What efforts is the Federal Reserve undertaking to improve the efficiency of the fair lending examination process, particularly for community banks?
The Federal Reserve supervises approximately 800 state member banks, and fair lending is a critical component of the consumer compliance supervision process. We understand that many banks, particularly smaller banks, may find fair lending to be a challenging part of the examination. Some community banks have raised concerns about whether fair lending matters are evaluated consistently across the Federal Reserve System and have noted difficulty understanding the statistical analysis. We take these concerns seriously and have taken several steps to address them.
In 2009, in conjunction with the other federal banking agencies, the Federal Reserve revised the Interagency Fair Lending Examination Procedures (the Procedures) to provide more detailed information regarding current fair lending risk factors and to ensure that our examination procedures keep pace with industry changes. The Procedures are available to banks to aid in their analysis of fair lending risks and to prepare for fair lending examinations. Moreover, examiners work closely with the Board’s Fair Lending Enforcement Section when they find evidence of potential discrimination. This process ensures that fair lending laws and regulations are enforced consistently and rigorously throughout the Federal Reserve System.
In addition, we have increased our communications with banks during the examination process, particularly with respect to statistical reviews. We often conduct statistical analyses of the electronic data we obtain from banks to determine if there are any disparities in lending on a prohibited basis. We find that these reviews are very effective and more efficient for both banks and examiners. In most cases, our statistical analyses do not identify concerns. When we find problems, we take additional steps to communicate with the banks to ensure they understand the fair lending concerns raised by the analysis and how to respond effectively.
Finally, the Federal Reserve engages in a variety of outreach activities to ensure that banks of all sizes have access to information about the Federal Reserve’s approach to fair lending examinations. For example, this webinar had more than 5,000 registrants, most of whom were from community banks. The Fair Lending Enforcement staff meets regularly with consumer advocates, representatives of supervised institutions, and industry representatives to discuss fair lending matters and receive feedback. Through this outreach, the Federal Reserve addresses emerging fair lending issues and promotes sound fair lending compliance.
What is the difference between the fair lending supervisory authority of the Federal Reserve and the Consumer Financial Protection Bureau (CFPB)?
The Federal Reserve and the CFPB have different supervisory authority for the fair lending laws, depending on the asset size of the institution. Pursuant to provisions of the Dodd-Frank Act, effective July 21, 2011, the CFPB supervises state member banks with assets of more than $10 billion for compliance with the Equal Credit Opportunity Act (ECOA), while the Federal Reserve retains supervisory authority for those institutions for compliance with the Fair Housing Act (FHA). For state member banks with assets of $10 billion or less, the Federal Reserve retains the authority to enforce both the ECOA and the FHA.
The ECOA prohibits creditors from discriminating against any applicant, in any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age. In addition, creditors may not discriminate against an applicant because the applicant receives income from a public assistance program or has exercised, in good faith, any right under the Consumer Credit Protection Act. See 15 U.S.C. §1691(a). The FHA prohibits discrimination in residential real estate-related transactions, including the making and purchasing of mortgage loans, on the basis of race, color, religion, sex, handicap, familial status, or national origin. See 42 U.S.C. §3605(a).