Full text of Federal Reserve Bank of New York Circulars : 10702. Interagency Policy Statement on Discrimination in Lending

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FEDERAL RESERVE BANK
OF NEW YORK

[

Circular No. 10702 T
April 28, 1994

IN T E R A G E N C Y PO LIC Y STATEM ENT ON
D ISC R IM IN A TIO N IN L E N D IN G

To All Depository Institutions and Bank Holding Companies in the Second
Federal Reserve District, and Others Concerned:

Printed on the following pages is the text of an official notice announcing the
adoption of an Interagency Policy Statement on Discrimination in Lending. The
statement was approved by an Interagency Task Force on Fair Lending that had its
first meeting in early March. The Task Force consists of top officials of the 10
Federal agencies responsible for implementing and enforcing the nation’s fair
lending laws, and was organized to develop a coordinated approach to address
discrimination in lending.
As indicated on the first page of the notice, the Federal agencies welcome
comments concerning the application of the principles contained in the policy
statement to specific policies and practices.
Comments may be submitted through June 14, and should be sent to the
appropriate supervisory agency as set forth in the notice. The policy statement
should be distributed by bank holding companies to all of their nonbank subsidiaries
that do consumer lending. Additional single copies of this circular may be obtained
from our Circulars Division (Tel. No. 212-720-5215 or 5216). Questions regarding
this matter may be directed, at this Bank, to Elizabeth Irwin-McCaughey, Manager,
Compliance Examinations Department (Tel. No. 212-720-6820).
W il l ia m

J.

M cD o n o u g h ,

P resid en t.




/D 1 0 &

Friday
April 15, 1994

Part III
Department of Housing and Urban
Development
Office of Federal Housing Enterprise Oversight

Department of Justice
Department of the Treasury
Office of the Comptroller of the Currency
Office of Thrift Supervision

Federal Reserve System
Federal Deposit insurance Corporation
Federal Housing Finance Board
Federal Trade Commission
National Credit Union Administration
Policy Statem ent on Discrimination in Lending; Notice

W
18266

Federal Register / Vol. 59, No. 73 / Friday, April 15, 1994 / Notices

DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
Office of Federal Housing Enterprise
Oversight
[Docket No. N -9 4 -3 7 5 1 ; F R -3 7 0 6 -N -0 1 ]

DEPARTMENT OF JUSTICE
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
[Docket No. 9 4 -0 4 ]

Office of Thrift Supervision
[Docket No. 9 4 -4 1 ]

th e s e A g e n c ie s w ill c o n s id e r to id e n tify
le n d in g d is c rim in a tio n in v io la tio n o f
th e E q u al C re d it O p p o rtu n ity A ct o r th e
F a ir H o u sin g A ct. T h e p rin c ip le s
o u tlin e d a re g e n e ra l in n a tu re . T h e ir
a p p lic a tio n in sp e c ific s itu a tio n s w ill
d e p e n d o n th e facts in v o lv e d a n d is
su b je c t to c o n tin u in g d e v e lo p m e n t. T h e
A g en c ies w e lc o m e c o m m e n ts a b o u t
a p p lic a tio n o f th e p rin c ip le r to sp e c ific
p o lic ie s a n d p ra c tic e s. T h e A g e n c ie s
a n tic ip a te p ro v id in g fu rth e r c la rific a tio n
a n d e la b o ra tio n on th e a p p lic a tio n o f
th e p r in c ip le s in th e fu tu re .
D A T E S : E ffective da te: A p ril 1 5 ,1 9 9 4 .
C o m m e n t d u e da te: Ju n e 1 4 .1 9 9 4 .
ADDRESSES:

HUD: C o m m e n ts s h o u ld b e d ire c te d
to th e R u le s D o ck et C lerk, O ffice o f
G en e ra l C o u n se l, R oom 10276,
[Docket No. R -0834]
D e p a rtm e n t o f H o u sin g a n d U rb a n
D e v e lo p m e n t, 451 S e v e n th S tre e t SW .,
FEDERAL DEPOSIT INSURANCE
W a sh in g to n , DC 20410.
CORPORATION
C o m m u n ic a tio n s s h o u ld refer to th e
a b o v e title .
FEDERAL HOUSING FINANCE BOARD
O FH EO : C o m m e n ts s h o u ld b e
d ire c te d to: C o m m u n ic a tio n s a n d P u b lic
FEDERAL TRADE COMMISSION
A ffairs, O ffice o f F e d e ra l H o u sin g
E n te rp ris e O v e rsig h t, 1700 G S tre et,
NATIONAL CREDIT UNION
F o u rth F lo o r, N W ., W a sh in g to n , DC
ADMINISTRATION
20552.
DOJ: C o m m e n ts s h o u ld b e m a ile d to:
Policy Statem ent on Discrimination in
U .S . D e p a rtm e n t o f Ju stice , H o u sin g a n d
Lending
C iv il E n fo rc e m e n t S ectio n , P.O . B ox
A G E N C IE S : D e p a rtm e n t o f H o u sin g a n d
6 5 9 9 8 , W a sh in g to n , DC 2 0 0 3 5 -5 9 9 8 .
U rb a n D e v e lo p m e n t; O ffice o f F e d e ra l
OCC: C o m m e n ts s h o u ld b e d ire c te d
H o u sin g E n te rp ris e O v ersig h t;
to: C o m m u n ic a tio n s D iv isio n , O ffice o f
D e p a rtm e n t o f Ju stice ; O ffice o f th e
th e C o m p tro lle r o f th e C u rre n c y , 250 E
C o m p tro lle r o f th e C u rren c y , T re a s u ry ;
S tre e t S W .t W a sh in g to n , DC 2 0 219,
O ffice o f T h rift S u p e rv isio n , T re a su ry ;
A tte n tio n D o ck e t N o. 9 4 -0 4 . C o m m e n ts
B o ard o f G o v e rn o rs o f th e F e d e ra l
w ill b e a v a ila b le for p u b lic in s p e c tio n
R eserv e S y stem ; F e d e ra l D e p o sit
a n d p h o to c o p y in g a t th e sa m e lo c a tio n .
In s u ra n c e C o rp o ra tio n ; F e d e ra l H o u sin g
O T S: S e n d c o m m e n ts to: D irec to r,
F in a n c e B o ard ; F e d e ra l T ra d e
In fo rm a tio n S e rv ic e s D iv isio n , P u b lic
C o m m issio n ; N a tio n a l C red it U n io n
A ffairs, O ffice o f T h rift S u p e rv isio n ,
A d m in is tra tio n .
1700 G S tre e t N W ., W a sh in g to n , DC
A C T IO N : N o tic e o f a p p ro v a l a n d a d o p tio n
2 0 5 5 2 , A tte n tio n D ocket No. 9 4 -4 1 .
o f “ P o lic y S ta te m e n t o n D isc rim in a tio n
T h e se s u b m is s io n s m ay b e h a n d
in L e n d in g ” ; a n d S o lic ita tio n o f
d e liv e re d to 1 700 G S tre et N W ., from 9
C o m m e n ts re g a rd in g its a p p lic a tio n .
a.m . to 5 p .m . o n b u s in e s s d ays; th e y
m a y b e s e n t b y fa c sim ile tra n s m is s io n to
S U M M A R Y : T h e D e p a rtm e n t o f H o u sin g
FA X n u m b e r (202) 9 0 6 -7 7 5 5 .
a n d U rb a n D ev e lo p m e n t (HUD), th e
C o m m e n ts w ill b e av a ila b le for
O ffice o f F e d e ra l H o u sin g E n te rp rise
in s p e c tio n a t 1700 G S tre et N W ., from
O v e rsig h t (O FH EO ), th e D e p a rtm e n t o f
1 p .m . u n til 4 p .m . o n b u s in e s s d ay s.
Ju stice (DOJ), th e O ffice o f d ie
V isito rs w ill b e e s c o rte d to a n d from th e
C o m p tro lle r o f th e C u rre n c y (OCC), th e
P u b lic R e a d in g R oom at e s ta b lish e d
O ffice o f T h rift S u p e rv isio n (O TS), th e
in te rv a ls.
B o a rd o f G o v ern o rs o f th e F e d e ra l
BO A RD : C o m m e n ts s h o u ld refer to
R eserv e S y stem (B oard); F e d e ra l D e p o sit
D o ck et N o. R -0 8 3 4 a n d m a ile d to
In s u ra n c e C o rp o ra tio n (FDIC); F e d e ra l
W illia m W . W ile s, S ecre tary , B o a rd o f
H o u sin g F in a n c e B o ard (FHFB), th e
G o v e rn o rs o f th e F e d e ra l R eserve
F e d e ra l T ra d e C o m m issio n (FTC), a n d
S y stem , W a sh in g to n , DC 20551.
th e N a tio n a l C re d it U n io n
A d m in is tra tio n (NCUA) (co llectiv ely ,
C o m m e n ts a d d re s s e d to M r. W ile s m a y
a lso b e d e liv e r e d to ro o m B -2 2 2 2 o f th e
“ th e A g e n c ie s ” ) h a v e a d o p te d a
E cc les B u ild in g b e tw e e n 8:45 a.m . a n d
s ta te m e n t e n title d “ P o licy S ta te m e n t o n
5:15 p .m . w e e k d a y s , o r to th e g u a rd
D is c rim in a tio n in L e n d in g ” th a t
s ta tio n in th e E cc les B u ild in g c o u rty a rd
d e s c rib e s th e g e n e ra l p rin c ip le s th a t
FEDERAL RESERVE SYSTEM




0&

e n tra n c e o n 2 0 th S tre et N W (b etw een
C o n s titu tio n A v e n u e a n d C S tre et NW )
a t a n y tim e . C o m m e n ts m ay be
in s p e c te d in ro o m M P -5 0 0 o f th e M a rtin
B u ild in g b e tw e e n 9 a.m . a n d 5 p .m .
w e e k d a y s, e x c e p t as p ro v id e d in th e
B o a rd ’s ru le s re g a rd in g th e a v a ila b ility
o f in fo rm a tio n (12 CFR 261.8).
FDIC: C o m m e n ts s h o u ld be d ire c te d
to: R o b ert E. F e ld m a n , A ctin g E x ec u tiv e
S e c re ta ry , FDIC, 550 1 7 th S tre et N W .,
W a sh in g to n , DC 20429. T h ey m ay b e
h a n d d e liv e re d to ro o m 4 0 2 ,1 7 7 6 F
S tre e t N W ., W a sh in g to n DC b e tw e e n
8:30 a.m . a n d 5:15 p.m . on b u sin e ss
d ay s. C o m m e n ts m a y also b e faxed to
(202) 8 9 8 -3 8 3 8 .
FH FB : C o m m e n ts sh o u ld b e d ire c te d
to: E la in e L. B aker, A sso ciate D irecto r
a n d E x e c u tiv e S ecre tary , F ed era l
H o u sin g F in a n c e B e a rd , 1777 F S tre et
N W ., W a sh in g to n , DC 20006.
FTC : C o m m e n ts m a y b e file d in
p e rs o n o r m a ile d to: S ecretary , F ed era l
T ra d e C o m m issio n , 6 th S tre et a n d
P e n n s y lv a n ia A v e n u e N W ., W ash in g to n ,
DC 20580.
N CU A : C o m m e n ts s h o u ld b e d ire c te d
to: M r. M ic h a e l J. M cK en na, S taff
A tto rn e y , O ffic e o f G en eral C o u n sel,
N a tio n a l C re d it U n io n A d m in is tra tio n ,
1775 D u k e S tre e t, A le x a n d ria , VA
2 2 3 1 4 -3 4 2 8 .
FO R FU R T H E R IN FO R M A TIO N C O N TA C T :

H U D: P e te r K ap la n , D irector, O ffice o f
R e g u la to ry In itia tiv e s a n d F ed era l
C o o rd in a tio n , (202) 7 0 8 -2 9 0 4 (voice) or
1 - 8 0 0 - 8 7 7-T D D Y (F ed eral In fo rm a tio n
R elay S erv ice).
O FH E O : K ev in G. C h avers, C h ie f o f
Staff, O ffice o f F e d e ra l H o u sin g
E n te rp ris e O v e rsig h t, (202) 4 1 4 -3 8 0 0 .
DOJ: A le x a n d e r C. Ross, (202) 5 1 4 23 0 3 , o r R ic h a rd J. R itter, (202) 5 1 4 47 3 9 , H o u sin g a n d C iv il E n fo rc em e n t
D iv isio n , o r (202) 5 1 4 -0 3 8 3 (TDD).
OCC: R. R u s se ll B ailey, F air L en d in g
S p e c ia list, C o m p lia n c e M a n ag e m en t,
(202) 8 7 4 —
4446; M arg aret H esse,
A tto rn e y , B a n k O p e ra tio n s a n d A sse ts
D iv isio n , (202) 8 7 4 -4 4 6 0 .
O T S: T im o th y R. B u m isto n , D e p u ty
A s s is ta n t D ire c to r for P o licy , (202) 9 0 6 562 9 ; D a v id H. E n zel, S p ecial C o u n sel,
(202) 9 0 6 -6 8 4 4 ; o r V icki H aw k in s-Jo n es,
S e n io r A tto rn e y , (202) 9 0 6 -7 0 3 4 .
B O A RD : G le n n E. L oney, A sso c iate
D ire c to r, (202) 4 5 2 -3 5 8 5 ; o r M ic h a e l S.
B y lsm a, S e n io r A tto rn e y , (202) 4 5 2 3667; D iv isio n o f C o n su m er a n d
C o m m u n ity A ffairs, B o ard o f G o v ern o rs
o f th e F e d e ra l R eserv e S ystem .
FD IC: K en A . Q u in c y , C hief,
C o m p lia n c e a n d S p e c ia l R eview
S e c tio n , D iv isio n o f S u p e rv isio n , (202)
8 9 8 -6 7 5 3 ; B o b b ie Jean N o rris, D e p u ty
D ire c to r, O ffice o f C o n su m er A ffairs,
(202) 8 9 8 -6 7 6 0 ; A n n L oikow , C o u n sel,
(202) 8 9 8 -3 7 9 6 .

