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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 been have Regs discrimination Effective Date Affected Institutions in r o other &L,SAny bank ,stitution State the of including ublic aagency p , regularly that , rranges makes a the for loans purchases or e ,ronstruction c purchase habilitation , mprovement i or accom housing of refinancing State c hartered insured FSLIC FHLB the of members are which i nsured F -,. ence SLIC H System associations c - hartered State Board both with comply must .Federal law State and regs associations only must comply with Board regs . tion any of thereon location or tructure or ,s building such with accommodation housing Any units dwelling four less or esidence r a as used is that and owner be will or is the that e , xcept occupied be to have not does property ais loan the if -occupied owner . loan improvement home secured designed for Structure residential 1-4 by use be to is w , hich families borrower's the as occupied . residence primary 248 for offered is which land vacant construc the for sale lease or .IV -cshartered .S&LState . modations defined hich is w ,Any dwelling r o tructure ,as s building any a, ncluding i thereof portion ,which home mobile occupied is for intended or designed o ,r as by r aas , esidence occupancy any nd ,a families more or one . thereof portion measure emergency as Adopted implement 1976 . (Regs to proposed been not have act this 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 age dwel which in neighborhood the in trends or tics geo or neighborhood surrounding area graphic in except dwelling the where case p a articular avoid to required is it unsound or unsafe an . practice business person of age c , harac conditions in trends or teristics or neighborhood the sur area geographic dwelling the rounding p ainarticular except re is it where case an avoid to quired unsound and unsafe . 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 of because Rules of the S (24 ubchapter C S&L ommission the of Regs and ) er should institution financial 2)Napprais A,ion association the consider racial thnic eligious ,e r ing in or determining whether particular to 2)R in lend efusal .is unlawful There neighborhoods ,ofore varying rrefusal lend to level income the of ,because terms n eigh in aor composition racial or unfounded of because borhood regarding assumptions 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 on discriminate which or dwelling of location age discriminatory are per or se under effect in Housing Fair N shall institution financial 3) o lines ethnic racial the ,consider on compo origin national or religious aneighborhood of sition appraising in inconsistent 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 Each shall make available at every written underwriting loan standards will which avail be able to the public upon request which and must annually be re association the by .viewed for office distri public bution p aamphlet explain association the ing criteria deciding whether for and standards (T be also will hese what conditions under to dur examiners our by reviewed examination the .ing )process inform must institution Each application for an approve Must afile c . opy l a oan with Commissioner P . amphlet must state that persons all w right ahave file to rit aloan for application .ten ofer inquirer each /hright his X. Policies Marketing and Advertising w a ritten file to applica loan and tion receive ato of c opy .the standards underwriting Prohibits directly or in adver in engaging directly tising which suggests p a olicy discrimination of exclusion or association No shall or use amarketing in engage system underwriting an in or policy which d has iscriminatory a a acial against effect r ,r e sex ligious ,m status arital ancestral origin nation or association the unless group is system