing in other files contained no reference
PRESCREENING

4.0

A sampling of files in Exclusive Federal Savings and Loan shows that
approved loans and rejected applications are not representative of the
population living in this community as reported by the U.S. Bureau of the
Census .
A statement made by the telephone receptionist , which was overheard
by an examiner while searching for the Equal Housing Lender Poster in the

lobby , appeared to indicate prescreening :

" I'm sorry , Exclusive won't

approve loans in that area . "

An interview with the receptionist revealed the following :
1.

She had been employed by Exclusive for four months ;

2.

She had been trained by her predecessor ;

3.

She had never heard of the Fair Housing Act or the Equal
Credit Opportunity Act ;

4.

She had been instructed to refer all questions she was
unsure of to the chief loan officer .

763

-3

The association advertises in one newspaper whose subscribers are
above average in both education and income. They also advertise
mortgage rates to all customers holding certificates of deposit .
Several of these ads did not contain the Equal Housing logo .
The Equal Housing Lender Poster was found behind a file cabinet
where it had allegedly " fallen" and has not been replaced .
RELIANCE ON APPRAISAL

5.Q Harmony Federal Savings & Loan has a branch in the Hotshot Hills section

OBVIOUSLY PREGNANT LOAN APPLICANT

6.0 Manny Meek began working for the Empathy National Bank on March 21 , 1977 .

CERTIFICATION OF INTENTIONS

7.0

In 1972 the Rigomortis Mutual Savings Bank revised its loan procedures .
It was observed that increasing numbers of loan applications were
received from couples in which the wife , as well as the husband was
working , and in order to qualify for the loan , the couples had to rely
on both incomes . The Bank , being progressive , desired to accommodate
this modern trend . However , they were worried about including a wife's
income in full, because women , particularly young wives , can become
pregnant and leave their jobs , thus exposing the bank to greater risk .

37-415 0 - 79 - 49

764

-4

In the past , the Bank had simply " discounted " the wife's income but
if they continued to do so , it would disqualify too many potential
The Bank also at one time obtained a letter from the

customers .

physician for female applicants , stating that they were using birth
control , but this practice was abandoned after it came to the atten

tion of now and of the local Archdiocese .

Accordingly , from August

of 1972 until November 1 , 1975 , the bank utilized a " compromise"

device for dealing with working women loan applicants .

It required working women simply to sign a note stating that they do
intend to continue working after the loan is made . The bank was sued
by a woman loan applicant who was asked to provide such a letter on

October 27 , 1975. The bank claimed that the practice did not violate
the Fair Housing Act . Is the Bank liable ?
VARIATIONS IN DOWNPAYMENTS

8.0 Harry and Carrie Cash signed a purchase contract for a house in an
a

Having called several local mortgage lenders , they concluded that House
Savings and Loan had the best terms . A person there had told them that
House's lowest interest rate was 8.5% , that House did have 95% financing
and the maximum term was 30 years . In an interview with Mr. Strickler ,

the loan officer , Mr. and Mrs. Cash requested a 95% loan at 8.5%
30 year term .

for a

Mr. Strickler explained that the most House Savings and

Loan could approve would be $ 55,000 loan . Mr Cash huffily stated that
there was no need to increase the down payment because he and Mrs. Cash
had already located a wealthy tenant for the house .

Mr. Stickler con

tined to insist that the largest loan amount House could approve would
be $ 55,000 , but that for investment properties the interest rate would
be 9%

.

Mr. Cash contacted the FHLBB stating that House and Mr. Stickler were
discriminating against himself and his wife because the house was
located in an urban neighborhood and because they would be landlords .
Findings:
The neighborhood in question was all -white with a median income of
$ 18,723 .

- The receptionist who took Mr. Cash's call asking for rates stated

Mr. Stickler had not explained the reasons for the $ 55,000 limit
or the change in the offered interest rate .
VARYING THE DEBT-TO - INCOME OR MONTHLY PAYMENT-TO - INCOME RATIO

9.0 On October 30 , 1975 , Bert and Betty Beyer , a Black couple , applied to

765

-5

of their incomes and job histories .

Mr. Fred Friendly , the loan officer taking their application , pointed
out that their debt to income ratio was 33.7% , exceeding the associa
tion's policy to accept no applications where the debt to income ratio
exceeded 33% . The Beyers questioned this policy , stating that their
acquaintance , Mr. White , to their knowledge had obtained a mortgage
loan from Fifth Federal although his debt to income ratio was 36% .
Mr. Friendly explained that exceptions were made under some special
circumstances but Fifth Federal never waived its rule that the mortgage
payment could not exceed 20% of monthly income . Mr. and Mrs. Beyer

surprised at the strictness of this rule , regretfully left Fifth
Federal , successfully obtained a mortgage from Sixth Federal, and
filed a discrimination complaint against Fifth Federal with the FHLBB .

Findings:
-

There were exceptions to the debt ratio rule , ranging from 34%
as high as 39% .

to

- These exceptions were always White families known to the personnel

- The association had adopted a policy limiting the monthly mortgage
-

- Prior to October 27 , 1975 , Fifth Federal would consider only half

766

EXHIBIT

B-2

1

FAIR HOUSING

Section 12

Handouts

Handout No. 3

Supplement to Examination and Verification

Procedures
II .

Procedural Guidelines

767

I.

Supplement to Examination and Verification Procedures

Preface

This handout is a supplement to be used in conjunction with the examination

and verification procedures for determining compliance with the Fair Housing

768

A. Objective
Insure that loan underwriting standards , appraisal policies and marketing
practices are designed to promote nondiscriminatory lending.

B.

Examination Procedures

I.

Written Policies and Internal Controls
Insure that credit policies do not discriminate on a prohibited basis

and that internal controls have been instituted to detect such practices .
This can be determined by reviewing the bank's written loan policy ,
interviewing bank lending personnel using EPB-2 & 3 and analyzing sub
mitted internal / external audit reports relative to this area .
II .

Poster Display
The Equal Housing Lending Poster should be prominently displayed in
accordance with Banking Circular No. 13 , Supplements 1 to 4 .

III .

Regulation C

If the bank meets reporting requirements of Regulation C , review all
information disclosed on the previous Home Mortgage Disclosure Statement
in order to identify possible discriminatory policies /practices.
minimum , this should include a comparison of those census tracts which
comprise the bank's designated lending area with those which appear on

the Home Mortgage Disclosure Statement. Any appearance of demographic

credit concentrations/ shortages should be thoroughly investigated by the
examiner and justified by bank management .
In those instances in which the bank has failed to meet the reporting
requirements imposed by Regulation C , a representative number of R/E /M's

and home improvement loans should be plotted according to property address .
IV .

Discuss with Management

( A)

Written Loan Policy and Internal Controls
Loan policies should clearly define the bank's primary lending area

and delineate credit standards for determining creditworthiness .

If

such a policy has not been formulated or does not specifically define
credit standards employed , indicate this could induce the element of
subjectivity on behalf of bank lending personnel . Should this element

be introduced into the credit decision process , there can be no as
surance that all credit extensions are based on a non-prohibited

basis . Additionally , from an audit standpoint the lack of written
articulated credit standards makes it virtually impossible to deter

mine the propriety of previous credit decisions . Emphasize that
internal control procedures are the primary means for monitoring
lending practices of bank personnel. If procedures have not been
instituted to insure lending decisions conform to established policy ,
make it apparent that their absence makes it exceedingly difficult
for management to assess , on an ongoing basis , the conformance of
daily lending to established policies .

Discuss adequacy of present training program to familiarize lending
personnel in the R / E / M and home improvement loan departments with
fair lending requirements .

769

-2

( B)

Deviations /Discrepancies
Credit extensions /denials which conflict with established credit

standards should be fully discussed to ascertain their level of
propriety . Management should be requested to explain and justify
all loan exceptions noted during the examination .
( c)
V.

Violations of Law and Proposed Corrective Action
Report of Examination Comments

All violations of law , internal control exceptions and questionable
banking practices which appear to conflict with provisions of the
Fair Housing Act should be fully described in the report of examination .
Questionable bank practices that are fully documented in the work papers

should be discussed in the open section of the report of examination .
Practices / policies which infer discrimination but cannot be substan
tiated are to be described in the closed section of the report under

Discriminatory Practices/Policies . If the bank appears to be in substan
tial compliance, indicate under the Discriminatory Practice /Policies
section that subject bank does not prescreen or redline.

770

c.

Verification Procedures

1.

Lending Criteria
( A)

R /E /M and Home Improvement Emphasis

Determine by review of lending policies, advertising, discussions
with management, etc. the degree of emphasis placed upon these
lending areas . Information obtained should provide a realistic

indication of the bank's commitment to lend in these departments
and should accordingly be reflected by the degree of competitiveness
in credit terms offered and efforts exerted to solicit loan business .

Particular attention should be focused upon promotional schemes
designed to attract new loan customers .

Insure method ( s ) used is

contained in general circulation newspapers /magazines throughout
the bank's trade area or distributed to all residents within the
primary trade area . Exceptions should be fully justified by bank
management . Insure that all advertisements for home improvement /

REM loans contain a facsimile of the equal housing lending logotype.
( B)

Trade Area

Primary trade area should be delineated in the bank's written lending
policy or identified through interviews with bank personnel.

( c)

Preferred Versus Non-preferred Lending Areas

Ascertain from a review of the bank's loan policy and /or interviews
with bank mangement the criteria established for determining
a.

When the applicant is qualified ;

b.

When the property is eligible ;

c.

The specific terms and conditions of each loan .

To aid in making these determinations , review the following :

‫ג‬

1.

The institution's guidelines or standards with respect to

771

-2

Any guidelines or standards with respect to judging stability

or reliability of income and income sources .

Also consider

if they vary according to the applicant's profession or social

status . Determine if there are any types or sources of income
which are discounted or not counted ( e.g. part-time income ,
bonuses , commissions , income from jobs held less than two years ) .
Policy of giving preference to loans based on only one , as

opposed to two incomes .

Is the total qualified income calculated

on the basis of one spouse's income or both spouse's incomes ?
If there are situations when only one income is used , determine
which one and why .
Obtain a description of the institutions policy with respect
to :

( a)

The income of working women ( are there any circumstances
under which it might be discounted or disregarded? )

( b)

Loans to single women with or without children .

( c)

Inclusion of alimony or child support as income .

( d)

The income of women in child bearing years .

( e)

The ability of a woman to obtain a loan in her own name ,
whether married , single , separated or divorced .
co-signor required? )

( Is a

5.

Obtain a description of those factors which go into the

6.

Determine what standards are used to set the loan - to - value

7.

If a loan is determined to contain more than normal risk , will

it be rejected or are there circumstances in which it will be
made , but on terms which reflect higher risk? If so , who makes
this determination and how is risk objectively measured .

Deter

mine what factors go into this decision . How is the LTV set ?
How is the loan term arrived at ( on the basis of what standards ) ?
How is the interest rate arrived at ?

8.

How are points arrived at ?

In a loan which is accepted which is not considered to contain

772

-3

( E)

Credit Terms

Determine what factors influence credit terms offered to bank customers .
This should consider a general description of the institution's policy
with respect to the following :
Maximum and minimum loan amounts and how these maximum and minimum
amounts are arrived at ( e.g. by federal law or regulation or by
lender policy or both ) . Also determine what circumstances would
justify a deviation from these limitations .

Maximum and minimum loan terms ( duration ) , how they are arrived
at and what circumstances would justify a deviation from these
limits .

Maximum and minimum interest rates .

( Note :

interest rates vary

according to market conditions . Determine how the institution
arrives at its " going rate " , what benchmarks it uses and how it
uses them . )
• Determine which persons or group officially sets the maximum

( F)

Loan Application Procedures

Determine how an application is made , how it is processed and what

records are maintained.

This can be determined , in part , by con

sidering the following :

( 1)

Where can applications be picked up and where can they be

( 2)

Is there an application fee or appraisal fee ? How much is it ?

( 3)

Is anyone authorized to go over the applicant's financial data

( 4)

What information is available to applicants by phone ?

( 5)

What information is an inquirer asked to give , if he /she calls

773
-4

( 6)

After an application is submitted , where does it go ( i.e. are

they all forwarded to a central loan department or can the
branch

( 7)

When is the appraisal ordered ?

Under what circumstances

( 8)

Determine what happens after all the verifications are made
and the appraisal is returned ? Who reviews the file at this
point . If any information is unfavorable , or does not check ,
can the application be rejected at this stage . Is any record

kept of this , if it happens .

Who has authority to make such

a rejection ? Are rejected applicants notified in accordance
with Section 202.9 of Regulation B , 12 CFR 202 .

( 9)

( G)

If the information on the application is verified , and the

( 10 )

If an application is rejected , is it retained ?

How long?

( 11 )

Determine if the applicant fills out their own application
or if the institution employee takes the information .

Delinquency and Foreclosure
This aspect of the examination is intended to ascertain the rate
of delinquency ( slow pay ) and default in loans held by the institu
tion , the predominant reasons for delinquencies , if known by the
institution and where applicable , the procedures used in collection .
Also determine if different collection procedures are used due to
race , sex , etc. In addition , review the following:
( 1)

Determine the borrower's name and property address of every
home loan account which has been foreclosed upon or resulted
in legal proceedings in the past year .

( 2)

Determine the institution's policy with respect to collection ,

( a)

What actions by the borrower are considered " default "

( b)

What steps are initially taken in these circumstances;

( c)

What follow up steps are taken , and when ;

( d)

Under what circumstances would foreclosure be instituted ;

774

-5

II .