/0 7 0 6 L
Federal Register
FHFB: S y lv ia C. M a rtin e z , D irector,
H o u sin g F in a n c e D ire c to ra te , (202) 4 0 8 2825 (voice) o r (202) 4 0 8 -2 5 7 9 (TDD).
FTC: Peggy L. T w o h ig , A ssista n t
D irecto r for C red it P ra c tic e s , B u rea u of
C o n s u m e r P ro te c tio n , (202) 3 2 6 -3 2 2 4 .

NCUA: Robert M. Fenner, General
C o u n sel, or Michael J. McKenna, Staff
A tto rn ey , Office of General Counsel,
(703) 5 1 8 -6 5 4 0 .
SUPPLEMENTARY INFORMATION:

The

fo llo w in g F e d e ra l A g e n c ie s— HUD,
O FH EO , DOJ, OCC, O T S, th e B oard,
FDIC, FH FB, FTC, a n d th e N C U A —
sh a rin g a c o n c e rn th a t so m e p ro sp e c tiv e
h o m e b u y e rs a n d o th e r b o rro w e rs m ay
be e x p e rie n c in g d is c rim in a to ry
tre a tm e n t in th e ir effo rts to o b ta in lo an s,
fo rm e d a n In te ra g e n c y T a sk F o rce on
F air L en d in g to e s ta b lis h u n ifo rm p o lic y
ag a in st d is c rim in a to ry le n d in g .
O n M a rc h 8 ,1 9 9 4 , th e In te ra g e n c y
T ask F o rce o n F a ir L e n d in g m e t to
a p p ro v e or re c o m m e n d a p p ro v a l to th e ir
re sp e c tiv e A g en c ie s o f th e “ P o licy
S ta te m e n t o n D is c rim in a tio n in
L e n d in g ,” p u b lis h e d in th is n o tic e , as a
s ta te m e n t o f th e A g e n c ie s ’ g en e ral
p o s itio n on th e E q u a l C re d it
O p p o rtu n ity A ct a n d th e F a ir H o u sin g
A ct for p u rp o s e s o f a d m in is tra tiv e
e n fo rc e m e n t o f th o s e sta tu te s. T h e
P o licy S ta te m e n t is in te n d e d to be
c o n s is te n t w ith th o s e s ta tu te s a n d th e ir
im p le m e n tin g re g u la tio n s a n d p ro v id e
g u id a n c e to le n d e rs se e k in g to co m p ly
w ith th e m . T h e P o lic y S ta te m e n t d o es
n o t c re a te o r c o n fe r a n y s u b s ta n tiv e or
p ro c e d u ra l rig h ts o n th ir d p a rtie s w h ic h
c o u ld b e en fo rc e a b le in a n y
a d m in is tra tiv e o r c iv il p ro c e e d in g .
T h e A g en cies h a v e all a p p ro v e d th e
P o lic y S ta te m e n t a n d w e lc o m e
c o m m e n ts from th e p u b lic a b o u t
a p p lic a tio n o f th e p r in c ip le s set forth in
th e P o licy S ta te m e n t to sp e c ific le n d in g
p o lic ie s a n d p ra c tic e s. T h e A g en c ies
a n tic ip a te p ro v id in g fu rth e r c la rific a tio n
a n d ela b o ra tio n on th e a p p lic a tio n of
th e fair le n d in g p r in c ip le s , a n d th e se
c o m m e n ts w ill b e ta k e n in to
c o n s id e ra tio n as th e y d o so.
A cc o rd in g ly , th e fo llo w in g p o lic y
sta te m e n t is th e P o lic y S ta te m e n t on
D isc rim in a tio n in L e n d in g a d o p te d by
th e In terag e n cy T ask F o rc e on F air
L ending.
P o licy S ta te m e n t o n D is c rim in a tio n in
L en d in g

The Department of Housing and
Urban Development (“HUD”), the
Department of Justice (“DOJ”), the
Office of the Comptroller of the
Currency (“OCC”), the Office of Thrift
Supervision (“OTS”), the Board of
Governors of the Federal Reserve
System (the “Board”), the Federal
Deposit Insurance Corporation




/ V o l. 5 9 , N o . 73 / F r i d a y , A p r i l 1 5 , 1 9 9 4 / N o tic e s
(“ FD IC ” ), th e F e d e ra l H o u sin g F in a n c e
B o ard (“ F H F B ” ), th e F e d e ra l T ra d e
C o m m issio n (“ F T C ” ), th e N a tio n a l
C re d it U n io n A d m in is tra tio n (“ N C U A ” ),
a n d th e O ffice o f F e d e ra l H o u sin g
E n te rp rise O v e rsig h t (“ O F H E O ” )
(c o llectiv ely , “ th e A g e n c ie s ” ) are
c o n c e rn e d th a t so m e p ro s p e c tiv e h o m e
b u y e rs a n d o th e r b o rro w e rs m a y be
e x p e rie n c in g d is c rim in a to ry tre a tm e n t
in th e ir effo rts to o b ta in lo a n s. T h e 1992
F e d e ra l R eserv e B an k o f B o sto n stu d y
o n le n d in g d is c rim in a tio n ,
C o n g re ssio n a l h e a rin g s, a n d ag ency
in v e stig a tio n s h a v e in d ic a te d th a t race
is a facto r in so m e le n d in g d e c isio n s.
D isc rim in a tio n in le n d in g o n th e b a sis
o f rac e o r o th e r p ro h ib ite d fac to rs is
d e stru c tiv e , m o ra lly r e p u g n a n t, an d
a g a in st th e law . It p re v e n ts th o s e w h o
are d is c rim in a te d a g a in st fro m en jo y in g
th e b e n e fits of a c c e ss to c re d it. T h e
A g en c ies w ill n o t to le ra te le n d in g
d is c rim in a tio n in a n y form . F u rth e r, fair
le n d in g is n o t in c o n s is te n t w ith safe an d
s o u n d o p e ra tio n s. L e n d e rs m u st
c o n tin u e to e n s u re th a t th e ir le n d in g
p ra c tic e s are c o n s is te n t w ith safe a n d
s o u n d o p e ra tin g p o lic ie s.
T h is p o lic y sta te m e n t a p p lie s to all
le n d e rs, in c lu d in g m o rtg a g e b ro k e rs,
is s u e rs of c re d it c a rd s , a n d a n y o th e r
p e rso n w h o e x te n d s c re d it o f a n y ty p e .
T h e p o lic y sta te m e n t is b e in g is s u e d for
se v e ra l re a so n s, in c lu d in g :
• T o p ro v id e g u id a n c e a b o u t w h a t th e
a g e n c ie s c o n s id e r in d e te rm in in g if
le n d in g d is c rim in a tio n e x ists: a n d
• T o p ro v id e a fo u n d a tio n for fu tu re
in te rp re ta tio n s a n d ru le m a k in g s b y th e
A g en cies.
A n u m b e r o f fe d e ra l s ta tu te s seek to
p ro m o te fair le n d in g . F o r e x a m p le , th e
H o m e M ortgage D isc lo su re A ct
(“ H M D A ” ), 12 U .S.C . 2801 et seq ., seek s
to p re v e n t le n d in g d is c rim in a tio n a n d
r e d lin in g by re q u irin g p u b lic d isc lo su re
o f c e rta in in fo rm a tio n a b o u t m ortgage
lo a n a p p lic a tio n s . T h e C o m m u n ity
R e in v e stm e n t A ct (“ C R A ” ), 12 U.S.C.
2901 e t seq ., se e k s a ffirm a tiv e ly to
e n c o u ra g e in s titu tio n s to h e lp to m eet
th e c re d it n e e d s o f th e e n tire
c o m m u n ity se rv e d b y e a c h in s titu tio n
c o v e re d by th e sta tu te , a n d CRA ratin g s
ta k e in to a c c o u n t le n d in g
d is c rim in a tio n b y th o s e in s titu tio n s .
T h e A m e ric a n s w ith D isa b ilitie s A ct, 42
U .S.C . 12101 e t seq ., p ro h ib its
d is c rim in a tio n a g a in st p e rs o n s w ith
d is a b ilitie s in th e p ro v is io n o f g o o d s
a n d se rv ic es, in c lu d in g c re d it se rv ic es.
T h is p o lic y sta te m e n t, h o w e v e r, is b a se d
u p o n a n d a d d re sse s o n ly th e E q u al
C red it O p p o rtu n ity A c t (“ E C O A ” ), 15
U .S.C . 1691 e t seq., a n d th e F a ir
H o u sin g A ct (“ FH A c t” ), 42 U .S.C . 3601
e t se q , th e tw o s ta tu te s th a t sp e c ific a lly
p ro h ib it d is c rim in a tio n in le n d in g .

18267

T h is p o lic y sta te m e n t h a s b e e n
a p p ro v e d a n d a d o p te d b y th e sig n ato ry
A g e n c ie s lis te d ab o v e as a sta te m e n t of
th e A g e n c ie s’ g e n e ra l p o s itio n on th e
ECO A a n d th e FH A ct for p u rp o se s of
a d m in is tra tiv e e n fo rc e m e n t o f th o se
sta tu te s. It is in te n d e d to b e c o n s iste n t
w ith th o se sta tu te s a n d th e ir
im p le m e n tin g re g u la tio n s a n d to
p ro v id e g u id a n c e to le n d e rs seek in g to
c o m p ly w ith th e m . It d o e s n o t cre ate o r
c o n fe r a n y s u b sta n tiv e o r p ro c e d u ra l
rig h ts o n th ir d p a rtie s w h ic h c o u ld be
e n fo rc e a b le in an y a d m in is tra tiv e or
c iv il p ro c e e d in g .
T h is p o lic y sta te m e n t w ill d isc u ss
w h a t c o n s titu te s le n d in g d is c rim in a tio n
u n d e r th e se sta tu te s a n d a n s w e r
q u e s tio n s a b o u t h o w th e A g en c ies w ill
r e s p o n d to le n d in g d is c rim in a tio n an d
w h a t ste p s le n d e rs m ig h t tak e to p re v e n t
d is c rim in a to ry le n d in g p rac tice s.
A . L en d in g D iscrim in a tion S ta tu tes a n d
R eg u la tio n s
(1) T h e ECOA p ro h ib its
d is c rim in a tio n in a n y a s p e c t of a c re d it
tra n s a c tio n . T h e ECO A is n o t lim ite d to
c o n s u m e r lo a n s. It a p p lie s to an y
e x te n sio n o f c re d it, in c lu d in g
e x te n s io n s o f c re d it to sm a ll b u sin e sse s,
c o rp o ra tio n s, p a rtn e rs h ip s , a n d tru sts.
T h e ECOA p ro h ib its d isc rim in a tio n
b a s e d on:
• R ace o r co lo r;
• R elig io n ;
• N a tio n a l o rig in ;
• Sex;
• M a rita l sta tu s;
• A ge (p ro v id e d th e a p p lic a n t h a s th e
c a p a c ity to c o n tra c t);
• T h e a p p lic a n t’s re c e ip t o f in c o m e
d e riv e d from a n y p u b lic a s sista n c e
p ro g ra m ; a n d
• T h e a p p lic a n t’s e x e rcise , in good
fa ith , o f a n y rig h t u n d e r th e C o n su m er
C re d it P ro te c tio n A ct.
T h e F e d e ra l R e serv e B o a rd ’s
R e g u la tio n B, fo u n d a t 12 CFR p art 202,
im p le m e n ts th e ECOA. R e g u la tio n B
d e s c rib e s le n d in g a c ts a n d p ra c tic e s th a t
are sp e c ific a lly p ro h ib ite d , p e rm itte d , or
re q u ire d . O fficial in te rp re ta tio n s of th e
re g u la tio n are fo u n d in S u p p le m e n t I to
12 CFR p a rt 202.
(2) T h e FH A ct p ro h ib its
d is c rim in a tio n in a ll a s p e c ts of
re s id e n tia l re a l-e sta te re la te d
tra n s a c tio n s , in c lu d in g , b u t n o t lim ite d
to:
• M a k in g lo a n s to b u y , b u ild , re p a ir
o r im p ro v e a d w e llin g ;
• P u rc h a s in g re a l e sta te lo an s;
• S ellin g , b ro k e rin g o r a p p ra isin g
re s id e n tia l real e state; a n d
• S e llin g o r re n tin g a d w e llin g .
T h e FH A ct p ro h ib its d is c rim in a tio n
b a s e d on:
• R ace o r co lo r;