the that show can achieve over an to required violation in Title of VIII or 254 or these Rregs .ECOA equires institutions review to their advertising marketing and their that ensure to practices services available are the to D . efines serve they community discrimination lending in including as improperly re to clientele one's stricting certain segments the of community E . xpected an is examination associa the of tion's loan portfolio and application ascertain to flow whether i ,n of view demo the and characteristics graphic credit demands the of com ,the munity is institution adequately serving the com n aondiscriminatory on munity i .Anstitutions ,basis lso must include FHLBB the EQUAL HOUSING OPPORTUNITY r L )(oENDER their in advertisements -savings .non business legitimate riding . purpose main must association Each Com the file with on tain des d aocument missioner poli marketing the cribing the programs of and cies document .The association d a escription include must areas m arket 1),2 edia of advertis of ,3)focus used advertise sample and ing use t he ,4)of ments brochures informational ,5)mortgage posters and counseling programs .,if any relationships 6)working ,7budget brokers )with PROVISIONS REGULATIONS FHLBB Reinvestment Community (Our re egulations )r (CRA Act to association each quire of types specific the list is it prepared that credit it community the offer to to is encouraged and serves :CRA Statement its in include of dhow A(1) escription LAW CALIFORNIA REGULATIONS CALIFORNIA s 8), taff breakdowns o ,9) ther s responsibilitie describing .In information ,the information such give to is association the to emphasis special such which to extent to relates information . neighborhoods 255 de programs affirmative services market to signed and groups protected to various of residents to portion that of Copies with deals which report the lending association's the available be must activity inspection public for are Statements CRA The 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 can't lender says which this egative anay it ,m factor as arbi of use Prohibits loan no that rule trary an to made be will appli acertain over is who cant plus age whose ,or ex 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 275 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 276 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 . 277 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 . 279 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 280 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 281 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 282 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 283 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 284 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 -2 467 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 . -3 468 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 -4 469 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 . -6 471 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 . -13 478 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 . -14 479 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 CAUSES OF VIOLATIONS ( DISCUSS ) C. INDICATE DEALER : AGAIN , THIS WILL HELP IN ISOLATION OF CAUSES OF VIOLATIONS . D. LOAN NUMBER : E. APPLICANT ( S ) : MAKE A DETERMINATION FROM THE APPLICATION WHO IS CREDIT IN FACT APPLYING FOR THE BE CAREFUL TO OBTAIN THIS INFORMATION FROM THE APPLICATION AND NOT THE NOTE DOCUMENT ! NOTE AGE AND RACE IF POSSIBLE . APPLICATIONS ARE PHONED IN IF INDIRECT THE OFFICER ACCEPTING CALLS SHOULD REQUIRE THE DEALER TO STATE WHO 827 -3 WHO THE APPLICANT SUCH INFORMATION WOULD IS . BE REQUIRED BY THE BANK TO MONITOR COMPLIANCE IF THE BANK DOES NOT WITH THE REGULATIONS , OBTAIN THIS INFORMATION , THERE COULD BE AN INTERNAL CONTROL DEFICIENCY . F AMOUNT AND TERM : APPLICATION , TRY TO GET NOT THE