( e)

Under what circumstances would the institution

( f)

What factors would cause the above schedule to be

( 3)

Examine a representative sample of collection files and

( 4)

Determine whether the race or sex or other prohibited

Appraisal Policies
( A)

Identify who conducts appraisals on behalf of the bank and the

( B)

Appraisal Standards

• Assigning a lower value to a neighborhood because it is

•

• A prevailing attitude that deterioration of a neighborhood is

Equating age of property with value of property .

775

-6

Techniques Available to Make These Determinations
• Comparison of credit terms granted on properties located in

Real estate value determined by bank's appraisals versus seller's
asking price as evidenced by multiple real estate listings .
Although it is recognized that differences will exist when

such comparisons are made, their magnitude should be proportional ,
given the same appraiser , to those in non- integrated areas ;
• Results obtained by reviewing information contained on Home

• Information obtained from interviews with banking personnel

• Tract data for Standard Metropolitan Statistical Areas provided
Interviewing Techniques
• Determine from the interviewee whether the racial composition

( 1)

Determining fair market value ;

( 2)

Future value of a parcel of property ;

( 3)

Soundness of a loan .

If so , in any respect , obtain all details of the way in which these
factors are affected by race or nationality .
• Determine whether the interviewee has ever had any discussions ,

• Determine whether the interviewee is aware of any map or list

776

-7

( 1)

Racial , nationality or ethnic composition ;

( 2)

Income level of residents ;

( 3)

Rising or declining value levels ;

( 4)

Age range of properties ;

( 5)

Value range of properties ;

( 6)

Loan or no loan areas ;

( 7)

High or low risk ;

( 8)

Crime rate ;

( 9)

Other similar category .

If so, obtain all details , including how the map or list is used , who
maintains it and how areas are determined to belong to one or the
other category . Determine where the map or list is kept and a
description of each area demarcated therein .

• Determine whether , in the interviewee's professional judgment, economic

• Determine whether , in the interviewee's professional judgment , the

III .

Interviews

Lending Personnel in both the instalment loan and real estate mortgage
departments should be interviewed to determine the criteria considered
in the credit decision process . The interview should be conducted in
accordance with the questions outlined in EPB 2 & 3 and be structured

to determine the individuals familiarity with the bank's established
credit policy and prohibitions imposed by the Fair Housing Act . During

the interview , be alert to comments which tend to indicate the individual
may engage in unwritten discriminatory lending practices /policies .
Should this occur , review a representative sample of loans made by this
individual and ascertain their propriety in light of the requirements
imposed by the Fair Housing Act . Special attention should be directed
to property location , applicant creditworthiness and credit terms
arranged by this individual . In addition , verify that :

777

-8

• the initial contact person does not " prescreen " applicants ; to aid

( 1)

Have you received any training in how to process applicants
for housing loans ?

( 2)

Must applicants complete an application before meeting with
the loan officer?

( 3)

How is it determined which applicants see a loan officer?

( 4)

Are you instructed to ascertain any information before referring
the applicant to a loan officer?

( 5)

How is it determined which officer sees the applicant ?

( 6)

Are applicants referred to the bank by others , e.g. ,
brokers , builders ?

( 7)

Do walk- in applicants receive the same consideration as

• Lending officers apply the bank's objective criteria ( i.e. lending

IV .

Loan Review

Review accepted / rejected real estate mortgage loan files made in the

three calendar months preceding the date of the examination . Outline
the following information on the loan review sheets for both accepted /
rejected R/E /M's .
( a)

Name , address , race and sex of applicants ( and address of property
if different from address of applicants ) ;

( b)

Date of application ;

( c)

Amount applied for , term and interest applied for , whether FHA ,

( e)

Purchase price ;

( f)

Amount of loan made ;

( g)

Amount of downpayment , term of loan in years , interest rate ,

778

-9

( h ) Age of home ;

( i ) Type of employment and salary .
Review loan review sheets for the following inconsistencies :
( a)

Income of one group not given the same consideration as another

( b)

More onerous terms required of one group than another , i.e. ,

down payment requirements , interest rates , amount of prepaid
finance charges imposed at loan closing , etc.
( c)

Variances in applying criteria , including minimum incomes ,

amount of loans , ratios , etc.

779

II .

Procedural Guidelines

Whenever a Consumer Affairs Examination is conducted , results obtained
from the following examination /verification procedures will determine

if any subsequent courses of action are to be taken .
( 1)

Review the bank's loan policy and determine if it conflicts with

( 2)

Determine what constitutes the bank's primary lending area .

If

In those instances in which the bank has failed to meet the

reporting requirements imposed by the regulation , a representative
number of R/E /M's and home improvement loans should be plotted
according to property address .

( 3)

Determine the articulated credit standards used to evaluate an

( 4)

Review the adequacy of present internal control procedures as they
relate to insuring ongoing compliance with provisions of the Fair
Housing Act . Qualifications /practices of appraisers should be

( 5)

Determine if the bank appears to prescreen credit applicants and
also that the procedures to insure that all credit applicants that
are denied credit are so notified in accordance with provisions of
Section 202.9 of Regulation B , 12 CFR 202 .

reviewed to insure they do not discriminate on a prohibited basis .

If the information obtained from these procedures indicates that the
bank is in compliance , no additional requirements are necessary .
certain practices /policies are not adequately explained or justified
by bank management , contact the Regional Consumer Specialist for
additional procedures to be taken .

37-415 0 - 79

50

780

EXHIBIT C

FAIR HOUSING

SECTION 12

LECTURE No. 1

TOPIC OUTLINE

I.

II .

WHAT IS THE FAIR HOUSING ACT

WHAT CONSTITUTES DISCRIMINATION

III . REDLINING
IV .

V.
VI .

POINTS OF VIEW

EXAMINERS ROLE

EXAMINATION/VERIFICATION PROCEDURES
GUEST SPEAKER - BRIEF HISTORY OF FAIR HOUSING ACT AND ROLE
OF JUSTICE DEPARTMENT IN AREA .

VII .

VIII

IX ,

SPECIALIZED PROCEDURES

EXAMINING CIRCULAR. 158

REVIEW SAMPLE FAIR HOUSING REPORTS OF EXAMINATION

CASE STUDIES ( REVIEW TUESDAY )

781

FAIR HOUSING

SECTION 12

LECTURE No. 1

FAIR HOUSING ACI

I.

WHAT IS THE FAIR HOUSING ACI

OF LOANS FOR THE PURPOSE OF PURCHASING , CONSTRUCTING ,
IMPROVING, REPAIRING OR MAINTAINING A DWELLING ,

( C) DEFINITION OF DWELLING

DWELLING MEANS ANY BUILDING ,

STRUCTURE , OR PORTION THEREOF WHICH IS OCCUPIED AS , OR
DESIGNED OR INTENDED FOR OCCUPANCY AS , A RESIDENCE BY
ONE OR MORE FAMILIES , AND ANY VACANT LAND WHICH IS OFFERED
FOR SALE OR LEASE FOR THE CONSTRUCTION OR LOCATION THEREON
OF ANY SUCH BUILDING , STRUCTURE , OR PORTION THEREOF ,

( D ) HISTORY AND LEGAL BACKGROUND TO BE COVERED BY QUEST SPEAKER

II .

WHAT CONSTITUTES DISCRIMINATION

IT IS GENERALLY INTERPRETED AS TREATING ONE PERSON OR GROUP LESS
FAVORABLY THAN ANOTHER , OR TREATING ONE PERSON OR GROUP MORE
FAVORABLY THAN ANOTHER ,

( A ) EXAMPLES OF POSSIBLE DISCRIMINATIONPRACTICES
ANY OF THE FOLLOWING IF IMPOSED BECAUSE OF RACE , RELIGION,
COLOR , SEX OR NATIONAL ORIGIN :

782

-2
( 1)

Low APPRAISALS

( 2 ) EXCESSIVE CREDIT TERMS

( 3 ) DIFFERING STANDARDS , PROCEDURES , PENALTIES , FORE

RELIGION , SEX OR NATIONAL ORIGIN .

( B)

EXAMPLES OF CREDIT DECISIONS THAT DO NOT DISCRIMINATE :

( A ) AN APPLICANT'S INCOME
( B ) AN APPLICANT'S CREDIT HISTORY

( c ) LENGTH OF EMPLOYMENT
( D)

LENGTH OF LOCAL RESIDENCE

( E ) OVERALL CONDITION OF COLLATERAL
( F)

AVAILABILITY OF NEIGHBORHOOD AMENITIES OR CITY SERVICES

( G ) NEED FOR BANK TO HOLD A BALANCED REAL ESTATE LOAN PORTFOLIO
( H ) OTHER FACTOR WHICH MAY AFFECT CREDIT EXTENSION

III ,

REDLINING

( 3)

JUDICIOUS CREDIT POLICY BY MORTGAGE LENDERS UNWILLING TO

COMMIT DEPOSITOR'S FUNDS TO REAL ESTATE IN DECLINING
NEIGHBORHOODS .

783

-3

( B)

LEGITIMATE REASONS FOR REDLINING

RESIDENTIAL ZONES .

( 2 ) THE AREA IS COMPOSED OF SETTLED NEIGHBORHOODS WHERE
THERE IS LITTLE BUYING AND SELLING ACTIVITY ,
( 3 ) THE BANK HAS RECEIVED NO APPLICATIONS FROM INDIVIDUALS
WISHING TO SETTLE IN THE AREA .

( 4 ) THE AREA MAY BE COMPOSED OF GRIMLY DETERIORATING
NEIGHBORHOODS .

( 5 ) THERE IS A HIGH RATE OF VANDALISM AND OTHER CRIMES IN
THE AREA , THUS MAKING IT DIFFICULT TO OBTAIN INSURANCE ,

( 6)

LACK OF NEIGHBORHOOD AMENITIES OR CITY SERVICES IN THE
AREA , THUS ADVERSELY AFFECTING PROPERTY VALUE .

( c)

IV .

ILLEGAL REASONS FOR REDLINING

EXAMINER'S ROLE
( A)

( B)

PROMOTE SOUNDNESS IN THE NATIONAL BANKING SYSTEM

INSURE THAT ALL APPLICANTS ARE NOT DENIED CREDIT BECAUSE
OF FACTORS WHICH HAVE NOTHING TO DO WITH REPAYMENT ABILITY .

( C)

TOOLS AVAILABLE TO MAKE DETERMINATIONS ,
( 1 ) HMDS
( 2)

REGULATION B REQUIREMENTS

( 3 ) EXAMINATION / VERIFICATION PROCEDURES
( 4 ) REGIONAL OFFICE ASSISTANCE

784

--4

V.

EXAMINATION /VERIFICATION PROCEDURES

VI. GUEST SPEAKER - BRIEF HISTORY OF FAIR HOUSING ACT AND ROLE OF

VII .

SPECIALIZED PROCEDURES

EXAMINING CIRCULAR_158

VIII. REVIEW SAMPLE FAIR HOUSING. REPORTS OF EXAMINATION
XI .

CASE STUDIES ( REVIEW TUESDAY )

785

FAIR HOUSING ACT

SECTION 12

* 2
LECTURE ( 3 HOURS )
THE PURPOSE OF THIS PRESENTATION IS THREE FOLD ,

FIRST TO PROVIDE

A BRIEF BACKGROUND OF THE DEVELOPMENTS WHICH LED TO ENACTMENT OF
THE FAIR HOUSING ACT ,

SECONDLY , TO OUTLINE CREDITOR PRACTICES/ POLICIES

WHICH CONFLICT WITH PREMIUM ESTABLISHED BY THE ACT . FINALLY

TO

DISCUSS VARIOUS EXAMINATION/VERIFICATION PROCEDURES AND TECHNIQUES
AVAILABLE TO ASCERTAIN THE PROPERTY OF PREVIOUS LENDING PRACTICES ,

URBAN DISCRIMINATION WAS FIRST VISIBLE AROUND THE EARLY 1900's ,
CERTAIN CITIES ENACTED VARIOUS LAWS DESIGNED TO PREVENT BLACK PERSONS
FROM OCCUPYING HOUSES IN BLOCKS IN WHICH THE GREATER NUMBER OF HOMES

WERE OCCUPIED BY WHITES ,

OTHER LAWS SPECIFIED THAT IN ORDER FOR A

NEGRO TO ESTABLISH RESIDENCE IN AN ALL WHITE COMMUNITY HE OR SHE WOULD
HAVE TO HAVE THE WRITTEN CONSENT OF AREA RESIDENTS ,

ALTHOUGH ORDINANCES

OF THIS TYPE WERE DECLARED UNCONSTITUTIONAL IN THE IMMEDIATE DECADES

THAT FOLLOWED , VARIOUS UNWRITTEN " GENTLEMEN'S " AGREEMENTS WERE FORMED
WHEREBY REAL ESTATE BROKERS PLEDGED NOT TO SELL TO BLACKS IN WHITE
NEIGHBORHOODS ,

IT WAS NOT UNCOMMON , AS A DIRECT RESULT OF THESE

PRACTICES , THAT SEVERAL LARGE URBAN CITIES HAD AS MUCH AS 30% OF THIER
ENCOMPASSED LAND RESTRICTED TO THE BLACK POPULACE ,
DURING THE PRE AND PORT DEPRESSION PERIODS , BLACK FAMILIES BEGAN

THEIR NORTHERN MIGRATION TO THE LARGE URBAN INDUSTRIAL CITIES .

AT

THE SAME TIME THE REAL ESTATE PROFESSION BEGAN , FOR THE FIRST TIME ,
TO FORMALLY CODIFY PRACTICES AND PROCEDURES THAT WERE SPECIFICALLY

DESIGNED TO DISCRIMINATE .