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Federal Register / Vol. 59, No. 73 / Friday, April 15, 1994 / Notices

and require the paym ent of an application fee
spouse, business partner, or live-in
to determ ine w hether they would qualify for
aide); or
a home mortgage loan. In contrast, a loan
• Sex;
• The present or prospective
• F a m ilia l s ta tu s (d e fin e d as c h ild re n
occupants of the area where property to officer took financial information
imm ediately from nonm inority applicants
u n d e r th e age o f 18 liv in g w ith a p a re n t
be financed is located.
ined w hether they qualified
o r leg al c u s to d ia n , p re g n a n t w o m e n ,
Finally, the FH Act requires lenders to and determithout a fee being paid. The in
minutes, w
a n d p e o p le s e c u rin g c u s to d y o f c h ild re n make reasonable accommodations for a
lender’s differential treatment violated both
u n d e r 18); a n d
person with disabilities when such
the ECOA and the FH Act.
• H a n d ic a p .
accommodations are necessary to afford
Redlining refers to the illegal practice
H U D ’s re g u la tio n s im p le m e n tin g th e
the person an equal opportunity to
of refusing to make residential loans or
FH A ct a re fo u n d a t 24 CFR P art 100.
apply for credit.
imposing more onerous terms on any
B ecau se b o th th e F H A ct a n d th e
B. T yp es o f L en d in g D iscrim in ation
loans made because of the predominant
ECOA a p p ly to m o rtg a g e le n d in g ,
race, national origin, etc., of the
le n d e rs m a y n o t d is c rim in a te in
The courts have recognized three
residents of the neighborhood in which
m ortgage le n d in g b a s e d o n a n y o f th e
methods of proof of lending
p ro h ib ite d fac to rs in e ith e r list.
discrimination under the ECOA and the the property is located. Redlining
L iab ility u n d e r th e s e tw o sta tu te s for
violates both the FH Act and the ECOA.
FH Act:
Disparate treatment may more likely
d is c rim in a tio n o n a p ro h ib ite d b a s is is
• "Overt evidence of discrimination,”
occur in the treatment of applicants who
civ il, n o t c rim in a l. H o w e v e r, th e re is
when a lender blatantly discriminates
are neither clearly well-qualified nor
c rim in a l lia b ility u n d e r th e FH A ct for
on a prohibited basis;
clearly unqualified. Discrimination may
v a rio u s fo rm s o f in te rfe re n c e w ith
• Evidence of "disparate treatment,”
more readily affect applicants in this
efforts to e n fo rc e th e F H A ct, su c h as
when a lender treats applicants
middle group for two reasons. First,
a lte rin g o r w ith h o ld in g e v id e n c e or
differently based on one of the
fo rc efu lly in tim id a tin g p e rso n s se e k in g
because the applications are all “close
prohibited factors; and
• Evidence of “disparate impact,”
to e x e rc ise th e ir rig h ts u n d e r th e FH
cases,” there is more room and need for
when a lender applies a practice
A ct.
lender discretion. Second, whether or
W h a t is p ro h ib ite d . U n d e r th e ECOA,
uniformly to all applicants but the
not an applicant qualifies may depend
it is u n la w fu l for a le n d e r to
practice has a discriminatory effect on a on the level of assistance the lender
d is c rim in a te o n a p ro h ib ite d b a sis in
prohibited basis and is not justified by
provides the applicant in preparing an
a n y a s p e c t o f a c r e d it tra n s a c tio n a n d ,
business necessity.
application. The lender may, for
u n d e r b o th th e ECO A a n d th e F H A ct,
Overt Evidence of Discrimination.
example, propose solutions to problems
There is overt evidence of
it is u n la w fu l for a le n d e r to
on an application, identify
d is c rim in a te o n a p ro h ib ite d b a sis in a
discrimination when a lender openly
compensating factors, and provide
re s id e n tia l re a l e s ta te re la te d
discriminates on a prohibited basis.
encouragement to the applicant.
tra n s a c tio n . U n d e r o n e o r b o th o f th e se
Lenders are under no obligation to
Example: A lender offered a credit card
la w s, a le n d e r m a y n o t, b e c a u s e o f a
with a lim it of up to $750 for applicants aged provide such assistance, but to the
p r o h ib ite d factor:
21-30 and $1500 for applicants over 30. This extent that they do, the assistance must
• F ail to p ro v id e in fo rm a tio n o r
policy violated the ECOA’s prohibition on
be provided in a nondiscriminatory
se rv ic es o r p ro v id e d iffe re n t in fo rm a tio n discrim ination based on age.
way.
o r se rv ic e s re g a rd in g a n y a s p e c t o f th e
There is overt evidence of
Example: A nonm inority couple applied
le n d in g p ro c e ss, in c lu d in g c re d it
for an automobile loan. The lender found
discrimination even when a lender
a v a ila b ility , a p p lic a tio n p ro c e d u re s, o r
adverse inform ation in the couple’s credit
expresses—but does not act on—a
le n d in g sta n d a rd s ;
report. The len d er discussed the credit report
discriminatory preference:
• N a tio n a l o rig in ;
• R elig io n ;

• D isco u rag e o r s e le c tiv e ly e n c o u ra g e
a p p lic a n ts w ith re s p e c t to in q u irie s
a b o u t o r a p p lic a tio n s for c re d it;
• R efu se to e x te n d c re d it o r u se
d iffe re n t s ta n d a rd s in d e te rm in in g
w h e th e r to e x te n d c re d it;
• V ary th e te rm s o f c re d it offered ,
in c lu d in g th e a m o u n t, in te re st rate ,
d u ra tio n , o r ty p e o f lo a n ;

• Use different standards to evaluate
collateral;
• Treat a borrower differently in
servicing a loan or invoking default
remedies; or
• Use different standards for pooling
or packaging a loan in the secondary
market.
A le n d e r m a y n o t e x p re ss, o rally o r in
w ritin g , a p re fe re n c e b a s e d on
p ro h ib ite d fac to rs o r in d ic a te th a t it w ill
tre a t a p p lic a n ts d iffe re n tly o n a
p ro h ib ite d b a s is.
A le n d e r m a y n o t d isc rim in a te o n a
p ro h ib ite d b a s is b e c a u s e o f th e
c h a ra c te ris tic s of:

• A person associated with a credit
applicant (for example, a co-applicant,




Example: A lending officer told a
customer, “ We do not like to make home
mortgages to Native Americans, but the law
says we cannot discrim inate and we have to
comply w ith the law.” This statement
violated the FH A ct’s prohibition on
statements expressing a discriminatory
preference.

Evidence of Disparate Treatment.
Disparate treatment occurs when a
lender treats a credit applicant
differently based on one of the
prohibited bases. Disparate treatment
ranges from overt discrimination to
more subtle disparities in treatment. It
does not require any showing that the
treatment was motivated by prejudice or
a conscious intention to discriminate
against a person beyond the difference
in treatment itself. It is considered by
courts to be intentional discrimination
because no credible, nondiscriminatory
reason explains the difference in
treatment on a prohibited basis.
Example: Two m inority loan applicants
were told that it w ould take several hours

w ith them and determ ined that the adverse
information, a judgment against the couple,
was incorrect since the judgment had been
vacated. The nonm inority couple was
granted their loan. A m inority couple applied
for a sim ilar loan w ith the same lender. Upon
discovering adverse information in the
m inority couple’s credit report, the lender
denied the loan application on the basis of
the adverse inform ation w ithout giving the
couple an opportunity to discuss the report.

Example: Two m inority borrowers
inquired w ith a lender about mortgage loans.
They were given applications for fixed-rate
loans only and were not offered assistance in
completing the loan applications. They
com pleted the applications on their own and
ultim ately failed to qualify. Two similarly
situated nonm inority borrowers made an
identical inquiry about mortgage loans to the
same lender. They were given information
about both adjustable-rate and fixed-rate
mortgages and were given assistance in
preparing applications that the lender could
accept.

Both of these are examples of
disparate treatment of similarly situated
applicants, apparently based on a

Federal Register / Vol. 59, No. 73 / Friday, April 15, 1994 / Notices
p ro h ib ite d factor, in th e a m o u n t o f
a ssista n c e a n d in fo rm a tio n th e le n d e r
p ro v id e d . T h e le n d e r m ig h t a lso
g e n e ra lly ex e rc ise its d is c re tio n to
d isfa v o r so m e in d iv id u a ls o r favor
o th e rs in a m a n n e r th a t re s u lts in a
p a tte rn o r p ra c tic e o f d is p a ra te
tre a tm e n t th a t c a n n o t b e e x p la in e d o n
g ro u n d s o th e r th a n a p ro h ib ite d b a sis.
If a le n d e r h a s a p p a re n tly tre a te d
sim ila r a p p lic a n ts d iffe re n tly o n th e
b a s is o f a p ro h ib ite d facto r, it m u st
p ro v id e an e x p la n a tio n for th e
d iffe ren ce in tre a tm e n t. If th e le n d e r is
u n a b le to p ro v id e a c re d ib le a n d
leg itim ate n o n d is c rim in a to ry
e x p la n a tio n , th e ag e n c y m a y in fe r th a t
th e le n d e r d isc rim in a te d .
If a n agency d e te rm in e s th a t a le n d e r ’s
e x p la n a tio n for tre a tin g so m e a p p lic a n ts
d iffe re n tly is a p re te x t for
d is c rim in a tio n , th e ag e n c y m a y fin d th a t
th e le n d e r d is c rim in a te d ,
n o tw ith s ta n d in g th e le n d e r ’s
e x p la n a tio n .