NOTE , IS THEN COMPARED TO THE THIS FROM THE THIS INFORMATION INFORMATION ON THE NOTE . ANY SUBSTANTIAL VARIATIONS COULD BE AN INDICA ALSO IF CREDIT HAS TION OF DISCRIMINATION , BEEN GRANTED IN DIFFERENT TERMS THAN REQUESTED , NOTIFICATIONS UNDER REG B AND FCRA COULD BE REQUIRED G. SECURITY : NOTE PURCHASE PRICE , DOWNPAYMENT NOTE IF THE REQUEST AND SOURCE , LOAN VALUE . IS FOR SECURED OR UNSECURED CREDIT , ASK MARITAL STATUS , CAN THEY AGAIN IF THE REQUEST WAS FOR UNSECURED AND THE CREDIT GRANTED WAS SECURED , DETERMINE THE REASON WHY , COULD TRIGGER NOTI FICATION UNDER REG B , OR THE FCRA , SINCE THE CREDIT MAY HAVE BEEN GRANTED UNDER LESS FAVORABLE TERMS THAN REQUESTED . ALSO NOTE SIGNATURES ON THE TITLE OF GOODS OFFERED AS SECURITY , 37-415 O - 79 - 53 828 -4 H. OCCUPATION : LENGTH OF TIME ON THE JOB IS OFTEN A BASIS FOR REJECTION , IF YOU ARE TO HAVE A BASIS FOR COMPARISON BETWEEN REJECTED AND ACCEPTED FILES , YOU MUST HAVE THIS INFORMATION . 1 . INCOME : REVIEW THE APPLICATION FOR DISCOUNTING OF INCOME OR CONSIDERATION OR ALIMONY OR CHILD SUPPORT PAYMENTS AS A SOURCE OF REPAYMENT . LOOK AT WORK SHEETS USED BY THE BANK FOR COMPARISONS OF INCOME TO PAYMENTS . REM REQUESTS THESE ARE COMMON ON OFTEN THEY WILL SHOW INCOME THAT AN APPLICANT HAS NOT OFFERED BY THE BANK , BUT THE BANK HAS OBTAINED FROM AN OUTSIDE SOURCE OR J. INCOME TAX RETURN . DEBT LOAD : AGAIN THIS IS A COMMON REASON FOR REJECTION . IT IS IMPERATIVE THAT YOU NOTE THIS ON ACCEPTED FILES TO GIVE YOU A BASIS OF COM PARISON , K. CREDIT SCORE : IF A SCORING SYSTEM IS USED NOTE THE SCORE . L. CREDIT HISTORY : HISTORY AGAIN LACK OF OR A POOR CREDIT IS A BASIS FOR REJECTION , COMPLETE NOTATION OF THE NUMBER OF ACCOUNTS AND THE RATINGS REPORTED BY A CRA IS ESSENTIAL . NOTE HERE THE EXTENT AND QUALITY OF A CUSTOMER'S RELATIONSHIP WITH THE BANK IN THE PAST . OUTSIDE INFORMATION FROM OTHER SOURCES WOULD ALSO BE REPORTED HERE . 1 829 -5 M. CHECK FOR TIMING OF NOTI APPLICATION DATE : FICATION OF ACCEPTANCE OR REJECTION , THIS DATE WITH THE DATE ON THE GFE . N. SIGNATURES ON THE APPLICATION : 0. SIGNATURES ON NOTES : ( RESPA ) WHO APPLIED DO THE SIGNATURES ON THE NOTES COMPARE TO THE SIGNATURES ON THE APPLICATION ? P SIGNATURE ON THE SECURITY INSTRUMENT : AGAIN THE PURPOSE OF THIS IS TO DETECT SIGNATURE VIOLA TIONS . IS IT NECESSARY TO SIGN THE SECURITY AGREEMENT ? IF YOU SEE THAT ONLY ONE PARTY IS SIGNING THE NOTE AND BOTH THE HUSBAND AND THE WIFE SIGN THE SECURITY AGREEMENT , INDICATE THAT THE BANK THE OTHER HAND , IS IT COULD IN COMPLIANCE . ON IF BOTH SIGN THE NOTE AND SECURITY AGREEMENT , AND THE APPLICATION WAS SIGNED BY ONLY ONE , OF Q. THIS COULD BE AN INDICATION NONCOMPLIANCE . MARITAL STATUS : WAS BANK IN COMPLIANCE . REQUEST IF JOINT OR SECURED CREDIT . CAN IF REQUEST WAS FOR OTHER THAN JOINT OR SECURED CREDIT , THIS COULD BE A VIOLATION , 830 -6 R. NUMBER OF DEPENDENTS : S. ADDRESS : BE ALERT FOR CONCENTRATIONS OF ADDRESSES IN CERTAIN AREAS . IMPORTANT T. IN THAT APPRAISAL PORTION : LENGTH OF TIME IN AREA IS IS OFTEN A BASIS FOR DENIAL . BE DETAILED , A DESCRIPTION OF ONE - STORY FRAME RS , ON NEIGHBORHOODS , ETC. IS NOT SUFFICIENT . COMMENT COMPLETE DESCRIPTIONS ARE NECESSARY FOR YOUR FAIR HOUSING PROCEDURES . THE INFORMATION YOU HAVE ACCUMULATED SO FAR HAS COME FROM THE NOTE AND APPLICATION FORM . OTHER SOURCES INCLUDE OFFICER COMMENTS , FINANCIAL STATEMENTS , INCOME TO DEBT SHEETS OR OTHER INTERNAL WORKSHEETS APPRAISALS . OF COURSE , REJECTED FILES WILL NOT CONTAIN NOTES , BUT OTHER PERTINENT INFORMATION WILL BE IN THE FILE . COMPLETENESS OF FILE WORK IS IMPORTANT IF YOU ARE TO DO ACCURATE EVALUATION OF THE BANK'S APPLIED LENDING PRACTICES . Now LOOK AT YOUR EXAMINATION PROCEDURES FOR REGULATION B. WHAT TYPES OF THINGS WILL BE LOOKING FOR IN THE INFORMATION WE HAVE ACCUMULATED , LOOK AT EXAM PROCEDURES # 6 AND # 7 . BE SURE WHEN YOU TRANSCRIBE INFORMATION FROM THE FILE , THAT YOU INCLUDE INFORMATION ON THE CO - APPLICANT , AND GUARANTOR . IF THERE IS A GUARANTEE IN THE FILE NOTE THE SIGNATURES ON THE GUARANTEE . THIS MAY BE RECORDED NEXT TO THE SIGNATURE ON THE NOTE OR ANYWHERE THERE IS ROOM . 