FOR INSTANCE , IN 1955 THE ST . LOUIS

COUNTY REAL ESTATE BOARD SENT A LETTER TO ALL ITS MEMBERS WHICH READ

786

-2

IN PART AS FOLLOWS :

OUR BOARD OF DIRECTOR WISHES TO CALL TO YOUR ATTENTION
TO OUR RULE THAT NO MEMBER OF OUR BOARD MAY , DIRECTLY
OR INDIRECTLY , SELL TO NEGROES , OR BE A PARTY TO A
SALE TO NEGROES , OR FINANCE PROPERTY FOR SALE TO OR

PURCHASE BY NEGROES, IN ANY BLOCK, UNLESS THERE ARE
THREE SEPARATE AND DISTINCT BUILDINGS IN ANY SUCH

BLOCK ALREADY OCCUPIED BY NEGROES, BY A " BLOCK" IS
MEANT , BOTH SIDES OF THE STREET OR WHICH THE PROPERTY
FRONTS , BETWEEN INTERSECTING STREETS ,

SIMILAR PRACTICES/ POLICIES DESIGNED TO DISCRIMINATE AGAINST SPECIFIC
NATIONALITIES AND RACES CONTINUED IN EXISTENCE INTO THE 1960's ,
UNLIKE PREVIOUS PERIODS , THE SIXTIES WERE MARKED BY VISIBLE
SIGNS OF THE FRUSTRATION , ANGER , AND IMPATIENCE ASSOCIATED WITH THE

PREVIOUS INDIFFERENCE TO RESIDENTIAL LENDING ,

THESE UNHAPPY REACTIONS

WERE EVIDENCED BY THE URBAN UNREST DEPICTED BY THE RIOTS DURING THE
PERIOD

THE NATIONAL ADVISORY COMMISSION ON CIVIL DISORDER WAS

ASSIGNED TO INVESTIGATE THE FACTORS CONTRIBUTING TO THIS BEHAVIOR .

AMONG THE COMMISSIONS'S RECOMMENDATIONS WAS THE " ENACTMENT OF A
NATIONAL , COMPREHENSIVE , AND ENFORCEABLE OPEN -OCCUPANCY LAW . " .
THE FAIR HOUSING ACT , TITLE VIII OF THE CIVIL RIGHTS ACT OF

1963 ( 42 USC 3605 ) WAS PASSED ! AT LEAST IN PART , AS A DIRECT RESULT
OF THE VOTING AND CIVIL DISTURBANCES THAT HAD ROCKED THE CENTRAL

CORES OF MANY OF THE NATION'S MAJOR CITIES . THE ACT WAS INTENDED TO
PROHIBIT. DISCRIMINATION ON THE BASIS OF RACE , COLOR , RELIGION , SEX ,
AND NATIONAL ORIGIN IN THE MAKING OF LOANS FOR THE PURPOSE OF PURCHASING ,

787

-3
CONSTRUCTING , IMPROVING , REPAIRING , OR MAINTAINING A DWELLING ,

THE

ACT FURTHER DEFINED A DWELLINS TO MEAN ANY BUILDING , STRUCTURE , OR

PORTION THEREOF WHICH IS OCCUPIED AS) ' OR DESIGNED OR INTENDED FOR
OCCUPANCY AS , RESIDENCE BY ONE OR MORE FAMILIES , ANY VACANT LAND
WHICH IS OFFERED FOR SALE OR LEASE FOR THE CONSTRUCTION OR LOCATION

THEREON OF ANY SUCH BUILDING STRUCTURE ! OR PORTION THEREOF .
YOU HAVE LEARNED FROM REGULATION B LECTURES WHAT IS CONSIDERED
TO CONSTITUTE DISCRIMINATION ,

IT IS GENERALLY INTERPRETED AS

TREATING ONE PERSON OR GROUP LESS FAVORABLY THAN ANOTHER , OR TREATING

ONE PERSON OR GROUP MORE FAVORABLY THAN ANOTHER , DISCRIMINATION CAN
BE EITHER " FOR" OR " AGAINST " AND CAN BE EVIDENT BY A VARIETY OF
PRACTICES .

IN THE LENDING AREA } ,} AN OVERT FORM OF DISCRIMINATION

MIGHT BE REFLECTED BY A POLICY , EITHER WRITTEN OR SIMPLY UNDERSTOOD

BY EMPLOYEES , OF REFUSING TO LEND IN AN AREA BECAUSE OF RACIAL

INTEGRATION WHICH MAY BE OCCURRING THERE . ANOTHER EXAMPLE OF OVERT
PURPOSEFUL DISCRIMINATION WOULD BE A RULE OF DISCOUNTING A WIFE'S
INCOME , OR REQUESTING A CO- SIGNER FOR A SINGLE WOMAN .

THE FACT SUCH

POLICIES ARE NOT WRITTEN DOWN DOES NOT MAKE IT LESS OF AN OVERTLY

DISCRIMINATORY POLICY, ON THE OTHER HAND, THERE ARE CERTAIN CREDIT
POLICIES / PRACTICES WHICH ARE SO UNDULY VAGUE AND SUBJECTIVE THAT IT
IS DIFFICULT TO DETECT THEIR DISCRIMINATORY ASPECTS ,

WHEN THESE

PRINCIPALS ARE APPLIED IT SEEMS APPARENT THAT VIOLATIONS OF THE ACT

MAY IN FACT OCCUR BECAUSE JUDGEMENTS ARE BASED UPON A LACK OF OBJECTIVE)
UNIFORM , WRITTEN CRITERIA ,

WITHOUT GUIDELINES THAT REDUCE TO WRITTEN

FORM THE STANDARDS WHICH ARE TO BE USED , IT IS DIFFICULT TO SEE HOW
A LENDER WOULD BE ABLE TO JUSTIFY CERTAIN DECISIONS IN THE FACE OF A
CHALLENGE ON THE BASIS OF ALLEGED DISCRIMINATION ,

AS HELD IN UNITED

STATES vs. YOURITAN CONSTRUCTION CO ) " JUST AS VAGUE AND UNDEFINED

788

-4

EMPLOYMENT STANDARDS WHICH RESULT IN WHITES , BUT NOT BLACKS : BEING
HIRED ARE UNLAWFULLY DISCRIMINATORY , SO TOO ARE ORBITRARY AND AND
UNCONTROLLED APARTMENT RENTAL PROCEDURES WHICH PRODUCE OTHERWISE
UNEXPLAINED RACIALLY DISCRIMINATORY RESULTS ,

MY EXPERIENCE IN EXAMINING FOR COMPLIANCE WITH THE FAIR HOUSING
ACT HAS SHOWN THIS FORM OF LENDING TO PREVAIL OVER OVERT DISCRIMINATION ,
ALTHOUGH IT IS RECOGNIZED THAT THIS PRACTICE MAY FOSTER DISCRIMINATORY
LENDING , IT IS ALSO RECOGNIZED THAT PROOF TO SUBSTANTIATE THIS TYPE

OF LENDING IS OFTEN MOST DIFFICULT TO PROVE . DESPITE THE INHERENT
DIFFICULTIES ASSOCIATED WITH ASCERTAINING COMPLIANCE WITH THE ACT,
THERE ARE CLUES CONTAINED IN THE BANK'S RECORD DOCUMENTATION . WHEN
REVIEWING THESE RECORDS, SPECIAL ATTENTION SHOULD BE FOCUSED UPON
THE FOLLOWING POLICIES/PRACTICES :
1.

HIGH DOWNPAYMENT

2.

HIGHER INTEREST RATES

3.

SHORTER TERM TO MATURITY

4.,

HIGHER CLOSING COSTS

5,

CHARGING DIFFERENTIAL POINTS

UNDERWRULING CRITERIA
DIFFERENTIAL STRUCTURAL STANDARDS OR STANDARDS THAT ARE DISCRIMINA
TORY IN EFFECT ( REFUSAL TO LEND ON HOMES WITH ASPHALT SIDING , ON
HOMES ABOVE A MAXIMUM AGE ETC ) .

APPRAISAL
1 .

UNDOCUMENTED ALLEGATIONS OF ECONOMIC ABSOLESCENCE REGARDLESS OF
PROPERTY CONDITION ,

789

--5

2.

STALLING ON APPRAISALS TO DISCOURAGE POTENTIAL BUYERS .

ANOTHER CLUE CONTAINED IN THE BANK'S RECORD DOCUMENTATION WHICH
MAY INDICATE NONCOMPLIANCE WITH PROVISIONS OF THE FAIR HOUSING ACT

IS THE LENDING PRACTICE KNOWN AS REDLINING ,

THIS TERM WAS " COINED "

FROM PREVIOUS CREDITOR PRACTICES WHEREBY LENDERS WOULD LITERALLY

DRAW A RED LINE ON A MAP TO INDICATE RESIDENTIAL AREAS WHERE CERTAIN
ETHNIC GROUPS RESIDED FOR THE EXPRESSED PURPOSE OF DETERMINING WHERE

TO REFRAIN FROM MAKING LOANS .

PRESENT DAY DEFINITIONS OF REDLINING

VARY DEPENDING UPON ONE'S POINT OF VIEW OF THE ROLE OF FINANCIAL
INSTITITIONS IN SERVING THE PUBLIC NEED .

SOME LESS TEMPERATE

DEFINITIONS IMPLY OUTRIGHT GEOGRAPHIC , RACIAL AND ECONOMIC DISCRIMINATION ;
OTHERS CONNOTE ONLY JUDICIOUS CREDIT POLICY BY MORTGAGE LENDERS UNWILLING

TO COMMIT DEPOSITORS ' FUNDS TO REAL ESTATE LOANS IN DECLINGING NEIGHBOR
HOODS .

REGARDLESS OF YOUR POINT OF VIEW , HOWEVER , DISINVESTMENT BY MORT

GAGES LENDERS IN DECAYING URBAN NEIGHBORHOODS IS NOT A MYTH . BUT,
CLOSE EXAMINATION OF THE DECLINE PROCESS REVEALS THAT DISINYESTMENT

IS ONLY ONE OF A SERIES OF FACTORS.WHICH INFLUENCE. DECAY. AND TYPICALLY ,
IT OCCURS LATE IN THE PROCESS ,

AT THIS POINT IT SI IMPORTANT TO RECOGNIZE THAT " REDLINING " PER
SAY IS NOT ILLEGAL ,

THERE COULD BE SEVERAL LOGICAL AND LEGITIMATE

REASONS AS TO WHY A BANK HAS NOT EXTENDED CREDIT TO CERTAIN DEMOGRAPHIC
THESE REASONS INCLUDE THE FOLLOWING
1.

THE AREA MAY BE COMPOSED OF COMMERCIAL RATHER THAN RESIDENTIAL
ZONES .

790

-5

2.

THE AREA IS COMPOSED OF SETTLED NEIGHBORHOODS WHERE THERE

3.

THE BANK HAS RECEIVED NO APPLICATION FROM INDIVIDUALS

IS LITTLE BUYING AND SELLING ACTIVITY .

WISHING TO SETTLE IN THE AREA ,

ON THE OTHER HAND , IF CREDIT IS DENIED TO SPECIFIC AREAS BECAUSE

OF CERTAIN PROHIBITED BASIS AS DEFINED THE FAIR HOUSING ACT THEN IT

IS CONSIDERED TO CONFLICT WITH THE PROVISION ESTABLISHED BY THE ACT
AND IS ILLEGAL .

THIS IS BEST ILLUSTRATED BY THE LAND MARK CASE OF

LAUEMAŇ_VS. _OAKLEY BUILDING AND_LOAN COMPANY. IN THIS PARTICULAR
CASE ROBERT LAUFMAN , A CINCINNATI LAWYER , AND HIS WIFE , A PSYCHIATRIC
SOCIAL WORKER , WERE DENIED A LOAN TO PURCHASE PROPERTY IN A RACIALLY

TRANSITIONAL NEIGHBORHOOD ,

MR , LAUFMAN ALLEGED THAT " REDLINING '

REGARDLESS OF BORROW CREDITWORTHINESS OR CONDITION OF THE PROPERTY WAS

IN VIOLATION OF THE FAIR HOUSING ACT .

THE COURT RULED THAT REDLINING

A NEIGHBORHOOD BECAUSE OF RACIAL COMPOSITION VIOLATES TITLE VIII OF

THE CIVIL RIGHTS ACT .

IT IS IMPORTANT HE RECOGNIZE THAT THIS CASE DOES NOT FOSTER
CREDIT ALLOCATION NOR DOES IT CONCLUDE THAT ALL BANKS MUST LEND
MONEY TO ALL INDIVIDUALS .

RATHER , IT SIMPLY STATES THAT CREDIT DECI

SIONS ARE TO BE MADE ON A NON PROHIBITED BASIS .

IN ADDITION IT MSUT BE

UNDERSTOOD THAT A CREDITOR VIOLATES NO PUBLIC TRUST WHEN DECLINING A

LOAN APPLICATION FROM A DECAYING URBAN NEIGHBORHOOD FOR REASONS OF
INADEQUATE COLLATERAL OR AN ABSENCE OF APPLICANT CREDITWORTHINESS .

IT

CANNOT BE HELD RESPONSIBLE FOR THE MYRIAD OF ECONOMIC , SOCIAL OR
OTHER FACTORS WHICH CREATED THE CIRCUMSTANCES ABOUT WHICH IT MUST RENDER

A JUDGEMENT . NOR , IN FACT CAN IT CONTRIBUTE TO THEIR SOLUTION
THROUGH IMPRUDENT APPROVAL OF THE LOAN REQUEST .

|

791

--- 7
SO FAR IN THIS PRESENTATION , WE HAVE DISCUSSED SOME OF THE

DEVELOPMENTS THAT CONTRIBUTED TO THE ENACTMENT OF THE FAIR HOUSING
ACT , THE PURPOSE BEHIND THE ACT AND WHAT PRACTICES ARE CONSIDERED
TO BE ILLEGAL UNDER THE ACT .