Example: A lender rejected a loan
application made by a female applicant with
flaws in her credit report but accepted
applications by male applicants with similar
flaws. The lender offered the explanation that
the rejected application had been processed
by a new loan officer who was unfamiliar
with the bank’s policy to work with
applicants to correct credit report problems.
However, an investigation revealed that the
same loan officer who processed the rejected
application had accepted applications from
males with similar credit problems after
working with them to provide satisfactory
explanations.
W h e n a le n d e r’s tre a tm e n t o f tw o
a p p lic a n ts is c o m p a re d , e v e n w h e n
th e re is a n a p p a re n tly v a lid e x p la n a tio n
for a p a rtic u la r d iffe re n c e in tre a tm e n t,
fu rth e r in v e stig a tio n m a y e s ta b lish
d is p a ra te tre a tm e n t o n a p ro h ib ite d
b asis. F o r e x a m p le , se e m in g ly v a lid
e x p la n a tio n s for d e n y in g lo a n s to
m in o rity a p p lic a n ts m a y h a v e b e e n
a p p lie d c o n s iste n tly to m in o rity
a p p lic a n ts a n d in c o n s is te n tly to
n o n m in o rity a p p lic a n ts; o r “ o ffse ttin g ”
o r “ c o m p e n sa to ry ” fac to rs c ite d as th e
re a so n for a p p ro v in g n o n m in o rity
a p p lic a n ts m ay in v o lv e in fo rm a tio n th a t
th e le n d e r u su a lly fa ile d to c o n s id e r for
m in o rity a p p lic a n ts b u t u s u a lly
c o n s id e re d for n o n m in o rity a p p lic a n ts.
A p a tte rn o r p ra c tic e o f d is p a ra te
tre a tm e n t on a p ro h ib ite d b a s is m a y also
b e e s ta b lish e d th ro u g h a v a lid s ta tistic a l
a n a ly sis o f d e ta ile d lo a n file
in fo rm a tio n , p ro v id e d th a t th e a n a ly sis
c o n tro ls for p o ssib le le g itim a te
e x p la n a tio n s for d iffe re n c e s in
tre a tm e n t. W h ere a le n d e r ’s
u n d e rw ritin g d e c is io n s a re th e su b je c t
o f a sta tistic a l a n a ly sis, d e ta ile d
in fo rm a tio n m u st b e c o lle c te d from




in d iv id u a l lo a n file s a b o u t th e
a p p lic a n ts ’ q u a lific a tio n s for c re d it.
D ata re p o rte d b y le n d e rs u n d e r th e
H M D A d o n o t, s ta n d in g a lo n e , p ro v id e
su ffic ie n t in fo rm a tio n for su c h a n
a n a ly s is b e c a u se th e y o m it im p o rta n t
v a ria b le s, su c h as c re d it h is to rie s a n d
d e b t ratio s. HM DA d a ta a re u se fu l,
th o u g h , for id e n tify in g le n d e rs w h o se
p ra c tic e s m a y w a rra n t in v e stig a tio n for
c o m p lia n c e w ith fair le n d in g law s.
H M D A d a ta m a y a lso b e re le v a n t, in
c o n ju n c tio n w ith o th e r e v id e n c e , to th e
d e te rm in a tio n w h e th e r a le n d e r h a s
d is c rim in a te d .

Evidence of Disparate Impact
W h e n a le n d e r a p p lie s a p o lic y or
p ra c tic e e q u a lly to c re d it a p p lic a n ts , b u t
th e p o lic y o r p ra c tic e h a s a
d is p ro p o rtio n a te a d v e rse im p a c t o n
a p p lic a n ts from a g ro u p p ro te c te d
a g a in st d isc rim in a tio n , th e p o lic y or
p ra c tic e is d e s c rib e d as h a v in g a
“ d is p a ra te im p a c t.” P o lic ie s a n d
p ra c tic e s th a t are n e u tra l o n th e ir face
a n d th a t are a p p lie d e q u a lly m a y still,
o n a p ro h ib ite d b a sis,
d is p ro p o rtio n a te ly a n d a d v e rse ly affect
a p e rs o n ’s ac c e ss to c re d it.
A lth o u g h th e p re c ise c o n to u rs o f th e
la w o n d isp a ra te im p a c t as it a p p lie s to
le n d in g d is c rim in a tio n a re u n d e r
d e v e lo p m e n t, it h a s b e e n c lea rly
e s ta b lis h e d th a t p ro o f o f le n d in g
d is c rim in a tio n u sin g a d is p a ra te im p a c t
a n a ly sis e n c o m p a sse s se v e ra l ste p s. T h e
s in g le fact th a t a p o lic y o r p ra c tic e
c re a te s a d isp a rity o n a p ro h ib ite d b a s is
is n o t a lo n e p ro o f o f a v io la tio n . W h e re
th e p o lic y o r p ra c tic e is ju stifie d by
“ b u s in e s s n e c e s s ity ” a n d th e re is n o le ss
d isc rim in a to ry a lte rn a tiv e , a v io la tio n o f
th e FH A ct o r th e ECOA w ill n o t ex ist.
T h e e x iste n c e o f a d is p a ra te im p a c t
m a y b e e sta b lish e d th ro u g h re v ie w o f
h o w a p a rtic u la r p ra c tic e , p o lic y o r
s ta n d a rd o p e ra te s w ith re sp e c t to th o se
w h o are affected b y it. T h e e x iste n c e o f
d is p a ra te im p a c t is n o t e s ta b lish e d by a
m e re a sse rtio n o r g en e ral p e rc e p tio n
th a t a p o lic y o r p ra c tic e
d is p ro p o rtio n a te ly e x c lu d e s or in ju re s
p e o p le on a p ro h ib ite d b asis. T h e
e x iste n c e o f a d isp a ra te im p a c t m u st b e
e s ta b lis h e d by facts. F re q u e n tly th is is
d o n e th ro u g h a q u a n tita tiv e or s ta tistic a l
a n a ly sis. S o m e tim e s th e o p e ra tio n o f th e
p ra c tic e is re v ie w e d b y a n a ly z in g its
effect o n an a p p lic a n t p o o l; so m e tim e s
it c o n s ists o f a n a n a ly s is o f th e
p ra c tic e ’s effect o n p o ssib le a p p lic a n ts ,
o r o n th e p o p u la tio n in gen eral. N ot
ever}' m e m b e r o f th e g ro u p m u st b e
a d v e rse ly affected for th e p ra c tic e to
h a v e a d isp a ra te im p a c t. E v id e n c e o f
d is c rim in a to ry in te n t is n o t n e c e ssa ry to
e s ta b lis h th a t a p o lic y o r p ra c tic e
a d o p te d or im p le m e n te d b y a le n d e r

18269

th a t h a s a d is p a ra te im p a c t is in
v io la tio n o f th e F H A ct o r ECOA.
Id e n tify in g th e e x is te n c e o f a
d is p a ra te im p a c t is o n ly th e first ste p in
p ro v in g le n d in g d is c rim in a tio n u n d e r
th is m e th o d o f p roof. W h e n a n A gency
fin d s th a t a le n d e r's p o lic y o r p ra c tic e
h a s a d is p a ra te im p a r t, th e n e x t ste p is
to s e e k to d e te rm in e w h e th e r th e p o lic y
o r p ra c tic e is ju stifie d b y “ b u s in e s s
n e c e s s ity .” T h e ju stific a tio n m u st b e
m a n ife s t a n d m ay n o t b e h y p o th e tic a l o r
s p e c u la tiv e . F a c to rs th a t m ay be
re le v a n t to th e ju stific a tio n c o u ld
in c lu d e c o st a n d p ro fita b ility .
E v e n if a p o lic y o r p ra c tic e th a t h a s
a d is p a ra te im p a r t o n a p ro h ib ite d b a s is
c a n b e ju stifie d b y b u s in e s s n e c e s sity , it
s till m a y b e fo u n d to b e d isc rim in a to ry
if a n a lte rn a tiv e p o lic y o r p ra c tic e c o u ld
se rv e th e sam e p u rp o s e w ith less
d is c rim in a to ry effect.

Example: A lender’s policy is not to extend
loans for single family residences for less
than $60,000.00. This policy has been in
effect for ten years. This minimum loan
amount policy is shown to
disproportionately exclude potential
minority applicants from consideration
because of their income levels or the value
of the houses in the areas In which they live.
The lender will be required to justify the
"business necessity” for the policy.
Example: In the past, lenders primarily
considered net income in making
underwriting decisions. In recent years, the
trend has been to consider gross income. A
lender decided to switch its practices to
consider gross income rather than net
income. However, in calculating gross
income, the lender did not distinguish
between taxable and nontaxable income even
though nontaxable income is of more value
than the equivalent amount of taxable
income. The lender’s policy may have a
disparate impact on individuals with
disabilities and the elderly, both of whom are
more likely than the general applicant pool
to receive substantial nontaxable income.
The lender’s policy is likely to be proven
discriminatory. First, the lender is unlikely to
be able to show that the policy is compelled
by business necessity. Second, even if the
lender could show business necessity, the
lender could achieve the same purpose with
less discriminatory effect by "grossing up”
nontaxable income (i.e., making it equivalent
to gross taxable income by using formulas
related to the applicant’s tax bracket).
L e n d e rs w ill n o t h a v e to justify ev ery
re q u ire m e n t a n d p ra c tic e ev ery tim e
th a t th e y face a c o m p lia n c e
e x a m in a tio n . T h e A g e n c ies reco g n ize
th e re le v a n c e to c re d it d e c isio n s of
fa c to rs re la te d to th e a d e q u a c y o f th e
b o rro w e r’s in c o m e to c a rry th e loan, th e
lik e ly c o n tin u a tio n o f th a t in c o m e, th e
a d e q u a c y o f th e c o lla te ra l to se cu re th e
lo a n , th e b o rro w e r’s p a st p erfo rm an ce in
p a y in g o b lig a tio n s, th e a v a ila b ility of
fu n d s to clo se, a n d th e e x iste n c e of
a d e q u a te rese rv e s. W h ile le n d e rs sh o u ld

/0

18270

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Federal Register / Vol. 59, No. 73 / Friday, April 15, 1994 / Notices

th in k c ritic a lly a b o u t w h e th e r
w id e s p re a d , fa m ilia r re q u ire m e n ts a n d
p ra c tic e s h a v e a n u n ju s tifia b le d is p a ra te
im p a c t, th e y s h o u ld lo o k e s p e c ia lly
c a re fu lly a t re q u ire m e n ts th a t are m o re
s trin g e n t th a n cu s to m a ry . L e n d e rs
s h o u ld a lso sta y in fo rm e d o f
d e v e lo p m e n ts in u n d e rw ritin g a n d
p o rtfo lio p e rfo rm a n c e e v a lu a tio n so th a t
th e y a re w e ll p o s itio n e d to c o n s id e r a ll
o p tio n s b y w h ic h th e ir b u s in e s s
o b je ctiv es c a n b e a c h ie v e d .