831 -7 TAKE A LOOK AT THE REGULATION B PORTION OF THE LINE SHEET . A. EP # 6A CREDIT DECISION POLICY FOLLOWED ? 1. VP # 4A COMPARE APPLICANT INFORMATION TO THE CRITERIA ESTABLISHED BY THE LOAN POLICY OR THE POLICY VP # 4 ( 1 ) YOU HAVE DEVELOPED FROM THE REGULATION B INCONSISTENCIES MAY INDICATE GENERAL CHECKLISTS . 202.6 ( B ) ( 1) ( B) ( 2) AGE DISCRIMINATION . ( B) ( 7) CUTI TO NOTE ) ( EXPLAIN THE LEGEND AND HOW ZENSHIP ( A) THIS IS PARTICULARLY IMPORTANT FOR REJECTIONS ( B) VARIANCES IN POLICY SHOULD BE DISCUSSED WITH MANAGEMENT ( c) EXPLAIN DEVIATIONS FROM POLICY IN THE COMMENTS B. EP 6 ( B ) SECTION WHO COMPLETES THE APPLICATION ? 1. IF THE OFFICER COMPLETES THE APPLICATION , PERFORM VERIFICATION PROCEDURE # 3 , ( DOES OFFICER REQUEST INFORMATION PROHIBITED BY 202.5 ( c ) & ( D) AND IS NOTIFICATION OF REJEC TION PROPERLY HANDLED . ( SECTION 202.9 ( A ) ( 2 ) ) . 832 -8 C. APPLICATION PROPERLY COMPLETED ? 1. 2. ( DISCUSS THOROUGHLY ) INDICATION OF INTERNAL CONTROL WEAKNESS WHEN THE FORMAT DESIGNED TO INSURE COMPLIANCE IS 3. NOT USED , IF BANK HAS A FORM THAT COMPLIES , AND DOES NOT PROPERLY USE IT AND THEY DON'T HAVE PROCEDURES IN EFFECT TO DETECT IMPROPER USAGE , CAN THEY PROVE A " GOOD FAITH ATTEMPT " TO COMPLY WITH REGULATION B ? D. VP 4 F No. ACCOUNT OFFERED FOR INDIVIDUAL CREDIT ? 1 . SECTION 202.7 ( A ) REQUIRES INDIVIDUAL ACCOUNTS BE OFFERED REGARDLESS OF SEX , MARITAL STATUS OR ANY OTHER PROHIBITED BASIS . 2. IF CREDIT WAS DENIED A CREDITWORTHY APPLICANT BECAUSE THE SPOUSE COULDN'T SIGN OR BECAUSE OF AGE , THIS IS A VIOLATION AND WOULD BE NOTED . AS SUCH ( x ) E. VP 4 ( H ) ON THE SHEET CHOICE OF COSIGNER ALLOWED ? 1. SECTION 202.7 ( D ) ( 5 ) REQUIRES THAT THE SPOUSE SHOULD NOT BE REQUIRED TO BE THE SECOND PARTY , EXCEPTION . IF THE APPLICANT IS RELYING ON SEPARATE INCOME OF ANOTHER PERSON . 833 -9 2 . LOOK AT THE APPLICATION INFORMATION YOU OBTAINED . HAVE HAS OFFICER MADE COMMENT THAT THE CO - SIGNER WILL BE THE WIFE ? FATHER ? THE SINGLE SIGNATURE ON APPLICATION AND BOTH SIGNATURES ON THE NOTE COULD INDICATE THAT THE CHOICE WAS NOT LEFT TO THE APPLICANT . IF YOU QUESTION PRIORITY OF THE DUAL SIGNA TURES , QUESTION THE OFFICER AND RECORD HIS COMMENTS F. VP 3 ( A ) INFORMATION ON THE SPOUSE PERMITTED ? 1. SECTION 202.5 ( c ) OUTLINES WHEN INFORMATION ABOUT A SPOUSE OR FORMER SPOUSE MAY BE PER MITTED 2. YOU MUST DETERMINE WHETHER ANY INFORMATION RECORDED ABOUT THE SPOUSE WAS REQUESTED IN VIOLATION OF 202.5 ( c ) . EXPLAIN WHY THE INFORMATION WAS NOT PERMITTED ( E.G. THE SPOUSE INFORMATION WAS NOT NECESSARY SINCE SPOUSE WAS FOR NOT SUPPORTING THE DEBT , IT OR COMMUNITY PROPERTY WAS NOT BUT APPLICATION FORM REQUESTED AS A MATTER OF COURSE . ) LIABLE INVOLVED , INFORMATION IF THE APPLICATION CONTAINED ONLY INFORMATION CONCERNING THE APPLICANT AND THE NOTE WAS SIGNED ONLY BY THE 834 -10 APPLICANT , BUT THE CREDIT FILE CONTAINED OFFICER'S COMMENTS CONCERNING THE MARITAL STATUS OF THE APPLICANT AND / OR INFORMATION CONCERNING THE SPOUSE , SUCH INFORMATION SHOULD BE LISTED UNDER COMMENTS AND INVESTIGATED TO DETERMINE WHETHER THE BY THE OFFICER INFORMATION WAS OBTAINED IN VIOLATION OF THE REGULATION THROUGH ORAL QUESTIONING . 3. DISCUSS PROBLEMS ENCOUNTERED IN INDIRECT INFORMATION IN THEIR ENDEAVOR TO OBTAIN COM PLETE INFORMATION ON THE APPLICANT FOR THE BANK , G. EP 6 ( D ) SPOUSE SIGNATURE OBTAINED ? 1. SECTION SECTION 202.7 ( D ) . NOT REQUIRE THE SIGNATURE OF THE SPOUSE ON THE NOTE OR GUARANTEE . 2. IF BOTH SIGNATURES ARE NOTED , REVIEW THE MATERIAL GATHERED ON THE APPLICATION TO TRY AND MAKE A DETERMINATION IF THE SPOUSE'S SIG NATURE IS REQUIRED . 