I NOW WANT TO DIRECT THE REMAINDER OF

THIS PRESENTATION TO YOUR ROLE IN THIS AREA AND THE EXAMINING TECHNIQUES

AVAILABLE TO DETERMINE COMPLIANCE WITH PROVISION IMPOSED BY THE ACT .
AS EXAMINERS OUR JOB IS TWO - FOLD :

1. PROMOTE SOUNDNESS IN THE NATIONAL BANKING SYSTEM
2.

INSURE THAT APPLICANTS ARE NOT DENIED CREDIT BECAUSE OF
FACTORS WHICH HAVE NOTHING TO DO WITH REPAYMENT ABILITY ,

BANKING PRACTICES WHICH CONFLICT WITH PROVISIONS OF THE FAIR
HOUSING ACT ALSO CONFLICT WITH THE SAFETY AND SOUNDNESS PRINCIPALS
OF BANKING

" REDLINING " AND ITS OPPOSITE " GREENLINING " WOULD HURT

THE SOUNDNESS OF THE NATIONAL BANKING SYSTEM .

SPECIAL NOTE: THE PURPOSE OF THE EXAMINATION/VERIFICATION PROCEDURES
IS TO MONITOR PAST LENDING PRACTICES BY REVIEWING THE BANK'S RECORDS ,

AS INDICATED IN THE TEXT, DISCRIMINATION IS A LEGAL QUESTION . YOUR
NATE AND FORWARD THE FACTS TO THE REGIONAL OFFICE ,

REVIEW THE TEXT ALONG WITH THE EXAMINATION /VERIFICATION PROCEDURES
AND SUPPLEMENTAL HANDOUT FOR TECHNIQUES TO ACCURATELY DETERMINE THE

PROPRIETY OF PREVIOUS LENDING POLICIES AND PRACTICES .

EMPHASIZE THE

EXAMINER SHOUDL PLAN STRATEGY BASED UPON RESULTS OBTAINED THROUGH
EXAMINATION AND VERIFICATION PROCEDURES .

792

LECTURE No. 1

STUDENTS NEED :
REG B
HANDOUTS No. 1 &

ECOA

REG B

APPLICATION PROCESS

LAST HOUR WE PRESENTED A SHORT HISTORY AND INTRODUCTION
TO THE ECOA .

Now WE WILL ACTUALLY REVIEW THE TECHNICAL
WILL

I

REQUIREMENTS AND PRACTICAL APPLICATIONS OF THE ACT .
EMPHASIZE THE MOST COMMON PROBLEMS YOU WILL ENCOUNTER

IN THE

LATER WE WILL

EXAMINATION FOR COMPLIANCE WITH REGULATION B.

EXAMINE CASE STUDIES WHICH WILL CONTAIN THESE COMMON VIOLA

RESULTS THUS FAR HAVE SHOWN WIDESPREAD NONCOMPLIANCE

TIONS ,

WITH THIS REGULATION ,

HOWEVER , MOST NONCOMPLIANCE HAS BEEN

A RESULT OF UNFAMILIARITY WITH THE REGULATION RATHER THAN
AN

INTENTIONAL

DESIRE

GROUP

OF

APPLICANTS ,

TIONS

OF

THIS

TO

DISCRIMINATE

AGAINST

A

PARTICULAR

IT IS IMPORTANT TO REMEMBER THAT VIOLA

REGULATION

MAY

BE

AS WELL AS ADVERSE PUBLICITY ,

COSTLY

IN

PUNITIVE

DAMAGES

NO MATTER WHAT CAUSED THE

( 202.1 ( c ) )

VIOLATION

OUR EXAMINATION REVIEWS THE ACTIONS OF THE BANK
BEFORE AN APPLICATION

IS TAKEN .

EVEN

THE INTERVIEWING PROCESS

( TO BE DISCUSSED MORE IN DETAIL LATER )

IS

DESIGNED

TO DETER

MINE THE BANK'S KNOWLEDGE OF THE REGULATION AS WELL AS
WHETHER ANY PERSONNEL ENGAGE IN " PRESCREENING " . " PRESCREENING "
MAY OCCUR IN VARIOUS WAYS AND MAY RESULT IN TURNING AN APPLI
CANT

DOWN

WITHOUT

APPLICATION

ALLOWING

PROCESS ,

THE

INDIVIDUAL

TO

COMPLETE

THE

WHERE THIS ACTION RESULTS IN PREVENTING

3

793

-2

AN APPLICANT FROM PURSUING AN APPLICATION ON A PROHIBITED

BASIS A VIOLATION OCCURS ( 202.4 ) .

FOR EXAMPLE , THE RECEP

TIONIST MAY INQUIRE WHETHER A PROSPECTIVE APPLICANT IS
EMPLOYED , AND ,

IF THE ANSWER IS NO , THE INDIVIDUAL IS NOT

GIVEN AN APPLICATION FORM AND TURNED AWAY .

SECTION 202.6 ( B ) ( 5 )

PROHIBITS A CREDITOR FROM EXCLUDING ANY INCOME ON A PROHIBITED
BASIS , AND THE APPLICANT MAY BE RECEIVING SUFFICIENT RETIRE
MENT BENEFITS OR ALIMONY PAYMENTS TO QUALIFY FOR THE CREDIT

REQUESTED .

THE IMPORTANT THING TO REMEMBER IS THAT ALL

APPLICANTS MUST BE TREATED EQUALLY AND MUST NOT BE PREVENTED
FROM COMPLETING AN APPLICATION ON A PROHIBITED BASIS ,

APPLICATION

( 202.2 ( E ) ) .

THE REGULATION STATES AN " APPLI

CATION MEANS AN ORAL OR WRITTEN REQUEST FOR AN EXTENSION
OF CREDIT THAT IS MADE IN ACCORDANCE WITH PROCEDURES ESTAB

LISHED BY A CREDITOR FOR THE TYPE OF CREDIT REQUESTED , "
THIS DEFINITION IS IMPORTANT BECAUSE IT TELLS US THAT THE
BANK MUST DEFINE ITS OWN APPLICATION PROCESS .

IT IS UP TO

THE CREDITOR TO DECIDE WHEN AN APPLICATION IS COMPLETE

( 1.E., WHEN ALL THE INFORMATION REGULARLY OBTAINED AND
CONSIDERED IS RECEIVED ) .

THIS INFORMATION WILL BE NECESSARY

IN ORDER TO DETERMINE COMPLIANCE WITH TIME LIMITATIONS

REGARDING THE REQUIREMENTS OF NOTIFICATION OF ACTION TAKEN
ON THE APPLICATION ,

A BANK MAY NOT , HOWEVER , CONSIDER AN

794

-3

APPLICATION INCOMPLETE IN ORDER TO CIRCUMVENT NOTIFICATION
REQUIREMENTS .

IN FACT , THE BANK MUST MAKE A REASONABLE

EFFORT TO INFORM THE APPLICANT THAT AN APPLICATION IS INCOM
PLETE AND MUST ALLOW THAT APPLICANT AN OPPORTUNITY TO PROVIDE

BANKS

THE INFORMATION NECESSARY TO COMPLETE THE APPLICATION ,

WHAT

MAY OR MAY NOT ACCEPT ORAL OR TELEPHONE APPLICATIONS ,

EVER THE APPLICATION PROCEDURES EMPLOYED BY THE BANK ARE ,

THEY SHOULD BE WELL - DEFINED AND COMMONLY KNOWN BY ALL LENDING
PERSONNEL TO ENSURE CONSISTENCY ,

INDIVIDUAL ACCOUNTS MUST BE OFFERED , REGARDLESS OF
THE SEX OR MARITAL STATUS OF THE APPLICANT

( 202.7 ( A ) ) ,

MANY BANKERS WILL STATE THAT THEY AUTOMATICALLY ASSUME THEIR
MARRIED

LOAN

CUSTOMERS

DESIRE

IN THAT MANNER .

SIBLE ,

IN ADDITION ,

JOINT

CREDIT

AND

WILL

SET

UP

THE

THIS ASSUMPTION IS NO LONGER PERMIS
IF A BANK OFFERS JOINT ACCOUNTS TO

MARRIED APPLICANTS , THIS TYPE OF ACCOUNT MUST ALSO BE OFFERED
TO UNMARRIED INDIVIDUALS .

MANY BANKS , PARTICULARLY IN

OPEN END CREDIT DEPARTMENTS , WILL NOT SET UP JOINT ACCOUNTS
FOR UNMARRIED APPLICANTS , BUT WILL OPEN TWO SEPARATE ACCOUNTS
INSTEAD .

THIS IS . NOT IN COMPLIANCE BECAUSE THE REFUSAL

TO OPEN A JOINT ACCOUNT IS BASED ON MARITAL STATUS , A PRO
HIBITED

BASIS ,

OFTEN THE APPLICATION FORM WILL INDICATE

SUCH A POLICY WHEN THE FORM ONLY REFERS TO A CO - APPLICANT

USING THE TERM " SPOUSE " .

THIS IS A VIOLATION OF 202.5 ( A )

BECAUSE THE TERMINOLOGY EFFECTIVELY DISCOURAGES UNMARRIED

1

795

-4
INDIVIDUALS FROM APPLYING FOR JOINT CREDIT .

WHEN THIS

VIOLATION OCCURS YOU SHOULD INQUIRE AS TO WHETHER THE BANK
HAS A POLICY WHICH WOULD RESTRICT APPLICATIONS ON A PROHIBITED

BASIS IN VIOLATION OF 202.7 ( A ) .
ONE VERY FREQUENT VIOLATION OCCURS WHEN APPLICATION
FORMS OR LENDING OFFICERS INQUIRE ABOUT THE MARITAL STATUS
OF AN APPLICANT WITHOUT DETERMINING WHETHER THE REQUEST IS

( 202.5 ( D ) ( 1 ) ) .

PERMISSIBLE

ALTHOUGH THERE IS ONLY ONE TYPE

OF CREDIT FOR WHICH MARITAL STATUS MAY NOT BE ASKED . MANY
BANKERS ARE CONFUSED ON THIS POINT ,
BE REQUESTED

IN APPLICATIONS

( OVERHEAD MATRIX )

FOR

MARITAL STATUS MAY NOT

INDIVIDUAL UNSECURED CREDIT .

TO ELIMINATE CONFUSION , I RECOMMEND THAT

CREDITORS ASK 2 QUESTIONS AT THE BEGINNING OF THE APPLICA

TION PROCESS ,

WILL THE CREDIT BE INDIVIDUAL OR JOINT ( ? )

AND IS THE REQUEST FOR SECURED OR UNSECURED CREDIT ?

ONCE

THESE QUESTIONS ARE ANSWERED THE OFFICER CAN EASILY DETER
MINE WHETHER THE REQUEST FOR MARITAL STATUS IS PERMISSIBLE ,

( REFER TO SAMPLE APPLICATION P , 32 AND NOTE REQUIRED

TERMINOLOGY )

THERE IS ONE EXCEPTION TO THE PROHIBITION OF

THE REQUEST FOR MARITAL STATUS .

WHERE THE APPLICANT RESIDES

IN OR LISTS ASSETS TO SUPPORT THE CREDIT REQUEST WHICH ARE
LOCATED IN A COMMUNITY PROPERTY STATE , THE BANK MAY ALWAYS
INQUIRE ABOUT MARITAL STATUS ,

A COMMON ERROR TO BE AWARE

OF IF YOU WILL EXAMINE IN SUCH A STATE ( SEE HANDOUT No. 3 ,
FIRST PAGE )

OCCURS WHEN BANKERS ASK THE MARITAL STATUS OF

ALL APPLICANTS SIMPLY BECAUSE THE BANK

37-415 0 . 79 - 51

IS LOCATED

IN A

796

-5
COMMUNITY PROPERTY STATE ,

REMEMBER THAT THE COMMON PROPERTY

EXCEPTION DEPENDS UPON THE RESIDENCE OF THE APPLICANTE

QUESTIONS CONCERNING ABILITY TO PAY MAY BE ASKED OF
THE APPLICANT ,

IF SUCH QUESTIONS ARE ASKED WITHOUT REGARD

TO ANY PROHIBITED BASIS ,

CREDITORS SHOULD BE ADVISED TO

REFRAIN FROM ASK ING QUESTIONS OF ONE APPLICANT OF A PARTI
CULAR SEX , MARITAL

STATUS ,

RACE ,

ETC.

WHICH THEY WOULD NOT

ALSO ASK OF A SIMILARLY QUALIFIED APPLICANT OF ANOTHER SEX ,

MARITAL STATUS , RACE , ETC.

( GIVE EXAMPLE OF THE PREGNANT

WOMAN )
SOME OF THE MOST FREQUENT VIOLATIONS ENCOUNTERED
CONCERN

REQUESTS

IMPROPER

FOR

INFORMATION ABOUT THE SPOUSE

( 202.5 ( c ) ) . THE REGULATION PROHIBITS THE

OF AN APPLICANT

REQUEST AND CONSIDERATION OF INFORMATION ABOUT THE SPOUSE
OF AN APPLICANT UNLESS CERTAIN CONDITIONS EXIST :

( REFER TO

F.C. # 2 )
•

THE SPOUSE WILL BE PERMITTED TO USE THE ACCOUNT ; OR

•

THE SPOUSE WILL BE CONTRACTUALLY LIABLE UPON THE
ACCOUNT ;

THE APPLICANT RESIDES IN OR IS RELYING ON PROPERTY
•

. LOCATED

•

IN

A

COMMUNITY

PROPERTY

STATE ;

OR

THE APPLICANT IS RELYING ON THE SPOUSE'S INCOME
AS

•

OR

A

BASIS

FOR

REPAYMENT :

OR

THE APPLICANT IS RELYING ON ALIMONY , CHILD SUPPORT
OR SEPARATE MAINTENANCE
MENT OF THE

CREDIT

INCOME AS A BASIS FOR REPAY

797

-6

BEFORE ANY QUESTIONS ON AN APPLICATION ARE ASKED
ABOUT A SPOUSE OR FORMER SPOUSE A DISCLOSURE THAT THE INFOR
MATION IS ONLY NECESSARY IF ANY OF THE ABOVE CONDITIONS

EXIST MUST APPEAR .