Q 3: D oes a se c o n d re v ie w p ro g ram
o n ly for lo a n a p p lic a n ts w h o are
m e m b e rs o f a p ro te c te d c la ss v io la te
la w s p ro h ib itin g d is c rim in a tio n in
le n d in g ?
A: S u c h p ro g ra m s are p e rm issib le if
th e y d o n o m o re th a n e n s u re th a t
le n d in g sta n d a rd s are a p p lie d fairly a n d
u n ifo rm ly to all a p p lic a n ts . F o r
e x a m p le , it is p e rm issib le to re v ie w th e
p ro p o s e d d e n ia l o f a p p lic a n ts w h o a re
m e m b e rs o f a p ro te c te d c la ss b y
c o m p a rin g th e ir a p p lic a tio n s to th e
C. Answers to Questions Often Asked
a p p ro v e d a p p lic a tio n s o f s im ila rly
by Financial Institutions and the Public q u a lifie d in d iv id u a ls w h o are n o t
L e n d in g in s titu tio n s a n d o th e rs o ften
m e m b e rs o f a p ro te c te d c la ss to
a s k th e A g en cies q u e s tio n s a b o u t
d e te rm in e if th e a p p lic a tio n s w e re
v a rio u s a s p e c ts o f le n d in g
e v a lu a te d c o n s iste n tly . It is
d is c rim in a tio n . T h e A g e n c ie s h a v e
im p e rm issib le , h o w e v e r, to re v ie w th e
c o m p ile d th is lis t o f c o m m o n q u e s tio n s, a p p lic a tio n s o f m e m b e rs o f a p ro te c te d
w ith a n s w e rs , in o rd e r to p ro v id e
c la ss in o rd e r to a p p ly s ta n d a rd s to
fu rth e r g u id a n ce .
th o s e a p p lic a tio n s d iffe re n t from th e
Q l: A re d is p a ritie s in a p p lic a tio n ,
s ta n d a rd s u se d to e v a lu a te o th e r
a p p ro v a l, o r d e n ia l ra te s re v e a le d by
a p p lic a tio n s for th e sa m e c re d it p ro g ra m
H M D A d a ta s u ffic ie n t to e s ta b lish
o r to a p p ly th e sam e s ta n d a rd s in a
le n d in g d is c rim in a tio n ?
d iffe re n t m a n n e r, u n le s s s u c h a c tio n s
A: H M D A d a ta a lo n e d o n o t p ro v e
a re o th e rw ise p e rm itte d b y la w , as
le n d in g d is c rim in a tio n . T h e d a ta d o n o t
d e s c rib e d in Q u e stio n 4.
c o n ta in e n o u g h in fo rm a tio n o n m a jo r
O th e r ty p e s o f se c o n d rev ie w
c re d it-re la te d facto rs, s u c h as
p ro g ra m s are also p e rm issib le . F o r
e m p lo y m e n t a n d c re d it h is to rie s , to
e x a m p le , le n d e rs c o u ld re v ie w th e
p ro v e d is c rim in a tio n . D e sp ite th e se
p ro p o s e d d e n ia l o f a ll a p p lic a n ts w ith in
lim ita tio n s , th e d a ta c a n p ro v id e “ re d
a c e rta in in c o m e range. L e n d e rs also
fla g s” th a t th e re m a y b e p ro b le m s a t
c o u ld re v ie w a sa m p lin g o f all
p a r tic u la r in s titu tio n s . T h erefo re,
a p p lic a tio n s p ro p o s e d for d e n ia l, o r
re g u la to ry a n d e n fo rc e m e n t a g e n cies
e v e n re v ie w all su c h a p p lic a tio n s .
m a y u s e H M D A d a ta , alo n g w ith o th e r
Q 4: M ay a le n d e r a p p ly d iffe ren t
fac to rs, to id e n tify in s titu tio n s w h o se
le n d in g sta n d a rd s to a p p lic a n ts w h o are
le n d in g p ra c tic e s w a rra n t m o re sc ru tin y . m e m b e rs o f a p ro te c te d c la ss in o rd e r to
F u rth e rm o re , H M D A d a ta c a n b e
in c re a se le n d in g to th a t se c to r o f its
re le v a n t, in c o n ju n c tio n w ith o th e r d a ta
c o m m u n ity ?
A: G en e ra lly , a le n d e r th a t a p p lie s
a n d in fo rm a tio n , to th e d e te rm in a tio n
d iffe re n t le n d in g s ta n d a rd s o r offers
w h e th e r a le n d e r h a s d is c rim in a te d .
d iffe re n t le v e ls of a s sista n c e o n a
Q 2: D oes a le n d in g in s titu tio n th a t
p ro h ib ite d b asis, re g a rd le ss o f its
s u b m its in a c c u ra te H M D A d a ta v io la te
m o tiv a tio n , w o u ld b e v io la tin g b o th th e
le n d in g d is c rim in a tio n law s?
A: A n in a c c u ra te H M D A d a ta
FH A c t a n d th e ECOA. T h e re are
s u b m is s io n c o n s titu te s a v io la tio n o f th e e x c e p tio n s to th e g en e ral ru le ; th u s ,
H M D A , th e F ed e ra l R e serv e B o a rd ’s
a p p ly in g d iffe re n t le n d in g s ta n d a rd s o r
R e g u la tio n C, a n d o th e r a p p lic a b le la w s, o fferin g d iffe re n t le v e ls o f a ssista n c e to
a n d m a y su b je ct th e le n d in g in s titu tio n
a p p lic a n ts w h o are m e m b e rs o f a
to a n e n fo rc e m e n t a c tio n , w h ic h c o u ld
p ro te c te d c la ss is p e rm is s ib le in so m e
in c lu d e c iv il m o n e y p e n a ltie s , a n d , if
c irc u m sta n c e s. F or e x a m p le , th e FH A ct
th e le n d e r is a H U D -ap p ro v ed
re q u ire s le n d e rs to p ro v id e re a so n a b le
a c c o m m o d a tio n to p e o p le w ith
m o rtg a g ee, th e sa n c tio n s o f th e HUD
M o rtg ag ee R eview B o ard . A n in a c c u ra te
d isa b ilitie s . In a d d itio n , p ro v id in g
H M D A d a ta su b m issio n , h o w e v e r, is n o t d iffe re n t tre a tm e n t to a p p lic a n ts to
a d d re s s p a st d is c rim in a tio n w o u ld be.
in its e lf a v io la tio n o f th e ECO A o r th e
F H A ct. H ow ever, a p e rs o n w h o
p e rm issib le if d o n e in re sp o n se to a
in te n tio n a lly su b m its in c o rre c t or
c o u rt o rd e r or o th e rw ise in a c c o rd w ith
in c o m p le te H M DA d a ta in o rd e r to
a p p lic a b le legal p re c e d e n t. H o w ev er,
c o v e r u p a v io la tio n o f th e FH A ct m a y
th e la w in th is are a is c o m p le x a n d
b e su b je ct, u n d e r th e FH A ct a n d fed e ra l d e v e lo p in g . B efore im p le m e n tin g
c r im in a l sta tu te s, to a fin e o r p riso n
p ro g ra m s o f th is so rt, a le n d e r s h o u ld
te rm o r b o th . In a d d itio n , a fa ilu re to
se e k legal ad v ice.
O f co u rse , a ffirm a tiv e a d v e rtisin g a n d
e n s u re a c c u ra te H M D A d a ta m ay b e
m a rk e tin g effo rts th a t d o n o t in v o lv e
c o n s id e r e d as a re le v a n t fact d u rin g a
a p p lic a tio n o f d iffe re n t le n d in g
F H A ct in v e stig a tio n o r a n e x a m in a tio n
s ta n d a rd s are p e rm issib le u n d e r b o th
o f th e in s titu tio n ’s le n d in g a c tiv itie s.




// o &

th e EC O A a n d th e F H A ct. F o r e x a m p le ,
s p e c ia l o u tre a c h to a m in o rity
c o m m u n ity w o u ld b e p e rm issib le .
Q 5: S h o u ld a le n d e r en g age in se lf­
te stin g ?
A: P rin c ip le s o f s o u n d le n d in g d ic ta te
th a t a d e q u a te p o lic ie s a n d p ro c e d u re s
b e in p la c e to e n s u re safe a n d s o u n d
le n d in g p ra c tic e s a n d c o m p lia n c e w ith
a p p lic a b le la w s a n d re g u la tio n s, a n d
th a t a le n d e r a d o p t a p p ro p ria te a u d it
a n d c o n tro l sy ste m s to d e te rm in e
w h e th e r th e in s titu tio n ’s p o lic ie s a n d
p ro c e d u re s are fu n c tio n in g a d e q u ately .
T h is is a s tru e in th e a re a o f fair le n d in g
as in o th e r o p e ra tio n s. L e n d e rs s h o u ld
e m p lo y re lia b le m e a su re s for a u d itin g
fa ir le n d in g c o m p lia n c e . A w elld e s ig n e d a n d im p le m e n te d p ro g ram o f
se lf-te stin g c o u ld b e a v a lu a b le p a rt of
th is p ro c e ss. L e n d e rs s h o u ld b e aw are,
h o w e v e r, th a t d a ta d o c u m e n tin g le n d in g
d is c rim in a tio n d isc o v e re d in a self-test
g e n e ra lly w ill n o t b e s h ie ld e d from
d is c lo s u re .
C o rre c tiv e a c tio n s s h o u ld alw a y s b e
ta k e n b y a n y le n d e r th a t d isc o v ers
d is c rim in a tio n . S elf-testin g a n d
c o rre c tiv e a c tio n s d o n o t e x p u n g e or
e x tin g u is h legal lia b ility for th e
v io la tio n s o f la w , in s u la te a le n d e r from
p riv a te su its, o r e lim in a te th e p rim a ry
re g u la to ry ag e n c y ’s o b lig a tio n to m ak e
th e re fe rra ls re q u ire d b y law . H ow ever,
th e y w ill b e c o n s id e re d as a s u b s ta n tia l
m itig a tin g facto r b y th e p rim a ry
re g u la to ry a g e n cies w h e n c o n te m p la tin g
p o s s ib le e n fo rc e m e n t ac tio n s. In
a d d itio n , HUD a n d DOJ w ill c o n s id e r a s
a s u b s ta n tia l m itig a tin g facto r a n
in s titu tio n ’s se lf-id e n tific a tio n a n d selfc o rre c tio n w h e n d e te rm in in g w h e th e r
th e y w ill se ek a d d itio n a l p e n a ltie s or
o th e r r e lie f u n d e r th e FH A ct a n d th e
ECO A . T h e A g en c ies stro n g ly e n c o u ra g e
se lf-te stin g a n d w ill c o n s id e r fu rth e r
s te p s th a t m ig h t b e ta k e n to p ro v id e
g re a te r in c e n tiv e s for in s titu tio n s to
u n d e r ta k e se lf-a sse ssm e n t a n d selfc o rre c tio n .
Q 6: W h a t s h o u ld a le n d e r d o if self­
te s tin g e v id e n c e s le n d in g
d is c rim in a tio n ?
A: If a le n d e r d isc o v e rs d is c rim in a to ry
p ra c tic e s , it s h o u ld m a k e all re a so n a b le
effo rts to d e te rm in e th e fu ll e x te n t o f th e
d is c rim in a tio n a n d its ca u se , e.g.,
d e te rm in e w h e th e r th e p ra c tic e s w e re
g ro u n d e d in d efe ctiv e p o lic ie s, p o o r
im p le m e n ta tio n or c o n tro l o f th o se
p o lic ie s , o r iso la te d to a p a rtic u la r area
o f th e le n d e r ’s o p e ra tio n s. T h e le n d e r
s h o u ld tak e a ll a p p ro p ria te c o rrec tiv e
a c tio n s to a d d re s s th e d is c rim in a tio n ,
in c lu d in g , b u t n o t lim ite d to:
• Id e n tify in g c u s to m e rs w h o se
a p p lic a tio n s m a y h a v e b e e n
in a p p ro p ria te ly p ro c e sse d , o ffering to
e x te n d c re d it if th e y w e re im p ro p e rly

Federal Register / VoL 59, No. 73 / F rid a y , A p r il 15, 1994 / N o tic e s
d e n ie d ; c o m p e n s a tin g th e m fo r a n y
d am ages, b o th o u t-o f-p o c k e t a n d
co m p en sa to ry ; a n d n o tify in g th e m o f
th e ir legal rig h ts;
• C o rrectin g an y in s titu tio n a l p o lic ie s
o r p ro c e d u re s th a t m a y h a v e c o n trib u te d
to th e d isc rim in a tio n ;
• Id en tify in g , a n d th e n tra in in g a n d /
o r d is c ip lin in g , th e e m p lo y e e s in v o lv e d ;
• C o n sid erin g th e n e e d fo r
c o m m u n ity o u tre a c h p ro g ra m s a n d /o r
c h a n g es in m a rk e tin g strateg y o r lo a n
p ro d u c ts to b e tte r se rv e m in o rity
seg m en ts o f th e le n d e r ’s m a rk e t; a n d
• Im p ro v in g a u d it a n d o v e rsig h t
sy stem s in o rd e r to e n s u re th e re is n o
re c u rre n c e o f th e d is c rim in a tio n .
A n in s titu tio n is n o t re q u ire d to
re p o rt to th e A g en c ies a le n d in g
d isc rim in a tio n p ro b le m it h a s
d isc o v ered . H o w ev er, a le n d e r th a t
re p o rts its d isc o v e ry c a n e n s u re th a t th e
co rrec tiv e a c tio n s it d e v e lo p s are
a p p ro p ria te a n d c o m p le te a n d th e re b y
m in im iz e th e d am a g e s to w h ic h it w ill
b e subject.
Q 7: W ill a le n d e r b e h e ld re s p o n s ib le
for d isc rim in a to ry le n d in g en g ag ed in
b y a sin g le lo a n o ffic er w h e re th e
le n d in g in s titu tio n h a s g o o d p o lic ie s
a n d p ro c e d u re s in p la c e , is o th e rw is e in
fu ll c o m p lia n c e w ith all a p p lic a b le la w s
a n d re g u la tio n s a n d n e ith e r k n o w s n o r
rea so n ab ly c o u ld h a v e k n o w n th a t th e
o fficer w as en g ag ed in illeg al
d isc rim in a to ry c o n d u c t?
A: F air le n d in g v io la tio n s c a n o c c u r
ev en in th e m o st w e ll-ru n le n d in g
in s titu tio n s th a t h a v e g o o d p o lic ie s in
p la ce to e n s u re c o m p lia n c e w ith fair
le n d in g law s a n d re g u la tio n s. O f c o u rse ,
th e c h a n c e s th a t s u c h v io la tio n s w ill
o c c u r c a n be g rea tly re d u c e d by b a c k in g
u p th o se p o lic ie s w ith p ro p e r e m p lo y e e
tra in in g a n d s u p e rv is io n a n d su b je c tin g
th e le n d in g p ro c e ss to p ro v e n sy ste m s o f
o v ersig h t a n d rev ie w . S elf-testin g c a n
fu rth e r re d u c e th e lik e lih o o d th a t
v io la tio n s m ay o ccu r. N o tw ith s ta n d in g
th e se efforts, a sin g le lo an o fficer m ig h t
still im p ro p e rly a p p ly p o lic ie s or, w o rse
yet, d elib e ra te ly c irc u m v e n t th e m a n d
m an ag e to c o n c e a l o r d isg u ise th e tr u e
n a tu re o f h is o r h e r p ra c tic e s for a tim e.
It m ay be p a rtic u la rly d iffic u lt to
d isc o v er th is ty p e o f b e h a v io r w h e n it
o ccu rs in th e p re -a p p lic a tio n p ro ce ss.
In a n y c a se w h e re d isc rim in a tQ ry
le n d in g by a le n d in g in s titu tio n is
id e n tifie d , th e le n d e r w ill b e e x p e c te d
to id e n tify a n d fa irly c o m p e n sa te
v ic tim s of d isc rim in a to ry c o n d u c t just
as it w o u ld be e x p e c te d to c o m p e n s a te
a cu sto m e r if a n e m p lo y e e ’s c o n d u c t
re su lte d in p h y sic a l in ju ry to th e
cu sto m e r. In a d d itio n , s u c h a v io la tio n
m ig h t c o n s titu te a “ p a tte rn or p ra c tic e ”
th a t m u st b e re fe rre d to DO} o r a
v io la tio n th a t m u st b e re fe rre d to HUD.