3. BE ALERT FOR CONCENTRATIONS OF DUAL SIGNATURES ON THE NOTES YOU REVIEW . TION CAN REQUIRED SUCH A CONCENTRA INDICATE THAT THE SIGNATURES ARE 835 -11 H. EP 6 ( E ) PROHIBITED INFORMATION IN FILE ? 1. SECTION 202.12 ( A ) OUTLINES CASES IN WHICH PROHIBITED INFORMATION MAY BE RETAINED IN THE FILE 2. A CRA B BEFORE EFFECTIVE DATE C. VOLUNTEERED Di MONITORING INFORMATION IF PROHIBITED INFORMATION IS IN THE FILE , YOU SHOULD DETERMINE IF SUCH INFORMATION WAS OBTAINED AS ALLOWED BY THIS SECTION , IF NOT , NOTE AS A VIOLATION , I PROHIBITED INFORMATION CONSIDERED ? 1. BE ALERT FOR PROHIBITED INFORMATION IN THE FILE THAT WAS ALLOWED , CONSIDERED . AGE , BUT SHOULD NOT BE ( INFORMATION OBTAINED IN H ABOVE : NATIONAL ORIGIN , OR FOR MONITORING PURPOSES . 2. INFORMATION RECEIVED ( SECTION 202.12 ) FILE COMMENTS OR REASONS GIVEN FOR DENIAL MAY ALERT FACTORS . YOU AS TO CONSIDERATION OF THESE 836 -12 3. OLD LOAN APPLICATIONS MAY CONTAIN INFORMATION PROHIBITED BY REGULATION B AND THE NEW APPLI CATION TAKEN , OR SUPPORTING WORK SHEETS MAY SHOW THAT SUCH INFORMATION WAS CONSIDERED . RULES CONCERNING EVALUATION . ( SECTION 202.6 ( A ) ) 4, YOU SHOULD ASCERTAIN WHETHER INFORMATION IN THE FILE ON A PROHIBITED BASIS IS CON SIDERED IN VIOLATION OF 202.6 ( B ) ( 1) , THE INFORMATION MAY BE CONSIDERED IN VIOLATION ALTHOUGH NOT OBTAINED AGE IN VIOLATION , WHENEVER IS CONSIDERED , BE CERTAIN THAT THERE IS A DEMONSTRABLY AND STATISTICALLY SOUND EMPIRICALLY DERVIED CREDIT SYSTEM USED AND THAT ELDERLY APPLICANTS ARE NOT ASSIGNED A NEGATIVE VALUE . ( 12 CFR 202.6 ( B ) ( 2 ) ( 11) ) IN A JUDGMENTAL SYSTEM , AGE AND RECEIPT FROM A PUBLIC ASSISTANCE PROGRAM MAY ONLY BE CON SIDERED IF FOR THE PURPOSE OF DETERMINING A PERTINENT ELEMENT OF CREDITWORTHINESS . ( 202.6 ( B ) ( 2 ) ( u J. ) ) FOOTNOTE # 9 CREDIT HISTORY CONSIDERED AS REQUIRED ? 1. SECTION 202.6 ( B ) ( 6 ) ( ) , THE CREDIT HISTORY OF ACCOUNTS FOR WHICH THE APPLICANT IS A USER OR CONTRACTUALLY LIABLE , EVEN IF LISTED IN A SPOUSE'S NAME . 837 -13 A. FOR EXAMPLE , BE ALERT FOR A REJECTION THAT MAY BE ACCOMPANIED BY A CREDIT REPORT THAT SHOWS CREDIT TO ONLY THE HUSBAND AND ON WHICH THE WIFE WAS REJECTED BECAUSE SHE HAD INSUF FICIENT CREDIT HISTORY , THIS COULD INDICATE THAT THE BANK DID NOT PROPERLY CONSIDER HER HISTORY , DISCUSS WITH MANAGEMENT AND MAKE COMMENTS B. ALSO APPLICATION FORMS MAY ONLY ASK FOR PREVIOUS ACCOUNTS HELD IN THE APPLICANT'S NAME . 2 . SECTION 202.6 ( B ) ( 6 ) ( 1 ) REQUEST ANY AND ( INFORMATION 1) , INDICATING ON THE APPLICANT'S THAT THE CREDIT HISTORY OF ANY ACCOUNT DOES OR DOES NOT ACCURATELY REFLECT THE APPLICANT'S ABILITY TO REPAY , EVEN IF LISTED IN SPOUSE'S NAME . A. AGAIN , THIS SITUATION MAY BE DISCOVERED IN A REJECTED APPLICATION PARTICULARLY IF A HUSBAND AND A WIFE ARE A POOR RECORD , SEPARATED AND THE HUSBAND HAS THIS SITUATION SHOULD BE DIS CUSSED WITH THE BANK TO DETERMINE IF THE OFFICER GAVE HER A CHANCE ( OR EVENT KNEW THAT HE SHOULD ) TO OFFER EVIDENCE THAT THE REPORT DID NOT DEMONSTRATE HER CREDIT EXPERIENCE . FOR FILE COMMENTS THAT MAY SIDERATIONS GIVEN , BE ALERT INDICATE CON 838 -14 K. ANY INCOME DISCOUNTED IN VIOLATION ? 1. VP 4 ( 0 ) VP 4 ( c ) SECTION 202.6 ( B ) ( 5 ) REQUIRES THAT INCOME OF THE APPLICANT OR SPOUSE NOT BE DISCOUNTED ON A PROHIBITED BASIS , BECAUSE IT IS PART - TIME , OR BECAUSE IT IS DERIVED FROM AN ANNUITY , PENSION , OR OTHER RETIREMENT BENEFIT ANY INCOME MAY BE CONSIDERED TO THE EXTENT IT IS LIKELY TO BE CONTINUED . A. VIOLATIONS MAY BE DISCLOSED BY NOTING OFFICER COMMENTS , OR REVIEW OF INCOME TO DEBT SHEETS PREPARED BY THE BANK WHICH MIGHT B. SHOW THE DISCOUNTING OF ( GIVE EXAMPLE ) INCOME . YOU MIGHT FIND A REJECTION BASED SOLELY ON THE FACT THAT THE APPLICANT'S ONLY SOURCE OF INCOME WAS PUBLIC ASSISTANCE INCOME , OR A REJECTION BECAUSE THE APPLI CANT WAS UNEMPLOYED . L. VP 4 ( E ) CHILDBEARING INTENTIONS CONSIDERED ? 