APPLICATION FORMS OFTEN WILL CONTAIN

REQUESTS FOR INFORMATION ON THE APPLICANT'S SPOUSE. YET NO
DETERMINATION AS TO THE TYPE OF CREDIT REQUEST

IS MADE .

INVOLVED

ANOTHER COMMON PROBLEM RESULTS WHEN DEALERS SUB

MIT APPLICATIONS OR TELEPHONE THEM TO THE BANK WHICH ARE
CLEARLY FOR INDIVIDUAL CREDIT YET INFORMATION ON THE SPOUSE
IS PROVIDED AS A RESULT OF NONCONFORMING APPLICATIONS OR
INAPPROPRIATE REQUESTS FROM THE DEALER WHO TOOK THE APPLI

CATION .

IF THE BANK IS AWARE OF THIS PRACTICE AND CONTINUES

TO ACCEPT THE APPLICATIONS ,

IT IS LIABLE AS A CREDITOR FOR

VIOLATIONS DUE TO PROHIBITED REQUESTS UNDER 202.2 ( L ) .
APPLICANTS MUST BE ALLOWED TO OPEN AND MAINTAIN ACCOUNTS
IN A BIRTH - GIVEN FIRST NAME , BIRTH - GIVEN SURNAME , OR COMBINED
SURNAME

( 202.7 ( B ) ) .

( GIVE EXAMPLE OF MRS . JOHN JONES AND

5. NAMES )

BUT THE CREDITOR MAY REQUIRE THE APPLICANT TO

CHOOSE ONE NAME TO BE USED CONSISTENTLY THROUGHOUT ALL
DEALINGS WITH THE BANK .
FOR ACCOUNTS

IN ORDER TO VERIFY PAST HISTORY

IN OTHER NAMES ,

CREDITORS MAY

INQUIRE AS TO

THE NAMES OF ACCOUNTS THE APPLICANT IS OR HAS BEEN RESPONSI BLE FOR .

THE CREDITOR MUST ALSO CONSIDER THE HISTORY OF

ACCOUNTS USED BY THE APPLICANT ALTHOUGH THESE ACCOUNTS MAY
NOT BE LISTED IN THE APPLICANT'S NAME .
WHICH THE APPLICANT GIVES THE CREDITOR

AND INFORMATION
INDICATING A PARTI

CULAR ACCOUNT DOES NOT ACCURATELY REFLECT THE APPLICANT'S
ABILITY OR WILLINGNESS TO PAY MUST BE CONSIDERED .

( 202.6 ( B ) ( 6 ) ) .

798

-7

THE CREDITOR MAY ONLY ASK ABOUT INCOME FROM ALIMONY ,
CHILD SUPPORT OR SEPARATE MAINTENANCE PAYMENTS

IF THE CREDI -

TOR FIRST DISCLOSES TO THE APPLICANT THAT SUCH

INFORMATION

NEED NOT BE DISCLOSED UNLESS THE APPLICANT WISHES TO RELY
ON SUCH

INCOME TO ESTABLISH CREDITWORTHINESS

( 202.5 ( D ) ( 2 ) ) .

THIS DISCLOSURE MUST BE MADE FOR ORAL AS WELL AS WRITTEN
REQUESTS .
THIS IS PROBABLY THE MOST FREQUENT VIOLATION YOU
WILL ENCOUNTER ON APPLICATION FORMS .

THE DISCLOSURE MAY BE LOCATED

INAPPROPRIATELY ,

ASK AND CONSIDER WHETHER THE APPLICANT

IS OBLIGATED TO MAKE

ALIMONY , CHILD SUPPORT OR SEPARATE MAINTENANCE PAYMENTS .
THIS REQUEST
IS NECESSARY TO DETERMINE WHAT AMOUNT OF INCOME
IS NOT AVAILABLE FOR DEBT PAYMENTS , EVEN THOUGH THE MARITAL
STATUS OF THE APPLICANT MAY BE REVEALED .

( FOOTNOTE # 5 )

RELIGION OR NATIONAL ORIGIN OF AN APPLICANT , INQUIRY AND

CONSIDERATION OF THE APPLICANT'S PERMANENT RESIDENCE AND
IMIGRATION STATUS MAY BE MADE IN ORDER TO DETERMINE THE BANK'S
RIGHTS AND REMEDIES REGARDING REPAYMENT .

A COMMON VIOLATION

799

-8
OCCURS IN UNIVERSITY COMMUNITIES WHEN APPLICANTS WHO ARE

NOT U.S. CITIZENS ARE AUTOMATICALLY DENIED CREDIT

ALTHOUGH

THE TEMPORARY OR PERMANENT RESIDENCE OF THE INDIVIDUAL MAY
BE CONSIDERED ,
BASIS OF

IT IS NOT PERMISSIBLE TO DENY CREDIT ON THE

NONCITIZENSHIP .

( 202.6 ( D ) ( 7 ) )

THE CREDITOR MUST NOT INQUIRE ABOUT BIRTH CONTROL PRAC
TICES OR CHILDBEARING INTENTIONS OF THE APPLICANT ,

AGGREGATE STATISTICS OR ASSUMPTIONS

( 202.5 ( 0 ) ( 4 ) )

RELATING TO THE LIKELI

HOOD OF ANY GROUP OF PERSONS BEARING OR REARING CHILDREN
( 202.6 ( B ) ( 3 ) ) . IN ADDITION , THE POSSIBILITY OF INTERRUPTED
OR DIMINISHED
CONSIDERED

INCOME DUE TO THESE ASSUMPTIONS MAY NOT BE

MANY CREDITORS MAY BE RELUCTANT TO STOP CON

SIDERING SUCH ASSUMPTIONS ,

BANKERS MUST BE INSTRUCTED THAT

THE REGULATION IS VERY EXPLICIT AND ABSOLUTELY PROHIBITS
THESE CONSIDERATIONS ,

IT IS UNLAWFUL . TO ASSUME EVERY INDI -

VIDUAL OR MARRIED PERSON OF ONE AGE GROUP WHO IS CAPABLE
OF BEARING CHILDREN WILL DO SO .

FUTURE FAMILY PLANS MUST

NOT BE REQUESTED OF APPLICANTS ,

VIOLATIONS DUE TO SUCH PRO

HIBITED REQUESTS WILL MOST LIKELY BE FOUND IN APPLICATIONS
FOR RESIDENTIAL MORTGAGE LOANS ,
THE CREDITOR MUST NOT DISCOUNT PART - TIME INCOME .

THE

CREDITOR ALSO MUST NOT DISCOUNT ANY INCOME LISTED ON THE

APPLICATION ON A PROHIBITED BASIS . ALIMONY , CHILD SUPPORT
AND SEPARATE MAINTENANCE INCOME MUST BE CONSIDERED TO THE
EXTENT THEY ARE LIKELY TO BE CONTINUED

( 202.6 ( B ) ( 5 ) ) .

800

-9
( GIVE EXAMPLES OF VERIFICATION METHODS.)

CREDIT SYSTEMS MAY BE USED TO AID BANKS IN MAKING CREDIT
DECISIONS

REGULATION B SEPARATES ALL CREDIT SYSTEMS INTO

2 CATEGORIES .

ONE CATEGORY CONTAINS THE DEMONSTRABLY AND

STATISTICALLY SOUND EMPIRICALLY DERIVED SYSTEMS .

THIS CREDIT

SCORING SYSTEM IS BASICALLY AN EVALUATION OF CREDITWORTHI -

NESS BASED ON THE CHARACTERISTICS OF AN APPLICANT WHICH ARE
ASSIGNED POINTS .

THE SYSTEM IS DEVELOPED TO PREDICT CREDIT

WORTHINESS AND IS BASED ON A STATISTICAL SAMPLE OF THE

BANK'S TOTAL POPULATION OF ALL APPLICANTS .

ALL OTHER TYPES

OF CREDIT SYSTEMS ARE CONSIDERED JUDGEMENTAL EVALUATION

SYSTEMS .

YOU WILL PROBABLY RARELY , IF EVER . ENCOUNTER ANY

SYSTEM OTHER THAN JUDGEMENTAL .

( FOR THOSE OF YOU WHO MAY

SEE DSED SYSTEMS , WE WILL GIVE YOU FURTHER EXPLANATION OF
THAT TYPE OF SYSTEM NEXT WEEK ) .

MAY CONSIDER MARITAL STATUS AND SOURCE OF INCOME IN ORDER

TO ASCERTAIN THE CREDITOR'S RIGHTS AND REMEDIES BUT NOT TO
DISCRIMINATE IN DETERMINING CREDITWORTHINESS ; AND THERE ARE
ONLY CERTAIN FACTORS WHICH MAY BE USED IN CONSIDERATION OF

AGE OR WHETHER AN APPLICANT'S INCOME DERIVES
ASSISTANCE PROGRAM .

( 202.6 ( B ) )

FROM ANY PUBLIC

801

-10
AGE MAY ONLY BE USED AS A PREDICTIVE VARIABLE IN A
DEMONSTRABLY AND STATISTICALLY SOUND , EMPIRICALLY DERIVED
CREDIT SYSTEM .

HOWEVER , THE AGE OF ELDERLY APPLICANTS MAY

NOT BE ASSIGNED A NEGATIVE OR LESS FAVORABLE VALUE ,

IN A

JUDGMENTAL SYSTEM , AGE MAY ONLY BE CONSIDERED IN RELATION
TO THE FOLLOWING :

OCCUPATION AND LENGTH OF TIME TO RETIRE

MENT ( THIS IS NECESSARY TO ASCERTAIN WHAT INCOME WILL BE

AVAILABLE OVER THE LIFE OF THE LOAN TO REPAY THE DEBT ) ;
THE ADEQUACY OF THE SECURITY FOR THE DEBT IF THE LIFE OF

LOAN EXCEEDS THE APPLICANT'S LIFE EXPECTANCY ; LENGTH OF
EMPLOYMENT OR RESIDENCE ( A YOUNG APPLICANT MAY HAVE JUST
ENTERED THE JOB MARKET WHILE AN ELDERLY APPLICANT MAY HAVE

RECENTLY RETIRED AND MOVED FROM A LONG - TIME RESIDENCE ) .
THE FOLLOWING PERTINENT ELEMENTS OF CREDITWORTHINESS MAY
BE CONSIDERED CONCERNING

INCOME DERIVED FROM A PUBLIC ASSIS

TANCE PROGRAM : THE LENGTH OF TIME SUCH INCOME HAS BEEN
RECEIVED : WHETHER THE APPLICANT INTENDS TO CONTINUE TO
RESIDE IN THE JURISDICTION WHERE BENEFITS ARE DERIVED : AND
THE STATUS OF DEPENDENTS FOR WHICH SUCH INCOME IS RECEIVED
( THIS IS NECESSARY TO DETERMINE HOW LONG THE PAYMENTS WILL
CONTINUE ) .

CREDIT EVALUATION SYSTEMS MUST NOT TAKE INTO ACCOUNT

A TELEPHONE LISTING IN THE NAME OF AN APPLICANT .

THE

EXISTENCE OF A TELEPHONE IN THE RESIDENCE MAY BE CONSIDERED .

OF THE CREDIT TRANSACTION CONCERNED WITH THE TAKING AND
EVALUATING OF THE APPLICATION .
OF SETTING UP THE

LOAN .

Now WE TURN TO THE MECHANICS

802

SECTION 10

ECOA

LECTURE No. 2
ONCE AN APPLICATION HAS BEEN TAKEN AND EVALUATED , THE NEXT
STEP FOR THE CREDITOR IS TO SET UP THE LOAN FOR ACCEPTED
APPLICANTS OR TO REJECT THE LOAN FOR APPLICANTS WHO ARE
TURNED

DOWN ,

WE WILL FIRST COVER VARIOUS STEPS WHICH TAKE

PLACE ONCE AN APPLICATION

IS ACCEPTED .

SECTION 202.10 REQUIRES CREDITORS WHO REPORT CREDIT HISTORY
ON ACCOUNTS TO CRA'S OR OTHER PARTIES TAKE CERTAIN STEPS TO
ENSURE ACCURATE REPORTING OF CREDIT HISTORY FOR AMOUNTS HELD
BY MARRIED

INDIVIDUALS .

FOR ACCOUNTS ESTABLISHED PRIOR TO

JUNE 1 , 1977 , THE BANK SHOULD HAVE DETERMINED WHETHER THE

AMOUNT WAS ONE WHICH THE APPLICANT'S SPOUSE IS PERMITTED TO USE
( OPEN END )

OR THE SPOUSE IS CONTRACTUALLY LIABLE ON .

BANK WAS UNABLE TO MAKE SUCH A DETERMINATION FOR ALL ACCOUNTS ,
THE CREDIT HISTORY FOR MARRIED PERSONS NOTICE SHOULD HAVE

BEEN MAILED TO THOSE LOAN ACCOUNT HOLDERS FOR WHICH THE

DETERMINATION COULD NOT BE MADE .