A s in o th e r c a s e s o f d is c rim in a to ry
b e h a v io r, w h e re a le n d e r ta k e s selfin itia te d c o rre c tiv e a c tio n s, s u c h a c tio n s
w ill b e c o n s id e re d a s a s u b sta n tia l
m itig a tin g fa c to r b y th e A g en c ies in
d e te rm in in g th e n a tu re o f an y
e n fo rc e m e n t a c tio n a n d w h a t p e n a ltie s
o r o th e r re lie f w o u ld b e a p p ro p ria te .
Q 8: If a fe d e ra l fin a n c ia l in s titu tio n s
re g u la to ry a g e n cy h a s “ re a so n to
b e lie v e ” th a t a le n d e r h a s e n g a g e d in a
p a tte rn o r p ra c tic e o f d is c rim in a tio n in
v io la tio n o f th e ECOA, th e ECOA
re q u ire s th e ag e n c y to refer th e m a tte r
to DO}. W h a t c o n s titu te s a “ re a so n to
b e lie v e ” ?
A: A fed e ra l fin a n c ia l in s titu tio n s
re g u la to ry ag en cy h a s re a so n to b e lie v e
th a t a n ECO A v io la tio n h a s o c c u rre d
w h e n a re a so n a b le p e rso n w o u ld
c o n c lu d e from a n e x a m in a tio n o f a ll
c re d ib le in fo rm a tio n a v a ila b le th a t
d is c rim in a tio n h a s o c c u rre d . T h is
d e te rm in a tio n re q u ire s w e ig h in g th e
a v a ila b le e v id e n c e a n d a p p lic a b le la w
a n d d e te rm in in g w h e th e r an a p p a re n t
v io la tio n h a s o c c u rre d . In fo rm a tio n
s u p p o rtin g a re a so n to b e lie v e fin d in g
m a y in c lu d e lo a n file s a n d o th e r
d o c u m e n ts , c re d ib le o b se rv a tio n s b y
p e rso n s w ith d ire c t k n o w le d g e ,
sta tistic a l a n a ly sis, a n d th e fin a n c ia l
in s titu tio n 's re s p o n s e to th e p re lim in a ry
e x a m in a tio n fin d in g s.
R easo n to b e lie v e is m o re th a n an
u n fo u n d e d su sp ic io n . W h ile th e
e v id e n c e of d is c rim in a tio n n e e d n o t b e
d e fin itiv e a n d n e e d n o t in c lu d e
e v id e n c e o f o v ert d is c rim in a tio n , it
s h o u ld b e d e v e lo p e d to th e p o in t th a t a
re a so n a b le p e rso n w o u ld c o n c lu d e th a t
a v io la tio n ex ists.
Q9: If a fed e ra l fin a n c ia l in s titu tio n s
reg u la to ry ag en cy h a s re a so n to b e lie v e
th a t a le n d e r h a s e n g a g ed in a “ p a tte rn
o r p ra c tic e ” o f d is c rim in a tio n in
v io la tio n o f th e ECOA, th e ag en cy w ill
refer th e m a tte r to DO}. W h at c o n s titu te s
a “ p a tte rn o r p ra c tic e ” of le n d in g
d isc rim in a tio n ?
A: D e te rm in a tio n s by fed e ra l fin a n c ia l
in s titu tio n s reg u la to ry ag e n cies
re g a rd in g a p a tte rn o r p ra c tic e of
le n d in g d is c rim in a tio n m u s t b e b a s e d
o n an a n a ly sis o f th e fac ts in a g iv en
case. Iso lated , u n re la te d o r a c c id e n ta l
o c c u rre n c e s w ill n o t c o n s titu te a p a tte rn
o r p ra c tic e . H o w ev er, re p e a te d ,
in te n tio n a l, re g u la r, u su a l, d e lib e ra te , o r
in s titu tio n a liz e d p ra c tic e s w ill a lm o st
a lw a y s c o n s titu te a p a tte rn o r p ra c tic e .
T h e to ta lity o f th e c irc u m sta n c e s m u st
b e c o n s id e re d w h e n a sse ssin g w h e th e r a
p a tte rn o r p ra c tic e is p re se n t.
C o n s id e ra tio n s in c lu d e , b u t are n o t
lim ite d to:
• W h e th e r th e c o n d u c t a p p e a rs to b e
g ro u n d e d in a w ritte n or u n w ritte n

18271

p o lic y o r e s ta b lis h e d p ra c tic e th a t is
d is c rim in a to ry in p u rp o s e o r effect;
• W h e th e r th e re is e v id e n c e o f s im ila r
c o n d u c t b y a fin a n c ia l in s titu tio n
to w a rd m o re th a n o n e a p p lic a n t. N o te,
h o w e v e r, th a t th is is n o t a m a th e m a tic a l
p ro c e ss, e.g ., “ m o re th a n o n e ” d o e s n o t
n e c e s sa rily c o n s titu te a p a tte rn o r
p ra c tic e ;
• W h e th e r th e c o n d u c t h a s so m e
c o m m o n so u rc e o r c a u se w ith in th e
fin a n c ia l in s titu tio n ’s co n tro l;
• T h e re la tio n s h ip o f th e in s ta n c e s o f
c o n d u c t to o n e a n o th e r (e.g., w h e th e r
th e y a ll o c c u rre d in th e sa m e are a o f th e
fin a n c ia l in s titu tio n ’s o p e ra tio n s); a n d
• T h e re la tio n s h ip of th e n u m b e r o f
in s ta n c e s of c o n d u c t to th e fin a n c ia l
in s titu tio n ’s to ta l le n d in g ac tiv ity . N o te,
h o w e v e r, th a t, d e p e n d in g o n th e
c irc u m s ta n c e s , v io la tio n s th a t in v o lv e
o n ly a sm a ll p e rc e n ta g e o f a n
in s titu tio n ’s to ta l le n d in g a c tiv ity c o u ld
c o n s titu te a p a tte rn o r p ra c tice .
D e p e n d in g o n th e e g re g io u sn ess o f th e
facts a n d c irc u m s ta n c e s in v o lv e d , sin g ly
o r in c o m b in a tio n , th e s e factors c o u ld
p ro v id e e v id e n c e o f a p a tte rn or
p rac tice .
Q lO : How' d o e s th e e m p lo y m e n t o f
few m in o ritie s a n d in d iv id u a ls from
o th e r p ro te c te d c la sse s in le n d in g
p o s itio n s — e.g., A c c o u n t E xecu tiv e,
U n d e rw rite r, L oan C o u n selo r, L oan
P ro c esso r, S taff A p p ra ise r, A ssista n t
B ran c h M a n ag e r a n d B ran ch M an ag er—
affect c o m p lia n c e w ith le n d in g
d is c rim in a tio n law s?
A: T h e e m p lo y m e n t o f few m in o ritie s
a n d o th e rs in p ro te c te d classe s, in itself,
is n o t a v io la tio n o f th e FH A ct or th e
ECOA. H o w ev er, e m p lo y m e n t o f few
m e m b e rs of p ro te c te d cla sse s in le n d in g
p o sitio n s c a n c o n trib u te to a c lim a te in
w h ic h le n d in g d is c rim in a tio n c o u ld
o c c u r by affec tin g th e d e liv e ry o f
se rv ic es.
T h erefo re, le n d e rs m ig h t c o n s id e r th e
fo llo w in g ste p s, as a p p ro p ria te to th e ir
in s titu tio n s :
• A d v e rtisin g le n d in g job o p e n in g s in
lo cal m in o rity -o rie n te d p u b lic a tio n s;
• N o tify in g p re d o m in a n tly m in o rity
o rg a n iz a tio n s o f s u c h o p en in g s;
• S eek in g e m p lo y m e n t re fe rra ls from
c u rre n t m in o rity e m p lo y e e s, m in o rity
rea l e sta te b o a rd s a n d lo c al h is to ric a lly
m in o rity co lleg e s a n d o th e r in s titu tio n s
th a t serv e m in o rity g ro u p s in th e
c o m m u n ity ; a n d
• S eek in g q u a lifie d in d e p e n d e n t fee
a p p ra is e rs from lo c al m in o rity a p p ra is a l
o rg a n iz a tio n s.
S im ila r o u tre a c h ste p s c o u ld b e
c o n s id e re d to re c ru it w o m e n , p e rso n s
w ith d isa b ilitie s , a n d o th e r p e rso n s
p ro te c te d by th e FH A ct a n d th e ECOA.
Q l l : W h a t is th e ro le o f th e g u id e lin e s
o f se c o n d a ry m a rk e t p u rc h a se rs a n d