1. SECTION 202.6 ( B ) ( 3 ) , YOU SHOULD DETERMINE WHETHER ASSUMPTIONS OR STATISTICS RELATED TO THE LIKELIHOOD OF CHILDBEARING OR REARING ARE CONSIDERED , THIS SHOULD ALWAYS BE DETERMINED IF SUCH INFORMATION IS INDICATED ON THE LINE SHEET AS BEING REQUESTED OR OTHERWISE OBTAINED . 839 -15 A. YOU MAY DISCLOSE VIOLATIONS OF THIS THROUGH COMMENTS MADE ON THE APPLICATION , OR DISCOUNTING OF INCOME DUE TO THE LIKELIHOOD OF THE APPLICANT HAVING A BABY , M. DETERMINATION OF JOINT ACCOUNT FOR MARRIED APPLICANTS ? 1. SECTION 202.10 ( A ) . THE BANK MUST HAVE THE ABILITY TO PROVIDE CREDIT HISTORIES IN THE IF SPECIFIC NAME OF EACH PARTY TO THE CREDIT , REQUESTS ARE MADE FOR ONE SPOUSE , THE BANK MUST BE ABLE TO FURNISH THE DATA IN THE NAMES OF THAT SPOUSE ONLY , A. THUS , IF BOTH NAMES APPEAR ON THE APPLI CATION AND THE NOTE , THE FILE MUST BE DESIGNED SO THAT EACH SPOUSE'S HISTORY COULD BE RETRIEVED FROM THE FILE , N. CREDIT RECORDS MAINTAINED ? 1 . SECTION 202.12 ( B ) . YOU SHOULD ASCERTAIN WHETHER REQUIRED RECORDS , CAPPLICATIONS , AND ANY WRITTEN OR RECORDED INFORMATION USED ) ARE MAINTAINED FOR 25 MONTHS AFTER NOTIFICATION OF ACTION IS GIVEN , IN ADDITION , IN FILES FOR RESIDENTIAL REAL ESTATE LOANS , YOU SHOULD CHECK TO SEE IF INFORMATION REGARDING RACE , NATIONAL 840 -16 ORIGIN , SEX , MARITAL APPLICANT STATUS , AND AGE OF THE IS REQUESTED AND MAINTAINED WITH OTHER CREDIT RECORDS FOR 25 MONTHS . A. MAKE SURE THIS INFORMATION IS MAINTAINED ON REJECTIONS , B. MAKE SURE INFORMATION FOR MONITORING PURPOSES IS OBTAINED . C. IF INFORMATION FOR MONITORING PURPOSES IS NOT PROVIDED BY THE APPLICANT , THAT FACT IS NOTED ON THE APPLICATION , 0. ( 202.13 ( c ) ) PROPER NOTIFICATION GIVEN ( REASON AND ECOA ) ? 1. YOU SHOULD INDICATE WHETHER NOTIFICATION OF ACTION WAS GIVEN WITHIN 30 DAYS OF APPLICATIONS 30 DAYS AFTER TAKING ADVERSE ACTION , OR 90 DAYS AFTER OFFER OF ALTERNATIVE CREDIT TERMS ( SECTION 202.9 ( A ) ( 1 ) ) . 2. ANY NOTIFICATION OF ADVERSE ACTION MUST CONTAIN THE ACTION TAKEN , ECOA NOTICE AND THE SPECIFIC REASONS FOR DENIAL ( OR DISCLOSURE THAT THE REASONS ARE AVAILABLE BY REQUEST WITHIN 60 DAYS AS REQUIRED BY SECTIONS 202.9 ( A ) ! AND ( B ) . 841 -17 REMEMBER THAT ADVERSE ACTION NEED NOT A. BE REJECTION , LESS FAVORABLE TERMS CON BE ALERT FOR STITUTES ADVERSE ACTION , DIFFERING FINAL TERMS ON THE NOTE AND DIF THOSE REQUESTED ON THE APPLICATION . FERENCES SHOULD BE FULLY DISCUSSED TO DETERMINE IF PROPER NOTIFICATION WAS REQUIRED . BE ALERT TO THE REASONS NOTED FOR REJECTION . B, 1. ARE THEY COMPLETE ? 2 . ARE THEY VALID IN LIGHT OF THE BANK'S ( DEVIATIONS FROM POLICY MAY POLICY ? INDICATE DISCRIMINATION . ) 3. ARE THEY DOCUMENTED AND THEREFORE SUPPORTED BY THE FILE ? ONCE YOU HAVE COMPILED ALL YOUR FILE WORK AND MADE SOME CONCLUSIONS , LINE SHEETS , MAKE A COMPLETE REVIEW OF ALL YOUR THE EXAMINER SHOULD BEGIN A CAREFUL REVIEW AND COMPARISON OF BOTH ACCEPTED AND REJECTED APPLICATIONS FOR EVIDENCE STATUS , OF DISCRIMINATION AS TO OR OTHER PROHIBITED BASIS , SEX OR MARITAL THE BANK'S WRITTEN LOAN POLICY SHOULD BE AVAILABLE AS A REFERENCE AT THIS POINT NOTE HOW APPLICATION FORMS THAT YOU HAVE REVIEWED AS OF PART THE BLANK FORM REVIEW HAVE BEEN USED INCORRECTLY , FOLLOWING IS A LIST OF THINGS TO LOOK FOR WHEN REVIEWING THE LINE SHEETS WHICH MAY INDICATE DISCRIMINATION ON THE BASIS OF SEX OR MARITAL STATUS : 842 -18 A. ALL LOANS TO MARRIED INDIVIDUALS HAVE A COSIGNER AND THE APPLICANT AND ANY SECURED PROPERTY , ARE NOTE LOCATED IN A COMMUNITY PROPERTY STATE . B. LOANS TO APPLICANTS OF A PARTICULAR SEX OR MARITAL STATUS MAY ONLY HAVE ONE THE LOAN MAY CONTAIN TWO SIGNATURE . SIGNATURES SIMILARLY , ALTHOUGH THE APPLICATION WAS FOR INDIVIDUAL CREDIT , C. TERMS OF THE LOANS TO MARRIED APPLICANTS ARE MORE FAVORABLE THAN TO UNMARRIED APPLICANTS , MORE STRICT CREDIT CRITERIA WAS APPLIED TO OR INDI - VIDUALS WHO ARE UNMARRED OR OF A PARTICULAR SEX . D. LOANS FOR BUSINESS PURPOSES WHICH ARE SIGNED BY PRINCIPALS AND GUARANTEED BY PRINCIPALS MAY ALSO BE GUARANTEED BY THEIR SPOUSES . FURTHER INVESTI GATION IS DESIRABLE TO DETERMINE WHETHER UNMARRIED PRINCIPALS MUST ALSO SUPPLY AN ADDITION GUARANTOR . E. THE REASONS FOR DENIAL OF CREDIT IN REJECTED LOAN FILES CANNOT BE SUBSTANTIATED BY THE APPLICATION OR F. OTHER CREDIT INFORMATION , SECURED LOANS MAY BE SIGNED BY MARRIED , JOINT OWNERS WHO DID NOT SIGN THE APPLICATION . TRY TO DETERMINE IF THE BANK HAS A POLICY OF REQUIRING JOINT OWNERS TO SIGN THE NOTE AS WELL AS SECURITY INSTRUMENTS . 