BASICALLY THE NOTICE ASKS

FOR THE NAMES OF ACCOUNT HOLDERS WHICH WILL BE USED TO REPORT
INFORMATION ON THE ACCOUNT ,

PRIOR TO OCTOBER 1 , 1977 ,

NOTICES SHOULD HAVE BEEN MADE
IF A BANK HAS NOT MADE THIS

DETERMINATION FOR EXISTING ACCOUNTS ( BOTH PRIOR TO 6-1-77

AND TO DATE )

A VIOLATION HAD OCCURRED AND THEY SHOULD BE

INSTRUCTED TO SEND THE NOTICE AND / OR MAKE A DETERMINATION .
FOR ALL AMOUNTS ESTABLISHED ON OR AFTER JUNE

IMMEDIATELY

1 , 1977 , THE BANK SHOULD HAVE DETERMINED WHETHER THE AMOUNT
WAS TO BE JOINTLY HELD BY MARRIED PERSONS AND REPORTED AS

803

-2

SUCH ,

PROBABLY THE BEST WAY TO MAKE SUCH A DETERMINATION

IS FOR THE APPLICATION OR OFFICER TO

INQUIRE AS TO WHETHER

AN ACCOUNT WILL BE JOINT ( AS SUGGESTED EARLIER IN ORDER TO
DETERMINE THE PERMISSIBILITY OF MARITAL STATUS REQUESTS ) .
IF THE ANSWER IS YES MARITAL STATUS MAY THEN BE ASKED AND
THE BANK CAN THEN DETERMINE WHETHER THE JOINT APPLICANT IS
A SPOUSE

IN ORDER TO REPORT

SECTION 202.10 .
BY

MARRIED

INFORMATION CORRECTLY UNDER

THE HISTORY OF ALL JOINT ACCOUNTS HELD

PERSONS

MUST

BE

REPORTED

IN

THE

NAMES

OF

BOTH

SPOUSES WHO USE OR ARE CONTRACTUALLY LIABLE ON THE ACCOUNTS ,

THIS PROVISION OF THE REGULATION SHOULD BE DISCUSSED IN
DETAIL WITH MANAGEMENT ,

I HAVE FOUND THAT THIS PROVISION

IS OFTEN MISUNDERSTOOD .

MANAGEMENT MAY BE RELUCTANT TO

ACCEPT THIS REQUIREMENT ; HOWEVER ,

IT MUST BE RECOGNIZED

AS A COST OF DOING BUSINESS INCIDENTAL TO EXTENDING CREDIT .
IT IS IMPORTANT TO NOTE THAT BANKS WHICH HAVE SENT NOTICES
AND IMPLEMENTED PROCEDURES IN ACCORDANCE WITH THE ORIGINAL

REGULATION ( 10-28-75 ) WILL STILL BE IN COMPLIANCE WITH THE
EXISTING REGULATION ,
THE GREATEST AMOUNT OF CONFUSION AMONG BANKERS AND VIOLATIONS
NOTED ' HAVE BEEN IN THE AREA OF SIGNATURE REQUIREMENTS UNDER

REGULATION B.

MY BEST ADVISE IS TO KEEP CALM , HOLD YOUR

GROUND AND NOT BE SWAYED BY COMPLICATED LEGAL ARGUMENTS
THROWN AT YOU BY BANKERS ,

IT IS VERY IMPORTANT TO REMEMBER

804

-3

THAT REGULATION B ALLOWS THE BANK TO OBTAIN ALL SIGNATURES
NECESSARY TO ENSURE THE AVAILABILITY OF COLLATERIAL OR
PROPERTY OFFERED TO SUPPORT THE DEBT .
HOWEVER ,

THE REGULATION DOES ,

PROHIBIT UNNECESSARY BLANKET SIGNATURE POLICIES

WHICH , IN THE PAST , WERE CONSIDERED PROPER . BANKS ARE VERY
RELUCTANT TO GIVE UP OLD PRACTICES WHICH THEY FELT PROTECTED
THE BANK , AND WERE PREVIOUSLY CONSIDERED PRUDENT BANKING
ACTIVITIES

IT IS IMPORTANT TO POINT OUT , HOWEVER , THAT

SIGNATURES OBTAINED
WELL BE CONSIDERED

IN VIOLATION OF THE REGULATION MAY
INVALID WHEN THE BANK BEGINS PROCEDURES

TO REALIZE ON A DEFAULTED OBLIGATION .

IN KEEPING WITH THE INTENT OF THE REGULATIONS , TO EVALUATE
EACH APPLICANT INDIVIDUALLY , ALL BLANKET SIGNATURE POLICIES
EXAMPLES OF SUCH POLICIES ARE :

ARE PROHIBITED .

REQUIRING

ALL SPOUSES TO GUARANTEE THE DEBT OF THEIR PARTNERS ( INCLUDING
BUSINESS DEBT )

AND REQUIRING ALL JOINT OWNERS OF ASSETS

TO SIGN THE DEBT INSTRUMENT .

THE REGULATION GIVES SPECIFIC GUIDELINES AS TO WHEN SIGNATURES
MAY BE REQUIRED .

IN GENERAL , THE BANK MAY NOT REQUIRE THE

SPOUSE OR ANY OTHER PERSON WHO IS NOT A JOINT APPLICANT
TO COSIGN OR GUARANTEE THE NOTE IF THE INDIVIDUAL APPLICANT
IS CREDITWORTHY ,

805

-4

IF THE CREDIT IS TO BE UNSECURED AND IS SUPPORTED BY JOINTLY
HELD PROPERTY , THE BANK MAY ONLY REQUIRE THE JOINT OWNER'S
SIGNATURE ON THOSE INSTRUMENTS NECESSARY UNDER STATE LAW
TO ALLOW THE BANK TO GAIN CONTROL OF SUFFICIENT PROPERTY
TO SATISFY THE DEBT IN THE EVENT OF DEFAULT

IF THE APPLI

CANT HAS ENOUGH INTEREST IN THE PROPERTY TO SUPPORT THE
DEBT AND CAN ALIENATE SUCH INTEREST WITH ONLY ONE SIGNATURE ,
THE BANK MAY NOT REQUIRE A SIGNATURE BY THE NON - APPLICANT

SPOUSE OR OTHER JOINT OWNER .

IF THE APPLICANT RESIDES IN

OR THE ASSETS SUPPORTING THE DEBT ARE LOCATED

IN A COMMUNITY

PROPERTY STATE , THE BANK MAY ONLY REQUIRE A SPOUSE's
SIGNATURE ON THOSE INSTRUMENTS NECESSARY TO MAKE THE
COMMUNITY PROPERTY AVAILABLE TO THE BANK IN THE EVENT OF
DEFAULT

KEEP IN MIND THAT THE SPOUSE'S SIGNATURE MAY

NOT BE REQUIRED IF THE APPLICANT OWNS SUFFICIENT SEPARATE
PROPERTY TO SUPPORT THE DEBT OR CAN CONTROL SUFFICIENT

COMMUNITY PROPERTY TO ESTABLISH CREDITWORTHINESS .

( EXPLAIN

THAT DETAILED QUESTIONS ON SPECIFIC STATES MAY BE ANSWERED

IN THE EVENING . )

IF THE CREDIT IS TO BE SECURED , THE BANK MAY ONLY REQUIRE
THE SIGNATURE OF THE APPLICANT'S SPOUSE OR OTHER JOINT OWNER
ON THOSE

INSTRUMENTS NECESSARY TO CREDIT A VALID LIEN ,

PASS

CLEAR TITLE , WAIVE INCHOATE RIGHTS , OR ASSIGN EARNINGS ,

OFTEN THE CREDITOR FEELS IT NECESSARY TO OBTAIN BOTH SIGNA
TURES ON THE NOTE OR OTHER DEBT INSTRUMENT IN ORDER TO GAIN
CONTROL OF THE ASSET IN THE EVENT OF DEFAULT , ALTHOUGH STATE
LAW MAY ONLY REQUIRE BOTH SIGNATURES ON THE SECURITY

806

-5
INSTRUMENT ,

AT THIS TIME ,

WE

ARE

MAINLY

CONCERNED

WITH

UNNECESSARY SIGNATURES ON NOTES ( IF YOU ARE UNCLEAR AS TO

THE REQUIREMENTS IN A PARTICULAR STATE , CONTACT YOUR REGIONAL
CONSUMER SPECIALIST ) .

YOU SHOULD NOTE THAT A BANK MAY ALWAYS REQUEST A COSIGNER
OR GUARANTOR IF THE APPLICANT DOES NOT MEET THE BANK'S
STANDARDS

OF

CREDITWORTHINESS .

HOWEVER , THE CHOICE OF

THE SECOND PARTY MUST BE LEFT UP TO THE APPLICANT .

FOLLOWING ARE SOME EXAMPLES OF VIOLATIONS IN POLICIES OR
PRACTICES AND THEIR ACCOMPANYING WHICH YOU MAY ENCOUNTER
FREQUENTLY :

STATE LAWS GIVING DOWER RIGHTS OR REQUIRING
•

CONSIDERATION
BENEFITS TO SPOUSE
•

COSIGNER

CREDIT HISTORY - SPECIFY

SPOUSE IS JOINT OWNER - FATHER IS

ALREADY CREDITWORTHY

•

AGRICULTURAL GUARANTEES

i CLOSELY HELD CORPORATIONS
•

COMMUNITY PROPERTY STATES

807

-6

WE HAVE NOW COVERED THE IMPORTANT PROVISIONS OF THE
REGULATION RELATING TO THE APPLICATION PROCESS AND ACCEPTED
LOAN PROCEDURES .

WHEN APPLICATIONS ARE DENIED OR OTHER

ADVERSE ACTION IS TAKEN , REGULATION B REQUIRES THAT A WRITTEN
NOTIFICATION OF ADVERSE ACTION BE PROVIDED TO THE APPLICANTE
IT IS IMPORTANT TO REMEMBER THAT THIS REQUIREMENT APPLIES
TO ORAL AS WELL AS WRITTEN APPLICATIONS .

TO KNOW WHEN A

WRITTEN NOTIFICATION IS REQUIRED YOU MUST REVIEW THE DEFI
NITION OF ADVERSE ACTION UNDER SECTION 202.2 ( c ) ( 1 ) AND ( 2 ) .
THE CREDITOR MUST NOTIFY THE APPLICANT OF ACTION TAKEN UPON
THE APPLICATION 30 DAYS OF RECEIPT OF A COMPLETED APPLICATION
OR COMPLETION OF THE ORAL APPLICATION PROCESS .

NOTIFICATION

IS ALSO REQUIRED WITHIN 30 DAYS OF TAKING ADVERSE ACTION ON
AN UNCOMPLETED APPLICATION OR AN EXISTING ACCOUNT ,
ADDITION ,

IN

NOTIFICATION OF ACTION TAKEN ON AN APPLICATION

MUST BE GIVEN WITHIN 90 DAYS AFTER A SUBSTANTIALLY SIMILAR
ALTERNATIVE OFFER HAS BEEN GIVEN TO THE APPLICANT AND THE
OFFER HAS NOT BEEN ACCEPTED .

( E.G. CREDIT CARD LIMIT OF

1.500 INSTEAD OF 2.000 ) .

ALTHOUGH APPROVAL OF AN APPLICATION MAY BE GIVEN ORALLY OR
BY IMPLICATION ( E.G. RECEIPT OF CREDIT CARD , MONEY , OR

SERVICES ) , NOTIFICATION OF DENIAL OR ANY ADVERSE ACTION
MUST BE IN WRITING AND MUST INCLUDE SPECIFIC DISCLOSURES .
THERE IS ONLY. ONE EXCEPTION ,

WHERE THE BANK CAN VERIFY THAT

IT RECEIVED NO MORE THAN 150 APPLICATIONS DURING THE PRE
CEEDING YEAR

THE NOTIFICATIONS MAY BE PROVIDED ORALLY ,

808

-7

THESE DISCLOSURES INCLUDE :

( REFER TO FLIP CHART ) A

STATEMENT OF THE ACTION TAKEN : THE ECOA NOTICE

( 202.9 ( B ) ( 1 )

OR A SUBSTANTIALLY SIMILAR STATEMENT ; AND EITHER A STATE
MENT OF THE SPECIFIC REASONS FOR THE ACTION TAKEN OR A

DISCLOSURE OF THE APPLICANT'S RIGHT TO A STATEMENT OF THE
REASONS IF REQUESTED WITHIN 60 DAYS AFTER RECEIPT OF NOTICE

OF ACTION TAKEN .

THE BANK MUST DISCLOSE THE NAME , ADDRESS ,

AND TELEPHONE NUMBER WHERE THE REASONS MAY BE OBTAINED .

THE STATEMENT OF REASONS MUST BE GIVEN WITHIN 30 DAYS AFTER
THE BANK RECEIVES A REQUEST AND , IF GIVEN ORALLY , MUST BE
ACCOMPANIED BY A DISCLOSURE OF THE RIGHT TO RECEIVE WRITTEN

CONFIRMATION WITHIN 30 DAYS FROM WRITTEN REQUEST .
THE REGULATION PROVIDES A SAMPLE FORM WHICH MAY BE USED

( APPENDIX A OF THE ECOA SECTION OF THE HANDBOOK )

TO COMPLY

WITH BOTH REGULATION B AND THE FCRA WHEN NOTIFYING APPLI
CANTS OF ACTION TAKEN ,

REQUIRED NOTIFICATIONS NEED ONLY BE GIVEN TO ONE OF THE
PRIMARILY LIABLE APPLICANTS IN ANY TRANSACTION .