/0 7 0 £

18272

Federal Register / Vol. 59, No. 73 / Friday, April 15, 1994 / Notices

p riv a te a n d g o v e rn m e n ta l lo a n in s u r e r s
the ECOA or the FH Act. The following
In a d d itio n , th e fe d e ra l b a n k in g
in d e te rm in in g w h e th e r p rim a ry le n d e rs discussion sets out the criteria typically
a g e n cies m a y c o n s id e r w h e th e r a n
p ra c tic e le n d in g d is c rim in a tio n ?
employed by the federal banking
in s titu tio n h a s p ro v id e d v ic tim s o f
A: M a n y le n d e rs m a k e m o rtg a g e lo a n s agencies (i.e., OCC, OTS, the Board and
d is c rim in a tio n w ith a ll th e re lie f
o n ly w h e n th e y c a n b e so ld o n th e
FDIC), NCUA, DOJ, HUD, OFHEO,
av a ila b le to th e m u n d e r a p p lic a b le c iv il
se c o n d a ry m a rk e t, o r th e y m a y p la c e
FHFB a n d FTC in d e te rm in in g th e
rig h ts law s.
so m e lo a n s in th e ir o w n p o rtfo lio s a n d
T h e fe d e ra l b a n k in g a g e n c ie s m a y
n a tu re a n d s e v e rity o f s a n c tio n s th a t
s e ll o th e rs o n th e s e c o n d a ry m a rk e t. T h e m a y b e u s e d to a d d re s s d is c rim in a to ry
se ek b o th p ro s p e c tiv e a n d re tro s p e c tiv e
p r in c ip a l s e c o n d a ry m a rk e t p u r c h a s e rs ,
re lie f for fair le n d in g v io la tio n s .
le n d in g p ra c tic e s. A s d is c u s s e d in
F e d e ra l N a tio n a l M ortgage A s s o c ia tio n
P ro sp e c tiv e re lie f m a y in c lu d e
Q u e stio n s 8 a n d 9, ab o v e, in c e rta in
(“ F a n n ie M a e ” ) a n d F e d e ra l H o m e L o a n
re q u irin g th e fin a n c ia l in s titu tio n to:
situ a tio n s, th e p rim a ry re g u la to ry
M ortgage C o rp o ra tio n (“ F re d d ie M a c ” ),
• A d o p t c o rre c tiv e p o lic ie s a n d
a g e n cies w ill a lso re fe r e n fo rc e m e n t
p u b lis h u n d e rw ritin g g u id e lin e s to
p ro c e d u re s a n d c o rre c t a n y fin a n c ia l
m a tte rs to HUD o r DOJ.
in fo rm p rim a ry le n d e rs o f th e
in s titu tio n p o lic ie s o r p r o c e d u re s th a t
The federal banking agencies:
c o n d itio n s u n d e r w h ic h th e y w ill b u y
m a y h a v e c o n trib u te d to th e
T h e fed e ra l b a n k in g a g e n c ie s a re
lo an s. F o r e x a m p le , a b ility to re p a y th e
d isc rim in a tio n ;
a u th o riz e d to u s e th e fu ll ra n g e o f th e ir
lo a n is m e a s u re d b y su g g e ste d ra tio s o f
• T ra in fin a n c ia l in s titu tio n
e n fo rc e m e n t a u th o rity u n d e r 12 U .S.C .
m o n th ly h o u s in g e x p e n s e to in c o m e
e m p lo y e e s in v o lv e d ;
1818 to a d d re s s d is c rim in a to ry le n d in g
• E sta b lish c o m m u n ity o u tre a c h
(28% ) a n d to ta l o b lig a tio n s to in c o m e
p ra c tic e s. T h is in c lu d e s th e a u th o rity to
(36% ). H o w ev er, th e s e g u id e lin e s a llo w
p ro g ra m s a n d c h a n g e m a rk e tin g strateg y
seek:
c o n s id e ra b le d is c re tio n o n th e p a rt o f
o r lo a n p ro d u c ts to b e tte r se rv e all
• Enforcement actions that may
th e p rim a ry le n d e r. In a d d itio n , th e
se c to rs o f th e fin a n c ia l in s titu tio n ’s
require both prospective and
se c o n d a ry m a rk e t g u id e lin e s h a v e in
se rv ic e area;
retrospective relief; and
• Im p ro v e in te rn a l a u d it c o n tro ls a n d
so m e ca se s b e e n m a d e m o re fle x ib le , for
• C iv il m o n e y p e n a ltie s (“ C M P s” ) in
o v e rsig h t sy ste m s in o rd e r to e n s u re
e x a m p le , w ith re sp e c t to fac to rs s u c h as
v a ry in g a m o u n ts a g a in st th e fin a n c ia l
th e re is n o re c u rre n c e o f d is c rim in a tio n ;
sta b ility o f in c o m e (ra th e r th a n sta b ility
in s titu tio n o r a n y in s titu tio n -a ffilia te d
or
o f e m p lo y m e n t) a n d u s e o f
p a rty (“ LAP” ) w ith in th e m e a n in g o f 12
• M o n ito r c o m p lia n c e a n d p ro v id e
n o n tra d itio n a l w a y s o f e s ta b lis h in g g o o d U .S.C. 1813(u), d e p e n d in g , a m o n g o th e r
p e rio d ic re p o rts to th e p rim a ry fed e ra l
c re d it a n d a b ility to p a y (e.g., u s e o f p a s t
th in g s, o n th e n a tu re o f th e v io la tio n
reg u la to r.
re n t a n d u tility p a y m e n t re c o rd s).
a n d th e d eg re e o f c u lp a b ility .
R e tro sp e c tiv e re lie f m a y in c lu d e :
' L e n d e rs s h o u ld e n s u re th a t th e ir lo a n
In a d d itio n to th e a b o v e a c tio n s , th e
• Id e n tify in g c u s to m e rs w h o m ay
p ro c e sso rs a n d u n d e rw rite rs a re a w a re
fed era l b a n k in g a g e n c ie s m a y a lso ta k e
h a v e b e e n su b je c t to d is c rim in a tio n a n d
o f th e p ro v is io n s o f th e se c o n d a ry
rem o v a l a n d p ro h ib itio n a c tio n s a g a in st
offerin g to e x te n d c re d it if th e c u s to m e rs
m a rk e t g u id e lin e s th a t p ro v id e v a rio u s
a n y LAP w h e re th e sta tu to ry
w e re im p ro p e rly d e n ie d ;
a lte rn a tiv e a n d flex ib le m e a n s b y w h ic h
re q u ire m e n ts for s u c h a c tio n s are m e t.
• R e q u irin g th e fin a n c ia l in s titu tio n
a p p lic a n ts m a y d e m o n s tra te th e ir a b ility
T h e fed eral b a n k in g a g e n c ie s w ill
to m a k e p a y m e n ts to in ju re d p arties:
a n d w illin g n e s s to re p a y th e ir lo a n s.
m a k e d e te rm in a tio n s as to th e
• R estitu tion : T h is m a y in c lu d e an y
F a n n ie M ae a n d F re d d ie M a c n o t
a p p ro p ria te n e s s o f a n y p o te n tia l
o u t-o f-p o c k et e x p e n se s in c u rre d as a
in fre q u e n tly p u rc h a s e m o rtg a g es
e n fo rc e m e n t a c tio n afte r g iv in g fu ll
re s u lt o f th e v io la tio n to m a k e th e
ex c ee d in g th e su g g e sted ra tio s, a n d th e ir
c o n s id e ra tio n to a v a rie ty o f fac to rs. In
v ic tim o f d is c rim in a tio n w h o le , s u c h as:
g u id e lin e s c o n ta in d e ta ile d d is c u s s io n s
m a k in g th e se d e te rm in a tio n s , th e
fees o r e x p e n se s in c o n n e c tio n w ith th e
o f th e c o m p e n sa tin g fac to rs th a t c a n
b a n k in g agencies w ill take in to account:
a p p lic a tio n ; th e d iffe re n c e b e tw e e n an y
ju stify h ig h e r ra tio s (an d w h ic h m u s t b e
• T h e n u m b e r a n d d u ra tio n o f
g re a te r fees o r e x p e n se s o f a n o th e r lo a n
d o c u m e n te d b y th e p rim a ry le n d e r).
v io la tio n s id e n tifie d ;
g ra n te d e lse w h e re afte r d e n ia l b y th e
A le n d e r w h o reje cts a n a p p lic a tio n
• T h e n a tu re o f th e e v id e n c e of
d is c rim in a tin g le n d e r; a n d , w h e n lo a n s
from a n a p p lic a n t w h o is a m e m b e r o f
d isc rim in a tio n (i.e., o v ert
w e re g ra n te d o n d is p a ra te te rm s,
a p ro te c te d c la ss a n d w h o h a s ra tio s
d isc rim in a tio n , d is p a ra te tre a tm e n t o r
a p p ro p ria te m o d ific a tio n o f th o s e te rm s
ab o v e th o se o f th e g u id e lin e s a n d
d isp a ra te im p a c t);
a n d re fu n d s o f a n y g rea ter a m o u n ts
ap p ro v e s a n a p p lic a tio n from a n o th e r
• W h e th e r th e d is c rim in a tio n w as
p a id .
a p p lic a n t w ith s im ila r ra tio s s h o u ld b e
lim ite d to a p a rtic u la r office o r u n it o f
• O th er A ffirm a tive A ctio n A s
p r e p a re d to sh o w th a t th e re a so n for th e
th e fin a n c ia l in s titu tio n o r w a s m o re
A p p ro p ria te to C orrect C o n d itio n s
reje ctio n w as b a s e d on facto rs th a t a re
p e rv a siv e in n a tu re ;
R esu ltin g From D iscrim in ation : T h e
a p p lie d c o n s is te n tly w ith o u t re g a rd to
• T h e p re se n c e a n d e ffe c tiv e n e ss o f
fed e ra l b a n k in g a g e n c ie s also h a v e th e
an y o f th e p ro h ib ite d factors.
an y a n ti-d is c rim in a tio n p o lic ie s;
a u th o rity to re q u ire a fin a n c ia l
These same principles apply equally
• A n y h isto ry o f d is c rim in a to ry
in s titu tio n to ta k e a ffirm ativ e a c tio n to
to the guidelines of private and
c o n d u c t; a n d
c o rre c t o r re m e d y an y c o n d itio n s
governmental loan insurers.
• A n y c o rre c tiv e m e a su re s
Q12: What criteria will be employed
re s u ltin g from a n y v io la tio n o r p ra c tic e .
in taking enforcement actions or seeking im p le m e n te d o r p ro p o s e d b y th e
T h e b a n k in g a g e n c ie s w ill d e te rm in e
fin a n c ia l in s titu tio n .
remedial measures when lending
w h e th e r s u c h affirm a tiv e a c tio n is
T h e se v e rity o f th e fe d e ra l b a n k in g
discrimination is discovered?
a p p ro p ria te in a g iv e n case a n d , if s u c h
a g e n c ie s’ e n fo rc e m e n t re sp o n se w ill
A: Enforcement sanctions and
a c tio n is a p p ro p ria te , th e ty p e o f re m e d y
remedial measures for lending
d e p e n d o n th e e g re g io u sn e ss o f th e
to o rd er.
discrimination violations vary
fin a n c ia l in s titu tio n ’s c o n d u c t.
• R e q u irin g th e fin a n c ia l in s titu tio n
depending on whether such sanctions
V o lu n ta ry id e n tific a tio n a n d c o rre c tio n
to p a y CM Ps:
are sought by the appropriate federal
o f v io la tio n s d is c lo s e d th ro u g h a se lf­
T h e b a n k in g a g e n c ie s h a v e th e
financial institutions regulatory
te stin g p ro g ra m w ill b e a s u b s ta n tia l
a u th o rity to a sse ss C M Ps ag a in st
m itig a tin g fac to r in c o n s id e rin g w h e th e r fin a n c ia l in s titu tio n s o r in d iv id u a ls for
agencies, DOJ, HUD or other federal
to in itia te an e n fo rc e m e n t a c tio n .
v io la tin g fair le n d in g la w s o r
agencies charged with enforcing either




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Federal Register / Vol. 59, No. 73 / Friday, April 15; 1994 / Notices
re g u la tio n s. E ach ag e n c y h a s th e
a u th o rity to a s se ss C M Ps o f u p to $5,000
p e r d ay for a n y v io la tio n o f la w , ru le or
re g u la tio n . P e n a ltie s o f u p to $ 2 5,000
p e r d ay are also p e rm itte d , b u t o n ly if
th e v io la tio n s r e p re s e n t a p a tte rn of
m is c o n d u c t, c a u s e m o re th a n m in im a l
lo ss to th e fin a n c ia l in s titu tio n , o r re s u lt
in g ain o r b e n e fit to th e p a rty in v o lv e d .
C M Ps are p a id to th e U .S. T re a su ry a n d
th e re fo re d o n o t c o m p e n s a te v ic tim s o f
d is c rim in a tio n .

National Credit Union Administration

i

F o r fed e ra l c re d it u n io n s , N CUA w ill
em p lo y c rite ria c o m p a ra b le to th o se o f
th e fed eral b a n k in g a g e n c ie s, p u rs u a n t
to its a u th o rity u n d e r 12 U.S.C. 1786.

