The Dodd-Frank Act extended fair lending enforcement authority to the new
At the same time, the
“The number of referrals partly reflects what other agencies are putting into it,”
The angst over fair lending enforcement was palpable at the CBA conference, where organizers had to bring in extra chairs to accommodate standing-room only crowds and leave extra time for questions at fair lending sessions.
Barefoot, a former deputy comptroller, said compliance has long been seen as a “side issue” in banking.
“It's something that we have to get right by knowing the rules and applying them accurately,” she said. “Then all of a sudden these issues of fairness—spotlighted on UDAAP [unfair, deceptive or abusive acts or practices]—are not only critical to banking, they're the headline news. They're the most important thing out there.”
Over the past three years, the agency has received 55 referrals from regulators alleging a pattern or practice of discrimination involving race or national origin, compared with only 30 in the eight years prior to that.
It received 26 such referrals in 2010 alone—a department record—and 18 referrals in 2011, according to the attorney general's annual fair lending report to
“Almost every enforcement action that we've brought in the last year has been the result of a referral or some other collaboration with another federal agency or regulator,” Halperin said.
The agency received 29 total referrals in 2011: 14 from the
Nearly two-thirds of the referrals related to pricing discrimination based on race or national origin, while others involved marital status, age, sex, source of income, disability and familial status.
Those referrals led to an unprecedented amount of fair lending enforcement in 2011, Halperin said.
The division filed eight lending-related lawsuits, and obtained eight settlements, including a
In the meantime, the banking industry has been scrambling to keep up.
Fair lending experts are in high demand by financial services recruiting firms, as banks expand their compliance ranks to handle the impending fair lending scrutiny, observers said.
“People are beating the bushes looking for fair lending people,”
Consulting groups and law firms have also devoted new resources to fair lending issues, and at least one—Ballard Spahr LLP—created its own fair lending task force, comprised of lawyers with specialties in regulatory compliance, litigation and labor law, to confront fair lending challenges for its clients.
“A lot of people see it as the next big thing,” said
Zeisel said several factors are driving the heightened focus from bankers over fair lending, including uncertainty about how
“I'm not sure there's a big increase in concern about traditional fair lending compliance issues at most banks,” Zeisel said. “I think it has more to do with a growing concern about an expanded expectation of what is fair, responsible banking, without a clear idea of what that will mean.”
Last year, it brought the first case ever under the Fair Housing Act that addressed discrimination against women on paid maternity leave who were prevented from refinancing their mortgages until they returned to work.
They also brought the first lending case dealing with unsecured consumer loans in at least 10 years, Halperin said, involving a small bank that had no pricing guidelines for such loans, no fair lending training and no fair lending compliance program.
And it reached three settlements last year—plus five more in early 2012 as part of the
The agency has also brought cases claiming fair lending violations resulting from policies that had a disparate impact on a group of borrowers—a legal theory that hadn't applied to lending until recently, said
“All this is up in the air, and…none of this is definitely resolved,” Hancock told bankers at the CBA convention. “But it is clear how they're going forward in enforcing this—they're enforcing it very similarly to what HUD is” proposing.
All of this means prolonged uncertainty for banks that isn't expected to go away any time soon, observers said.
Halperin told bankers that the unit currently has eight active fair lending lawsuits, and 25 open investigations. Those investigations include 11 referrals received in prior years—three each from the
Much of the unit's work will be similar to last year, with a focus on compliance with the recent Servicemembers Civil Relief Act settlements, and cases involving pricing discrimination, Halperin said.
“What I see in terms of fair lending risk in the marketplace…any time you're providing discretion to decision-makers, we're always looking at whether someone's compensation has been varied depending on how they're exercising that discretion,” he said.
Observers also expect several more big enforcement actions this year from both the
But despite Justice expectations, the government may not receive the same reaction from banks, which have routinely avoided going to court over fair lending allegations because of the risks to their reputations, observers said.
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