IN THE

CASE OF MULTIPLE CREDITORS ( E.G. INDIRECT DEALER TRANSAC
TIONS )

EACH CREDITOR TAKING ADVERSE ACTION MUST NOTIFY THE

APPLICANT OF SUCH ACTION .

ALL CREDITORS MAY ARRANGE TO

PROVIDE ONE NOTIFICATION IF THE IDENTIFY OF ALL CREDITORS
IS GIVEN .

THE BANK , AS A CREDITOR , IS RESPONSIBLE FOR

PROVIDING ACCURATE AND TIMELY INFORMATION TO THE PARTY
PROVIDING THE NOTIFICATION ,

1

809

-8

COMMON PROBLEMS ENCOUNTERED IN THIS AREA INCLUDE THE
FAILURE TO PROVIDE NOTICES FOR ORAL APPLICATIONS OR FOR

INCOMPLETE APPLICATIONS : SLOPPY COMPLETION OF SAMPLE FORM :
AND THE USE OF REASONS OTHER THAN THOSE PERMITTED BY THE

REGULATION WHICH ARE DISCRIMINATORY ( E.G. " UNEMPLOYED " ) .
ALL OF THESE VIOLATIONS ARE CAUSED BY INADEQUATE INTERNAL
CONTROLS TO ENSURE PROPER COMPLETION OF THE NOTIFICATION .

BE CERTAIN TO COMPARE THE BANK'S NOTICE TO THE SAMPLE PRO
VIDED IN THE REGULATION EVEN IF IT APPEARS SIMILAR ,

ANY

REASONS USED WHICH ARE NOT GIVEN IN THE SAMPLE NOTICE SHOULD
BE REVIEWED FOR THE POSSIBILITY OF USE OF PROHIBITED CRITERIA .

DISCUSS INADVERTANT ERROR IF CORRECTION ACHIEVE PROSPECTIVELY .
REGULATION B REQUIRES THE CREDITOR TO RETAIN FOR 25 MONTHS
AFTER NOTICE OF ACTION IS GIVEN ON BOTH EXISTING ACCOUNTS
AND NEW APPLICATIONS ( ACCEPTED AND REJECTED )

THE FOLLOWING

INFORMATION :

• THE ORIGINAL OR A COPY OF ANY WRITTEN OR RECORDED

•

COPY , RECORDED NOTATION , OR MEMORANDUM OF NOTICE
OF ADVERSE ACTION AND THE REASONS FOR SUCH ADVERSE

ACTION , ( NOTICES AND MEMORANDUMS OF ORAL NOTICES
MUST ALSO BE RETAINED ) ; AND

810

-9
O COPY OF ANY WRITTEN STATEMENT ALLEGING DISCRIMINA
TION OR ANY VIOLATION SUBMITTED BY THE APPLICANT

BE CERTAIN THAT REJECTED AND ORAL APPLICATION
DISCUSS EXCEPTION WHEN

RECORDS ARE MAINTAINED !
INADVERTENT ERROR .

WHEN REVIEWING DOCUMENTATION CONTAINED IN LOAN FILES YOU

WILL OFTEN ENCOUNTER PROHIBITED INFORMATION ( EG , SEX ,
MARITAL STATUS ,

NATIONAL ORIGIN ,

WHEN INDIVIDUAL APPLICATION ) .

INFORMATION ON SPOUSE

THIS INFORMATION MAY ONLY

BE IN THE FILE IF IT WAS OBTAINED IN THE FOLLOWING MANNERS :

FROM A CRA
•
•

PRIOR TO THE EFFECTIVE DATE
*

IF VOLUNTEERED

.

IF REQUESTED BY ENFORCEMENT AGENCY TO MONITOR

COMPLIANCE
IT IS IMPORTANT : HOWEVER , TO VERIFY THAT SUCH PROHIBITED
INFORMATION WAS NOT CONSIDERED .

REGULATION B REQUIRES THT CERTAIN INFORMATION BE MAINTAINED
BY THE CREDITOR

IN RESIDENTIAL REAL PROPERTY TRANSACTIONS

SUBSEQUENT TO 3-23-77 .

THE APPLICANT MUST BE ASKED , BUT

DOES NOT HAVE TO SUPPLY , INFORMATION REGARDING THE APPLICANT'S

811

-10
RACE ,

NATIONAL ORIGIN ,

SEX , MARITAL STATUS , AND AGE , REQUIRED

TERMINOLOGY MAY BE FOUND IN SECTION 202.13 ( A ) ( 1 ) .

THE

' APPLICANT MUST ALSO BE INFORMED THAT THIS INFORMATION IS
OPTIONAL AND THAT THE INFORMATION IS REQUESTED BY THE FEDERAL
GOVERNMENT TO MONITOR COMPLIANCE WITH ANTI - DISCRIMINATION
THIS INFORMATION MUST BE RETAINED IN THE CREDITORS
STATUTES ,
FILE FOR 25 MONTHS IN ADDITION TO OTHER CREDIT RECORDS .

THE REGULATION PROVIDES FOR CERTAIN SPECIAL PURPOSE CREDIT
PROGRAMS WHICH OFFER CREDIT TO PERSONS OF A PROTECTED CLASS
WHICH MAY NOT HAVE EQUAL ACCESS TO CREDIT WITH OTHER PERSONS .
IF CREDIT IS DENIED TO AN APPLICANT BECAUSE THE APPLICANT
DOES NOT QUALIFY FOR

SUCH A PROGRAM BECAUSE OF A PROHIBITED

FACTOR ( E.G. RACE , NATIONAL ORIGIN , ETC. )
IN VIOLATION .

THE BANK IS NOT

( CONTACT YOUR REGIONAL CONSUMER SPECIALIST

TO SEE IF THE CREDIT PROGRAM IN QUESTION QUALIFIES UNDER

THE REGULATION ) .

( 202.8 )

REGULATION B ALSO DEALS WITH CERTAIN SPECIALIZED CREDIT SUCH
AS BUSINESS AND AGRICULTURAL CREDIT .

COMMERCIAL AND AGRI

CULTURAL CREDIT ARE DEFINED AS BUSINESS CREDIT FOR PURPOSES

OF REGULATION B.

ALL BUSINESS CREDIT , IS SUBJECT TO THE

GENERAL RULE ( SECTION 202.4 ) UNDER REGULATION B ( A CREDITOR
SHALL NOT DISCRIMINATE AGAINST ANY APPLICANT ON ANY PRO
HIBITED BASIS WITH RESPECT TO ANY ASPECTS OF A CREDIT

TRANSACTION ) .

37-415 O - 79 - 52

BANKS ARE ALSO SUBJECT TO MANY OF THE OTHER

812

-11
REQUIREMENTS OF REGULATION B IN CONNECTION WITH BUSINESS
CREDIT

THE FOLLOWING IS A LIST OF THE PROVISIONS OF THE

REGULATION THAT ARE CONCERNED WITH BUSINESS CREDIT :
1 .

MARITAL STATUS MAY ALWAYS BE ASKED IN BUSINESS
CREDIT ,

2 .

BUT SEX MAY NOT BE ASKED ;

THE PROVISIONS REQUIRING BANKS TO DETERMINE
WHETHER

ACCOUNTS

SHARED

WITH

SPOUSES

ARE

TO BUSINESS CREDIT :

NOT APPLICABLE

3.

ARE

THE BANK MUST PROVIDE THE NOTIFICATION RELATING
TO

ADVERSE

THE

ACTION

APPLICANT

IN

BUSINESS

REQUESTS

IN

CREDIT

WRITING

THE

ONLY

WHEN

REASONS

THE REQUEST MUST COME

FOR ANY ADVERSE ACTION .

WITHIN 30 DAYS AFTER ORAL OR WRITTEN NOTIFICA
TION

4.

THAT

ADVERSE

ACTION

WAS

TAKEN ;

ANY RECORDS RELATING TO AN APPLICATION FOR BUSINESS
CREDIT MUST BE RETAINED FOR 25 MONTHS AFTER NOTICE
OF

ACTION

TAKEN

ONLY

WHEN

THE

APPLICANT

REQUESTS

IN WRITING THAT WITHIN 90 DAYS AFTER ADVERSE ACTION
IS

5.

TAKEN

THAT

SUCH

RECORDS

BE

RETAINED ;

IF CREDIT IS APPLIED FOR IN THE NAME OF A BUSINESS
FIRM ,

A BANK MAY

USED ;

AND

INSIST THAT THE

FIRM NAME BE

813

-12
6.

IF CREDIT IS EXTENDED IN THE NAME OF A BUSINESS

FIRM , A TELEPHONE LISTING IN THE BUSINESS FIRM'S
NAME MAY BE TAKEN INTO CONSIDERATION .
REMEMBER , REGULATION B APPLIED TO INDIRECT CREDIT TRANSACTIONS
TOO .

A BANK IS RESPONSIBLE FOR MAINTAINING PROCEDURES TO

CHECK THEIR DEALERS ' COMPLIANCE WITH THE REGULATION IN ALL
ASPECTS OF THE CREDIT TRANSACTION ,

INCLUDING INITIAL CONTACT .

REGULATION B SETS FORTH CIVIL LIABILITIES AND PENALTIES FOR
ACTUAL AND PUNITIVE DAMAGES WHERE THE CREDITOR HAS FAILED
TO COMPLY WITH THE REGULATIONS ,

PUNITIVE DAMAGES OF $ 10,000

IN INDIVIDUAL SUITS AND $ 500,000 OR 1 %
WORTH ,

WHICHEVER

IS LESS ,

OF THE CREDITOR'S NET

IN CLASS ACTION SUITS ARE PROVIDED .

IN ADDITION , THE EQUITABLE REMEDY OF A PERMANENT OR TEMPORARY
INJUNCTION OR RESTRAINING ORDER IS AVAILABLE .

THE DATE OF THE VIOLATION ,

IT IS IMPORTANT FOR US TO CONSIDER OUR POSITION WITH RESPECT

AS EXAMINERS IS A SUPPORTIVE ONE .. ALTHOUGH IT IS OUR RES
PONSIBILITY TO

INVESTIGATE ANY COMPLAINTS OF DISCRIMINATION

BY APPLICANTS , WE ARE NOT THERE TO PROVE A BANK DISCRIMINATES
IN

ITS LENDING POLICY ,

FACTS AS WE

SEE THEM .

OUR RESPONSIBILITY IS TO PRESENT THE
IT IS OUR JOB TO DETECT ATTITUDES AND

814

- 13

POLICIES

WHICH

MAY

BE

DISCRIMINATORY ,

INFORM

MANAGEMENT

OF

OUR FINDINGS , AND SATISFY OURSELVES THAT PROPER INTERNAL
CONTROL PROCEDURES ARE

ESTABLISHED TO CORRECT AND PREVENT

DEFICIENCIES WHICH COULD LEAD TO LEGAL LIABILITY UNDER
CONSUMER

STATUTES .

815

ECOA
LECTURE No. 3 ( INCLUDES SEPARATE INTERVIEWING AND EFFECTS TEST LECTURES )
NEED : 1.0 , 42

REGULATION B - PROCEDURAL LECTURE
OUR EXAMINATION FOR REGULATION B FOLLOWS THE LOGICAL SEQUENCE OF
EVENTS IN A CREDIT TRANSACTION ,

EXAMINATION PROCEDURES FIRST CALL

FOR A REVIEW OF BLANK FORMS USING EP-B-1 ( SEE HANDOUT No. 1 AND
BRIEFLY EXPLAIN ITS USE ) .

WE WILL COVER IN BREAK-OUT GROUPS TOMORROW .

THE USE OF THIS FORM IN REVIEWING BLANK FORMS AS REQUIRED BY EP's 1.A. ,

AND 3. PLEASE USE A BLANK COPY OF THIS FORM AND COMPLETE IT BY
REVIEWING THE SAMPLE APPLICATION FORMS IN HANDOUT No. 3 SOMETIME BEFORE
TOMORROW AFTERNOON ,

THE SECOND PART OF OUR EXAMINATION REQUIRES A DETERMINATION OF THE
BANK'S KNOWLEDGE OF REGULATION B AS WELL AS THE BANK'S POLICIES
( WHETHER WRITTEN OR UNWRITTEN ) CONCERNING THE EXTENSION OF CREDIT .
TO MAKE SUCH A DETERMINATION WE MUST EMPLOY THE TECHNIQUE OF INTERVIEWING

BANK PERSONNEL .

RICH WILL EXPLAIN THE METHODS PRESCRIBED BY THE

REGULATION B PROCEDURES AND THE GUIDELINES TO FOLLOW ,

816

INTERVIEWING LECTURE
WE HAVE DISCUSSED THE MANNER IN WHICH YOU WILL DETERMINE BANK
POLICIES , AND IT IS IMPLICIT THAT YOU WILL REVIEW THESE POLICIES
FOR VIOLATIONS OF THE REGULATION , BUT WE HAVE NOT YET DISCUSSED THE
FACT THAT A BANK POLICY WHICH IS IN COMPLIANCE ON ITS FACE MAY
RESULT IN DISCRIMINATION ON A PROHIBITED BASIS .

THIS PHENOMENON

IS KNOWN AS THE EFFECTS TEST AND ALAN HAS SOME GUIDELINES TO OFFER

IN ITS APPLICATION TO OUR EXAMINATION FOR REGULATION B.

EFFECTS TEST LECTURE

817

SECTION 10

ECOA
LECTURE No. 3A

INTERVIEWING

AS PART OF THE EXAMINATION FOR COMPLIANCE WITH REGULATION
B AND FAIR HOUSING IT IS NECESSARY TO ASK QUESTIONS OF BANK
MANAGEMENT AND PERSONNEL TO DETERMINE THEIR KNOWLEDGE OF

FAIR LENDING PRACTICES AND WHETHER THIS KNOWLEDGE HAS LED
TO ELIMINATION OF THE USE OF OUTDATED DISCRIMINATORY CRITERIA
IN CREDIT EVALUATION .