The Department of Justice
T h e D e p a rtm e n t o f Ju stic e is
a u th o riz e d to u s e th e fu ll ran g e o f its
e n fo rc e m e n t a u th o rity u n d e r th e FH A ct
a n d th e ECO A . DOJ h a s a u th o rity to
c o m m e n c e p a tte r n o r p ra c tic e
in v e stig a tio n s o f p o ssib le le n d in g
d is c rim in a tio n o n its o w n in itia tiv e o r
th ro u g h re fe rra ls fro m th e fed eral
fin a n c ia l in s titu tio n s re g u la to ry
ag e n cies, a n d to file la w s u its in fed e ra l
c o u rt w h e re th e re is re a so n a b le c a u se to
b e lie v e th a t s u c h v io la tio n s h a v e
o c c u rre d . DOJ is a lso a u th o riz e d u n d e r
th e FH A ct to b rin g s u it b a se d on
in d iv id u a l c o m p la in ts file d w ith HUD
w h e re o n e o f th e p a rtie s to th e
c o m p la in t e le c ts to h a v e th e case h e a rd
in fed eral c o u rt.
T h e re lie f so u g h t b y DOJ in le n d in g
d is c rim in a tio n la w s u its m ay in c lu d e :

• An injunction which may require
both prospective and retrospective
relief; and,
• In e n fo rc e m e n t a c tio n s u n d e r th e
FH A ct, C M Ps n o t to ex c e e d $ 50,000 p e r
d e fe n d a n t for a first v io la tio n a n d
$ 1 0 0,000 for a n y su b s e q u e n t v io la tio n .
P ro sp e c tiv e in ju n c tiv e re lie f m ay
in c lu d e :
• A p e rm a n e n t in ju n c tio n to in su re
ag a in st a re c u rre n c e o f th e u n la w fu l
p rac tice s;
• A ffirm a tiv e m e a su re s to co rrec t p ast
d is c rim in a to ry p o lic ie s, p ro c e d u re s, or
p ra c tic e s, so lo n g as c o n s is te n t w ith
safety a n d s o u n d n e s s , su c h as:

• Expansion of the lender’s service
areas to include previously excluded
minority neighborhoods;
• Opening branches or other credit
facilities in under-served minority
neighborhoods;
• T arg eted sa le s c a lls on real e state
ag e n ts a n d b u ild e r s a c tiv e in m in o rity
n e ig h b o rh o o d s;
• A d v e rtisin g th ro u g h m in o rity o rie n te d m e d ia;

• Self-testing;
• Employee training;




18273

• C h a n g es to c o m m issio n stru c tu re s
w h ic h te n d to d isc o u ra g e le n d in g in
m in o rity a n d lo w -in c o m e
n e ig h b o rh o o d s; a n d
• C h a n g es in lo a n p ro c e ssin g a n d
u n d e rw ritin g p ro c e d u re s (in c lu d in g
s e c o n d re v ie w s o f d e n ie d a p p lic a tio n s)
to e n s u re e q u a l tre a tm e n t w ith o u t
re g a rd to p ro h ib ite d fac to rs; a n d
• R eco rd k e e p in g a n d re p o rtin g
re q u ire m e n ts to m o n ito r c o m p lia n c e
w ith re m e d ia l o b lig a tio n s.
R e tro sp e c tiv e in ju n c tiv e re lie f m ay
in c lu d e r e lie f for v ic tim s o f p a st
d is c rim in a tio n , a c tu a l a n d p u n itiv e
d am ag e s, a n d offers o r a d ju s tm e n ts o f
c re d it o r o th e r fo rm s o f lo a n
c o m m itm e n ts.

u n d e rta k e v a rio u s re m e d ia l actio n s,
in c lu d in g s u s p e n s io n , p ro b a tio n ,
re p rim a n d , o r s e ttle m e n t, ag ain st
le n d e rs fo u n d to h a v e en g ag ed in
d is c rim in a to ry le n d in g p ra c tic e s in
v io la tio n o f th e F H A ct o r th e ECOA.

T h e D e p a rtm e n t o f H o u sin g a n d U rb a n
D e v e lo p m e n t

T h e F e d e ra l H o u sin g F in a n c e B oard

T h e D e p a rtm e n t o f H o u sin g a n d
U rb a n D e v e lo p m e n t is fu lly a u th o riz e d
to in v e stig a te c o m p la in ts alleg in g
d is c rim in a tio n in le n d in g in v io la tio n o f
th e FH A ct a n d h a s th e a u th o rity to
in itia te c o m p la in ts a n d in v e stig a tio n s
e v e n w h e n a n in d iv id u a l c o m p la in t h a s
n o t b e e n re c e iv e d . H U D issu e s
d e te rm in a tio n s o n w h e th e r o r n o t
re a so n a b le c a u se e x ists to b e lie v e th a t
th e FH A ct h a s b e e n v io la te d . HUD also
m a y a u th o riz e a c tio n s for te m p o ra ry a n d
p re lim in a ry in ju n c tio n s to b e b ro u g h t by
DOJ a n d h a s a u th o rity to issu e
e n fo rc e a b le s u b p o e n a s for in fo rm a tio n
re la te d to in v e stig a tio n s.
F o llo w in g is s u a n c e o f a d e te rm in a tio n
o f re a so n a b le c a u s e u n d e r th e FH A ct,
H U D e n fo rc e s th e F H A ct
a d m in is tra tiv e ly u n le s s o n e o f th e
p a rtie s e le c ts to h a v e th e ca se h e a rd in
fed e ra l c o u rt in a c a se b ro u g h t by DOJ.
R e lie f u n d e r th e F H A ct m a t m ay b e
a w a rd e d b y a n a d m in is tra tiv e la w ju d g e
(“ ALJ” ) a fte r a h e a rin g , o r by th e
S e c re ta ry o n re v ie w o f a d e c isio n by a n
ALJ, in c lu d e s :
• In ju n c tiv e o r o th e r a p p ro p ria te
relief, in c lu d in g a v a rie ty o f a c tio n s
d e s ig n e d to c o rre c t d isc rim in a to ry
p ra c tic e s, s u c h as c h a n g e s in lo a n
p ro c e sse s o r p ro c e d u re s , m o d ific a tio n s
o f lo a n se rv ic e a re a s o r b ra n c h in g
a c tio n s , a p p ro v a l o f p re v io u sly d e n ie d
lo a n s to a g g rie v ed p e rso n s, a d d itio n a l
re c o rd -k e e p in g a n d re p o rtin g on fu tu re
a c tiv itie s o r o th e r affirm a tiv e relief;
• A c tu a l d am ag e s su ffe re d by p e rso n s
w h o are ag g rie v ed b y a n y v io la tio n o f
th e FH A ct, in c lu d in g d am ag e s for
m e n ta l d is tre s s a n d o u t-o f-p o c k et lo sses
a ttrib u ta b le to a v io la tio n ; a n d
• C iv il p e n a ltie s o f u p to $ 10,000 for
e a c h in itia l v io la tio n a n d u p to $2 5 ,0 0 0
a n d $ 5 0 ,0 0 0 for su c c e ssiv e v io la tio n s
w ith in s p e c ific tim e fram es.
HUD a lso is a u th o riz e d to d ire c t
F a n n ie M ae a n d F re d d ie M ac to

T h e O ffice o f F e d e ra l H o u sin g
E n te rp rise O v e rsig h t
T h e O ffice o f F e d e ra l H o u sin g
E n te rp rise O v e rsig h t is a u th o riz e d to
u se its e n fo rc e m e n t a u th o rity u n d e r 12
U .S.C. 4631 a n d 46 3 6 , in c lu d in g cease
a n d d e s ist o rd e rs a n d C M Ps for
v io la tio n s b y F a n n ie M ae a n d F re d d ie
M ac o f th e fair h o u s in g re g u la tio n s
p ro m u lg a te d b y th e S e c re tary o f HUD
p u rs u a n t to 12 U .S.C . § 4 5 4 5 .

W h ile th e F e d e ra l H o u sin g F in a n c e
B o ard d o e s n o t h a v e e n fo rc e m e n t
a u th o rity u n d e r th e ECO A o r th e FH
A ct, in re v ie w in g th e m e m b e rs of th e
F e d e ra l H o m e L oan B a n k S y stem for
c o m m u n ity s u p p o rt, it m a y restric t
ac ce ss to lo n g -te rm S y stem ad v a n c e s to
an y m e m b e r th a t, w ith in tw o y ears p rio r
to th e d u e d a te o f s u b m is s io n o f a
C o m m u n ity S u p p o rt S ta te m e n t, h a d a
fin al a d m in is tra tiv e o r ju d ic ia l ru lin g
a g a in st it b a s e d o n v io la tio n s o f th o se
sta tu te s (or a n y s im ila r sta te or lo cal law
p ro h ib itin g d is c rim in a tio n in len d in g ).
S y stem m e m b e rs in th is s itu a tio n are
a sk e d to s u b m it to th e F in a n c e B oard an
e x p la n a tio n o f ste p s ta k e n to rem e d y th e
v io la tio n o r p re v e n t a re c u rre n c e . S ee 12
U .S.C. 1430(g); 12 CFR 936.3 (b)(5).
T h e F e d e ra l T ra d e C o m m issio n
T h e F e d e ra l T ra d e C o m m issio n
e n fo rc e s th e r e q u ire m e n ts o f th e ECOA
a n d R e g u la tio n B for all le n d e rs su b ject
to th e ECO A , e x c e p t w h e re e n fo rc e m e n t
is sp e c ific a lly c o m m itte d to a n o th e r
ag en cy . T h e FTC m a y e x e rcise a ll o f its
fu n c tio n s a n d p o w e rs u n d e r th e F ed era l
T ra d e C o m m issio n A c t (“ FTC A c t”) to
en fo rc e th e ECO A , a n d a v io la tio n of
a n y re q u ire m e n t u n d e r th e ECOA is
d e e m e d to b e a v io la tio n o f a
re q u ire m e n t u n d e r th e F TC A ct. T h e
FTC h a s th e p o w e r to en fo rce
R e g u la tio n B in th e sa m e m a n n e r as if
a v io la tio n o f R e g u la tio n B w ere a
v io la tio n o f a n FTC tr a d e re g u la tio n
ru le.
T h is m e a n s th a t th e FTC h a s th e
p o w e r to in v e stig a te le n d e rs s u sp e c te d
o f le n d in g d is c rim in a tio n a n d to u se
c o m p u ls o ry p ro c e s s in d o in g so. T h e
C o m m issio n , th ro u g h DOJ or o n its o w n
b e h a lf w h e re th e Ju stic e D ep a rtm en t
d e c lin e s to a c t, m a y file s u it in fed eral
c o u rt a g a in st s u s p e c te d v io la to rs a n d
se ek re lie f in c lu d in g :
• I n ju n c tio n s a g a in st th e v io la tiv e
p ra c tic e ;

/070
18274

Federal Register / Vol. 59, No. 73 / Friday, April 15, 1994 / Notices

ta
e

their own respective authorities, the
Agencies will seek to coordinate their
actions to ensure that each agency’s
• Redress to affected consumers.
In addition, the Commission routinely action is consistent and complementary.
The financial institutions regulatory
imposes recordkeeping and reporting
agencies also will discuss referrals on a
requirements to monitor compliance.
case-by-case basis with DOJ or HUD to
Q 13: W ill a fin a n c ia l in s titu tio n b e
determine whether multiple actions are
s u b je c te d to m u ltip le a c tio n s b y DOJ or
necessary and appropriate.
HUD a n d its p rim a ry re g u la to r if

• C iv il p e n a ltie s o f u p to $ 1 0 ,0 0 0 for
e a c h v io la tio n ; a n d

d is c rim in a to ry p ra c tic e s a re d isc o v e re d ?
A: In all cases w h e re re fe rra ls to o th e r
ag e n cies are m a d e , th e a p p ro p ria te
fed eral fin a n c ia l in s titu tio n s re g u la to ry
ag en cy w ill engag e in o n g o in g
c o n s u lta tio n s w ith DOJ o r HUD
reg a rd in g c o o rd in a tio n o f e a c h ag e n c y ’s
a c tio n s. T h e A g e n c ie s w ill c o o rd in a te
th e ir e n fo rc e m e n t a c tio n s a n d m ak e
every effort to e lim in a te u n n e c e s s a rily
d u p lic a tiv e a c tio n s. W h e re b o th a
fed eral fin a n c ia l in s titu tio n s re g u la to ry
ag en cy a n d e ith e r DOJ o r HUD are
c o n te m p la tin g ta k in g a c tio n s u n d e r




Dated: April 6, 1994.
Henry G. Cisneros,
Secretary, U.S. Department o f Housing and
Urban Development.

Aida Alvarez,
Director, Office o f Federal Housing Enterprise
Oversight.

Janet Reno,
Attorney General, Department o f Justice.

Eugene A. Ludwig,
Comptroller o f the Currency.

Jonathan L Fiechter
Acting Director, Office o f Thrift Supervision.

Alan Greenspan,
Chairman, Board of Governors o f the Federal
Reserve System.

Andrew C. Hove, Jr.,
Acting Chairman, Federal Deposit Insurance
Corporation.

Nicolas P. Retsinas,
HUD—Secretary, Designee to the Board,
Federal Housing Finance Board.

Donald S. Clark,
Secretary, Federal Trade Commission.

Norman E. D’Amours,
Chairman, National Credit Union
Administration.

Norman E. D’Amours,
Chairman, National Credit Union
Administration.

Norman E. D’Amours,
Chairman, National Credit Union
Administration.

[FR Doc. 94-9214 Filed 4-14-93; 8:45 ami
BILUNG COOES 4210-32-P ; 4210-01-P ; 1S-41-0004-P;
4810-33-P; 6720-01-P ; 6210-01-P; 6714-01-P ; 6725-01P; 6750-01-P ; and 753-601-P