843 -19 SUCH A POLICY IS PROHIBITED BY THE REGULATION UNLESS STATE LAW REQUIRES THAT BOTH SPOUSES MUST SIGN THE DEBT INSTRUMENT IN ORDER TO CREATE A VALID SECURITY INSTRUMENT , THE BANK MAY HAVE RECEIVED ADVICE FROM THEIR COUNSEL ON THIS MATTER . REGIONAL CONSUMER SPECIALIST CAN VERIFY THE EXISTENCE OF SUCH STATE LAWS IN YOUR AREA . IT IS NOT UNCOMMON FOR LOAN OFFICERS TO HANDLE AN ENTIRE CREDIT APPLICATION ORALLY , OFFICERS SHOULD RETAIN MEMO RANDUMS OR NOTATIONS OR ORAL CONVERSATIONS WITH THE APPLICANT REGARDING THE NOTIFICATION OF ACTION TAKEN AND THE REASONS FOR DENIAL IF REQUESTED AND GIVEN ORALLY , THE DATE OF THE NOTICE AND REASONS FOR DENIAL SHOULD BE LISTED UNDER THE " COMMENTS " SHEET SECTION OF THE LOAN REVIEW ANY WRITTEN REMARKS ALLEGING DISCRIMINATION BY THE APPLICANT SHOULD ALSO BE RECORDED ON THE LINE SHEET , ( BRIEFLY DISCUSS WHAT TO DO IN A BANK THAT HAS ORAL APPLICATION PROCESS ) A. RELY ON THE SIGNATURES OF NOTES TO INDICATE VIOLATIONS . B. YOUR EMPHASIS WILL BE ON THE LENDING PRACTICES OF THE BANK , IF , FROM YOUR FILE WORK YOU HAVE REASON TO SUSPECT DEFICIENCIES IN A PARTICULAR AREA . WORK FILES THAT WILL . HELP YOU IN MAKING YOUR FINAL DETERMINATION ON THE 37-415 0 - 79 - 54 844 -20 FOR EXAMPLE , IF YOU PRIORITY OF THE BANK'S PRACTICE . SUSPECT THAT A BANK MAY BE GATHERING INFORMATION ON OR A SIGNATURE OF A SPOUSE , YOU MAY WORK FILES THAT MAY A GOOD HIGHLIGHT SUCH PRACTICES . SOURCE FOR THIS TO SELECT OR REVIEW UNSECURED LOANS . THIS IS IS A LESS COMPLICATED FILE TO REVIEW THAN ONE WITH SECURITY , SINCE YOU WILL NOT WONDER IF THE BANK OBTAINED SIGNA TURES TO PERFECT SECURITY INTERESTS , IF THE REGIONAL CONSUMER SPECIALIST HAS SUBMITTED TO THE EXAMINER CORRESPONDENCE REGARDING DISCRIMINATION COMPLAINTS , TIGATED THESE COMPLAINTS SHOULD BE CAREFULLY INVES THE REJECTED LOAN FILE SHOULD BE PULLED AND SCRUTINIZED FOR INFORMATION WHICH MAY TION OF THE REGULATION . INDICATE A VIOLA THE LENDING OFFICER SHOULD BE INTERVIEWED TO DETERMINE THE CRITERIA WHICH WAS USED IN EVALUATION OF THE APPLICATIONS , RESULTS OF THE INVES TIGATION SHOULD BE SUBMITTED TO THE REGIONAL CONSUMER SPECIALIST , AND ANY VIOLATIONS DISCOVERED SHOULD BE DISCUSSED WITH MANAGEMENT AND NOTED IN THE REPORT . ANY INCONSISTENCIES AMONG SIMILAR EXTENSIONS OF CREDIT AND BETWEEN ACCEPTED AND REJECTED APPLICATIONS SHOULD BE DISCUSSED WITH THE TENCIES BETWEEN OFFICER AND MANAGEMENT , WRITTEN AND ACTUAL POLICY BE BROUGHT TO MANAGEMENT'S ATTENTION . INCONSIS SHOULD ALSO THESE MAY BE INDICATIONS OF DISCRIMINATORY LENDING PRACTICES . EXAMINER SHOULD MAKE APPROPRIATE COMMENTS ON HIS THE 845 -21 FINDINGS AND MANGEMENT'S CORRESPONDENCE RESPONSE IN THE REPORT OF EXAMINATION . IT IS NOT EXPECTED THAT FIELD EXAMINERS MUST MAKE DECISIONS AS TO WHETHER DIS CRIMINATION HAS TAKEN PLACE . THE FACTS . FOR REVIEW , Іт WE MUST SIMPLY PRESENT IS OUR JOB TO PRESENT TO MANAGEMENT SPECIFIC EXAMPLES FOUND WHILE SAMPLING WHICH COULD LEAVE THE BANK OPEN FOR LIABILITY . ANY VIOLATIONS INDICATED ON THE LINE SHEET SHOULD BE COMPILED FOR REVIEW WITH MANAGEMENT , FCRA - SAMPLING IF YOU HAVE DETERMINED ( E.P. 2 AND 3 ) THAT THE BANK USES INFORMATION FROM AN OUTSIDE SOURCE , YOU MUST CHECK FOR REQUIRED DISCLOSURES IN REJECTED LOAN FILES . NAME AND ADDRESS OF THE CRA AS REQUIRED BY 15 U.S.C. 1681 M ( A ) , IF INFORMATION FROM A THIRD PARTY OTHER THAN A CRA LED TO THE ADVERSE ACTION , INDICATE THIS ON THE LINE SHEET AND VERIFY ( V.P.2 . ) THAT THE BANK DIS . CLOSED THE RIGHT TO FILE A WRITTEN REQUEST FOR THE NATURE OF THE INFORMATION WITHIN 60 DAYS OF THE NOTI FICATION , REVIEW REASONS FOR DENIAL GIVEN UNDER B TO DETERMINE WHETHER OUTSIDE INFORMATION WAS USED . 