ABA Seeks Fairness in Fair Lending Enforcement

As part of the banking industry’s continuing response to President Trump’s executive order outlining “core principles” for financial regulation, the American Bankers Association today urged federal regulators and law enforcement to rein in disparate impact and redlining investigations that go beyond the law and Supreme Court precedent.

Fair lending enforcement not rooted in the law actually reduces incentives for lenders to expand access to credit. “Creation of rules by means of novel, changing, and vague fair lending enforcement theories undermines a primary goal of the fair lending laws — expanding credit opportunity and availability,” ABA said. “Where the costs or regulatory risks of the new enforcement and compliance theories are high, or lenders are unable to discern from enforcement actions what is expected, lending becomes more standardized and defensive, less tailored, and some programs or services are discontinued.”

While the Supreme Court found in 2015 that “disparate impact” claims — as opposed to disparate treatment analysis — can be employed under the Fair Housing Act, ABA noted that federal agencies have “largely disregarded” the court’s framework placing limits around how disparate impact is used. ABA urged agencies to comply fully with Supreme Court guidance, as well as to acknowledge in writing that disparate impact is not cognizable under the Equal Credit Opportunity Act.

ABA also noted that federal regulators are recently pursuing “redlining” cases based not on Community Reinvestment Act-mandated assessment areas but on “reasonably expected market areas” — zones subjectively identified by agencies as places that banks should be serving. ABA urged regulators to evaluate redlining within a CRA performance context. ABA recommended that Congress repeal Section 1071 of Dodd-Frank, which gives the Consumer Financial Protection Bureau authority to collect fair lending data on small business loans.

The white paper is the third of several that ABA will submit to Treasury in response to the executive order. It reflects feedback and input from numerous banks participating in ABA’s fair lending and compliance working groups over recent years. For more information, contact ABA’s Wayne Abernathy.