THIS DETERMINATION IS MADE BY CON

DUCTING INTERVIEWS WITH APPROPRIATE BANK PERSONNEL .

THESE

INTERVIEWS ARE ONE OF THE MOST IMPORTANT PARTS OF THE
EXAMINATION PROCESS BECAUSE THEY PROVIDE VALUABLE INFORMATION
FOR USE

IN COMPARING ACTUAL PRACTICES WITH STATED POLICIES

AND THE LOAN SAMPLING PORTION OF THE EXAM .

EARLY IN THE

EXAM YOU SHOULD DETERMINE WHETHER THE BANK HAS A DESIGNATED

COMPLIANCE OFFICER RESPONSIBLE FOR THE BANK'S COMPLIANCE
WITH CONSUMER LAWS AND REGULATIONS .

IF THERE IS SUCH A

DESIGNATED OFFICER , YOU SHOULD INTERVIEW THIS INDIVIDUAL
TO DETERMINE THEIR KNOWLEDGE OF THE REQUIREMENTS OF REG B.

EP B 2 , GUIDELINES FOR INTERVIEW OF BANK PERSONNEL , SHOULD
BE USED FOR THIS

INTERVIEW , AS

IT PROVIDES A CONVENIENT

CHECKLIST OF PERTINENT QUESTIONS .

IN ADDITION TO DETERMINING THE EXTENT OF THE DESIGNATED
OFFICER'S KNOWLEDGE YOU MUST MAKE A PRELIMINARY DETERMINATION

OF THE ADEQUACY OF THIS OFFICER'S PROGRAM FOR MONITORING

818

-2
COMPLIANCE AND ENSURING ALL PERSONNEL RECEIVE PROPER TRAINING .

AT A MINIMUM , THE DESIGNATED OFFICER'S PROGRAM SHOULD CONTAIN
THE FOLLOWING :

COMPREHENSIVE TRAINING PROGRAM FOR ALL APPROPRIATE
•

BANK

•

PERSONNEL .

INTERNAL CONTROL PROCEDURES TO MONITOR COMPLIANCE
AND / OR AUDIT PROGRAMS

e REGULAR REPORTS TO BOARD ON THE BANK'S COMPLIANCE,
PROGRAM OF CONTINUING EDUCATION FOR THE DESIGNATED
OFFICER AND APPROPRIATE EMPLOYEES ,

IN FOLLOWING E.P. # 5B , IF THE BANK HAS NO DESIGNATED OFFICER ,
YOU MUST PERFORM V.P. # 1 .

THIS PROCEDURE SIMPLY CONSISTS OF

AN INTERVIEW OF LENDING OFFICERS AND / OR DEPARTMENT HEADS ,
AND FIRST CONTACT PERSONNEL TO DETERMINE THE BANK'S KNOWLEDGE
OF REG B.

REGULATION

THIS V.P. SHOULD ALSO BE PERFORMED WHENEVER THE

V.P. # 1 ( A )

MAY BE A SHORT , VERY INFORMAL ,

DISCUSSION WITH RECEPTIONISTS , OFFICER'S SECRETARIES OR
OTHER INDIVIDUALS WHO ANSWER TELEPHONE REQUESTS AND HANDLE
WALKINS

THESE FIRST CONTACT PEOPLE SHOULD BE ASKED WHETHER MANAGEMENT
OF LENDING OFFICERS RELY ON THEM TO MAKE ANY PREJUDGMENTS

819

-3

AS TO CREDITWORTHINESS .

ALSO ,

IT IS IMPORTANT TO DETERMINE

WHETHER RECEPTIONISTS OR SECRETARIES HAVE INSTRUCTIONS TO

STEER CERTAIN TYPES OF INDIVIDUALS TO A PARTICULAR LOAN
INQUIRE ABOUT ANY EDUCATION THEY HAVE RECEIVED

OFFICER

FROM MANAGEMENT ON HOW TO ACT TOWARD A PROSPECTIVE APPLICANT .

IN SHORT , THE INFORMAL INTERVIEW SHOULD TRY TO DETERMINE IF

THESE " FIRST CONTACT " PERSONNEL TREAT ANY GROUP OF APPLICANTS
DIFFERENTLY THAN ANOTHER GROUP OF APPLICANTS .

V.P. # 1 ( B )

DETERMINES WHETHER THE APPROPRIATE LENDING OFFICERS

KNOW THE PROPER PROCEDURES TO FOLLOW FOR OFFERING , TAKING
AND EVALUATING APPLICATIONS ,
NISHING OF CREDIT

PROVIDING NOTIFICATIONS ,

FUR

INFORMATION AND RETENTION OF RECORDS ,

AGAIN , EP B 2 SHOULD BE USED AS TitE GUIDELINES FOR THE
THIS INTERVIEW CAN BE
INTERVIEW OF THE LENDING OFFICERS ,
DONE WITH A GROUP OR ON A SEPARATE BASIS DEPENDING ON SIZE
OF THE BANK .

IF THE DESIGNATED OFFICER'S COMPLIANCE PROGRAM IS INADEQUATE
OR IF THE DESIGNATED OFFICER'S OR BANK'S KNOWLEDGE OF REG B
IS INADEQUATE , V.P. # 2 MUST BE PERFORMED USING GUIDELINE
EP B 3.

HERE WE INTERVIEW THE INDIVIDUALS WHO SET LENDING

POLICIES TO DETERMINE THE BASIS USED TO EVALUATE CREDITWORTHITHIS INTERVIEW IS NECESSARY WHEN THE BANK DOES NOT

NESS .

HAVE A WRITTEN POLICY TO EXTRACT INFORMATION FROM .

820

-4

DURING ALL INTERVIEWS IT IS IMPORTANT TO ALWAYS BE VERY
OPEN WITH EMPLOYEES AND OFFICERS ,

WHEN ASKED FOR ADVICE

AS TO HOW APPLICANTS SHOULD BE HANDLED , DISCUSS WITH THEM
THE REQUIREMENTS OF FAIR LENDING LAWS .

REMEMBER THAT YOUR

EXAMINATION SHOULD BE AN EDUCATIONAL TOOL FOR BANKS AS WELL

AS A FACT FINDING MISSION FOR YOUR , THE REGULATOR .
THE EP B 2 FORM AND THE OTHERS MENTIONED SHOULD ACT AS GUIDES ,
IT IS IMPORTANT TO COVER ALL ASPECTS OF THE CREDIT TRANSACTION ,
AND QUESTIONS SHOULD BE ASKED OF OFFICERS ON ALL PARTS OF

REGULATION B TO GET A " FEEL "

FOR THEIR GENERAL KNOWLEDGE .

RESULTS FROM YOUR INTERVIEWS SHOULD BE RETAINED FOR REFERENCE
THROUGHOUT THE EXAMINATION .

ANY CONSIDERATIONS WHICH APPEAR

THERE IS A FINAL INTERVIEW WHICH SHOULD BE HELD AT THE
CONCLUSION OF THE EXAMINATION ,

THIS IS E.P. # 11 .

CUSSION SHOULD COVER ANY AND ALL VIOLATIONS FOUND IN STATED
AND WRITTEN POLICY , EVALUATION PROCEDURES , AND ALL OTHER SEC

TIONS OF THE EXAM .

ALSO , CORRECTIVE ACTION SHOULD BE

DISCUSSED , COVERING BOTH MANAGEMENT'S PLANNED ACTION AND
YOUR RECOMMENDATIONS .

821

-5

FINALLY , THOSE VIOLATIONS WHICH WILL BE EMPHASIZED IN THE

LETTER TO THE BOARD OF " IRECTORS SHOULD BE EMPHASIZED
STRONGLY TO MANAGEMENT , SO NO PART OF THE REPORT WILL BE
UNFAMILIAR

THE REPORT MUST NOT BE RETURNED TO THE BANK

CONTAINING ANY SURPRISES .

822

" EFFECTS TESI"
A.

SECTION 202.6 ( A ) FOOTNOTE 7 ( P.10 )

ANY INFORMATION OBTAINED BY THE BANK MAY BE CONSIDERED IN
EVALUATING AN APPLICATION UNLESS :

1.

PROHIBITED BY THE ACT ( ECOA ) AND REGULATION B

2.

THE INFORMATION IS USED TO DISCRIMINATE AGAINST AN
APPLICANT ON A PROHIBITED BASIS .
A,

MINATION OF CREDITWORTHINESS ,

B.

ORIGIN OF EFFECTS TEST

1.

GRIGGS V.

DUKE POWER COMPANY ( L971 )

ABILITY TEST IF IT IS NOT DESIGNED , INTENDED , OR USED TO

DISCRIMINATE . ( AGAINST A CLASS )

SUPREME COURT STATED IF AN EMPLOYMENT PRACTICE THAT OPERATES
TO EXCLUDE A PROTECTED GROUP CANNOT BE SHOWN TO BE JOB
RELATED, IT IS PROHIBITED EVEN IF THE EMPLOYER LACKS
DISCRIMINATORY INTENT .

( JUDICIAL DOCTRINE )

( NOT A RULD

OF CONSTITUTIONAL LAW ) .

PRACTICES NEUTRAL ON THEIR FACE OR IN TERMS OF INTENT,
EVEN IF IN TECHNICAL COMPLIANCE , ARE PROHIBITED IF THEY
ARE DISCRIMINATORY IN OPERATION AND CANNOT BE SHOWN TO

BE RELATED TO JOB PERFORMANCE. ( STATISTICALLY SIGNIFICANT )

823

-2

BUSINESS NECESSITY

- DEMONSTRABLE
RELATIONSHIP

( CUSTOMARY PROCEDURE )

C.

THREE STEP RULE :

EXAMPLE

1.

HIGH SCHOOL DIPLOMA NEED TO OBTAIN CREDIT .

MINORITY GROUPS DISPROPORTIONATELY AFFECTED

REPAYMENT HISTORY

3.

REBUTTAL :

CONSIDER INCOME INSTEAD

TEST :

CARROLL V. EXXON
CREDIT CARD

DEPENDENTS

MARITAL STATUS

A DEMONSTRABLY AND STATISTICALLY SOUND , EMPIRICALLY DERIVED

CREDIT SYSTEM - MUST BE PREDICTIVE ( STATISTICALLY SIGNIFICANT)

824

TITLE VII EFFECTIVE 7/2/65

CHALKBOARD

5 DEPARTMENTS
*

LABOR

COAL HANDLING

OPERATIONS

MAINTENANCE

LABORATORY AND TEST

*

ONLY BLACKS EMPLOYED

1965 BLACKS NOT RESTRICTED TO LABOR DEPARTMENT ANYMORE ,
BUT NEED HIGH SCHOOL DIPLOMA TO GET INTO ANOTHER DEPARTMENT ,

ON 7-2-65 :

TWO APPTITUDE TESTS AND HIGH SCHOOL DIPLOMA

REQUIRED IN ANY BUT THE LABOR DEPARTMENT ,

825

ECOA

SECTION 10

LECTURE 4
SAMPLING AND USE OF THE LINE SHEETS

AS PART OF YOUR EXAMINATION PROCEDURE FOR REGULATION B , YOU
WILL COMPLETE A CONSUMER LOAN REVIEW SHEET FOR AN APPROPRIATE
SAMPLE OF ACCEPTED AND REJECTED LOANS MADE
THREE MONTHS AND CURRENT MONTH ,

IN THE PREVIOUS

THE SAMPLE WILL CONSIST OF

A RANDOM STATISTICAL SAMPLING OF LOANS IN EVERY DEPARTMENT ,

ADDITIONAL ITEMS MAY BE SELECTED LATER TO ISOLATE CAUSE OF
VIOLATIONS OR IDENTIFY SPECIAL SITUATIONS .
AT THIS TIME , TAKE OUT A LINE SHEET , AND REFER TO THE

REGULATION B EXAMINATION AND VERIFICATION PROCEDURES ( HANDBOOK )
BEFORE WORKING FILES . IT IS IMPORTANT TO HAVE REVIEWED :
1.

POLICY

2.

REG B QUESTIONNAIRE

3.

BLANK FORMS

THE REASON FOR THIS IS THAT THE PURPOSE OF YOUR FILE WORK
WILL BE TO DETECT :

1.

USE OF POLICIES THAT YOU HAVE DETERMINED NOT TO
BE

IN COMPLIANCE ,

ACTUAL PRACTICE VS. POLICY

2.

INCONSISTENCIES WITH POLICY

3.

USE OF BLANK FORMS THAT ARE NOT IN COMPLIANCE

826

-2
4.

IMPROPER USE OF BLANK FORMS .

WHEN WORKING FILES YOU WILL BE CONTINUALLY MAKING COMPARISONS .
COMPARE ACCEPTED AND REJECTED FILES TO EACH OTHER .

COMPARE

ACTUAL PRACTICE TO ADOPTED POLICIES .
THE FIRST ITEM YOU WILL BE WORKING FROM THE LOAN FILE WILL
WHAT KIND OF INFORMATION WILL WE

BE AN APPLICATION FORM .

NEED TO DETERMINE A BANK'S COMPLIANCE WITH REGULATION B ?

LOOK AT THE LOAN REVIEW SHEET .
A.

LOAN TYPE :

DIRECT , INDIRECT , INSTAL , REM ,

COMMERCIAL

B.

OFFICER /BRANCH ? THIS INFORMATION WILL SERVE
TO ISOLATE THE