846 -22 IF YOU HAVE REJECTED INDIRECT APPLICATIONS IN YOUR SAMPLE ( THE BANK MUST RETAIN ALL RECORDS RELATING TO INDIRECT CREDIT REQUESTS FOR 25 MONTHS WHETHER THE CREDIT WAS EXTENDED OR NOT ) , VERIFY ( V.P.1.A. AND 2.A. ) BY THE THAT PROPER DISCLOSURES WERE MADE AS ABOVE BANK CONSUMER THE AND THAT THE DEALER DISCLOSED NAME AND ADDRESS OF THE BANK TO THE IN ORDER FOR THE BANK TO AVOID ISSUING A CRA . YOU MUST HAVE AN ANSWER FOR ALL REQUESTS ON THE LINE SHEET , ANY ( 0 ) ANSWER MUST BE FURTHER EXPLAINED UNDER COMMENTS , UNLESS UPON FURTHER CHECKING A VIOLATION ( X ) 1 EXAMINATION AND VERIFICATION PROCEDURES REGARDING THE SAMPLE , AS LISTED IN YOUR HANDBOOK , HAVE BEEN PERFORMED BEFORE INDICATING THAT ALL PROCEDURES WERE COMPLETED . 847 ECOA LECTURE No. 5 SECTION 10 CHANDOUT # 3 ) ( FLIP CHART ) CREDIT SCORING THE TWO INDIVIDUALS SHOWN ON THE CHART ARE FILLING OUT CAR LOAN APPLICATIONS . AS SHOWN , APPLICANT " A " IS A LAWYER , MARRIED , 35 YEARS OLD , WHO MAKES $ 45M A YEAR AND OWNS A HOUSE , THIS PERSON BORROWS MONEY ACTIVELY AND USUALLY REPAYS ON TIME . APPLICANT " B " IS A MECHANIC , UNMARRIED 25 YEARS OLD , WHO MAKES $ 10M A YEAR AND LIVES IN AN APART MENT . WHO GETS TURNED DOWN ( PICK A COUPLE STUDENTS TO MAKE JUDGEMENT , GET CLASS VOTE , AND RECORD SCORE FOR LATER REFERRAL ) ? BEFORE WE FIND OUT , LET'S LOOK AT CREDIT SYSTEMS USED TO MAKE THE DECISION , THERE ARE ESSENTIALLY TWO CREDIT SYSTEMS USED BY CREDITORS . ( FLIP CHART - WITH TITLES OF BOTH SYSTEMS ) THE FIRST AND MOST FAMILIAR SYSTEM IS THE JUDGEMENTAL SYSTEM . A JUDGEMENTAL CREDIT EVALUATION SYSTEM IS BASED ON THE MORE OR LESS INTUITIVE JUDGMENT OF A CREDIT OFFICER . THE EVALUA TION IS THEREFORE SUBJECTIVE , BEING BASED ON BRAIN WORK . THE SECOND SYSTEM IS THE DEMONSTRABLY AND STATISCALLY SOUND , EMPIRICALLY DERVIED CREDIT SCORING SYSTEM . CREDIT SCORING IS SCIENTIFIC , USING CAREFULLY CALCULATED SCORES TO EVALUATE APPLICATIONS , CONSEQUENTLY WE HAVE AN EVALUATION PROCESS THAT IS OBJECTIVE , BASED ON VALIDATED PREDICTIVE VARIABLES , 848 -2 LET'S TAKE A CLOSER LOOK AT JUST WHAT A DSED CREDIT SCORING SYSTEM IS . 1 THESE SYSTEMS UTILIZE A PREDETERMINED SET OF WEIGHTS , OR POINTS , WHICH ARE APPLIED TO VARIOUS CONSUMER ATTRIBUTES CONTAINED ON AN APPLICATION . THE NUMBER OF POINTS OBTAINED FROM EACH COMBINATION OF PRE - DETERMINED WEIGHTS AND CONSUMER ATTRIBUTES ARE THEN ADDED TOGETHER FOR A TOTAL THE SCORE IS THEN RELATED TO A CUT - OFF LEVEL AND A SCORE CREDIT DECISION IS DETERMINED . THERE ARE CERTAIN REQUIREMENTS THAT MUST BE MET BEFORE AN EVALUATION SYSTEM CAN BE A DSED CREDIT SCORING SYSTEM . THE SYSTEM MUST : 1) ASSIGN POINTS OR WEIGHTS TO INFORMATION PERTAINING TO AN APPLICANT 2) BE STATISTICALLY DERIVED FROM A POPULATION CONSISTING OF ALL APPLICANTS ( BOTH ACCEPTED AND REJECTED ) . 3) BE DEVELOPED USING APPROPRIATE SAMPLING PROCEDURES . 4) PREDICT CREDITWORTHINESS . 5) BE VALIDATED PRIOR TO USE . 6) REVALIDATED AND READJUSTED AS NECESSARY . MANY CREDIT SCORING SYSTEMS ARE DEVELOPED AS PACKAGES FOR CREDITORS ON AN INDIVIDUAL BASIS . THERE ARE APPROXIMATELY 849 -3 5 CONSULTING FIRMS ACROSS THE UNITED STATES THAT DEVELOP THE MAJORITY OF ALL CREDIT SCORING SYSTEMS . HIGHLY TECHNICAL METHODS ARE USED BY STATISTICIANS IN DEVELOPING THESE SYSTEMS BECAUSE OF THE SOPHISTICATION AND INVOLVED PROCESS OF DEVELOP MENT , DSED CREDIT SCORING SYSTEMS ARE EXPENSIVE . UPON THE NUMBER OF SYSTEMS NEEDED AND OTHER COSTS RANGE ABOUT 50M - 100M . DEPENDING FACTORS , THE THIS MAY BE VERY BURDENSOME FO
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