Fair Lending: Data Limitations and the Fragmented U.S. Financial Regulatory Structure Challenge Federal Oversight and Enforcement Efforts Page: 2 of 102
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Accountability. Integrity* Reliability
Highlights of GAO-09-704, a report to
Why GAO Did This Study
The Fair Housing Act (FHA) and the
Equal Credit Opportunity Act
(ECOA)-the "fair lending laws"-
prohibit discrimination in lending.
Responsibility for their oversight is
shared among three enforcement
agencies-the Department of Housing
and Urban Development (HUD),
Federal Trade Commission (FTC), and
Department of Justice (DOJ)-and five
depository institution regulators-the
Federal Deposit Insurance Corporation
(FDIC), Board of Governors of the
Federal Reserve System (Federal
Reserve), National Credit Union
Administration (NCUA), Office of the
Comptroller of the Currency (OCC),
and Office of Thrift Supervision (OTS).
This report examines (1) data used by
agencies and the public to detect
potential violations and options to
enhance the data, (2) federal oversight
of lenders that are identified as at
heightened risk of violating the fair
lending laws, and (3) recent cases
involving fair lending laws and
associated enforcement challenges.
GAO analyzed fair lending laws,
relevant research, and interviewed
agency officials, lenders, and consumer
groups. GAO also reviewed 152
depository institution fair lending
examination files. Depending upon file
availability by regulator, GAO reviewed
all relevant files or a random sample as
Congress should consider options,
such as requiring larger lenders to
report additional data, to enhance the
data available to detect potential fair
lending violations. Further, as part of
ongoing discussions on revising the
regulatory structure, Congress should
consider how to best ensure consistent
and effective federal oversight of the
fair lending laws. In comments,
agencies and regulators generally
agreed with the report's analysis.
View GAO-09-704 or key components.
For more information, contact Orice Williams
Brown at (202) 512-8678 or
Data Limitations and the Fragmented U.S. Financial
Regulatory Structure Challenge Federal Oversight
and Enforcement Efforts
What GAO Found
The Home Mortgage Disclosure Act (HMDA) requires certain lenders to
collect and publicly report data on the race, national origin, and sex of
mortgage loan borrowers. Enforcement agencies and depository institution
regulators use HMDA data to identify outliers-lenders that may have violated
fair lending laws-and focus their investigations and examinations
accordingly. But, HMDA data also have limitations; they do not include
information on the credit risks of mortgage borrowers, which may limit
regulators' and the public's capacity to identify lenders most likely to be
engaged in discriminatory practices without first conducting labor-intensive
reviews. Another data limitation is that lenders are not required to report data
on the race, ethnicity, and sex of nonmortgage loan borrowers-such as small
businesses, which limits oversight of such lending. While requiring lenders to
report additional data would impose costs on them, particularly smaller
institutions, options exist to mitigate such costs to some degree, such as
limiting the reporting requirements to larger institutions. Without additional
data, agencies' and regulators' capacity to identify potential lending
discrimination is limited.
GAO identified the following limitations in the consistency and effectiveness
of fair lending oversight that are largely attributable to the fragmented U.S.
financial regulatory system:
* Federal oversight of lenders that may represent heightened risks of fair
lending law violations is limited. For example, the enforcement agencies
are responsible for monitoring independent mortgage lenders' compliance
with the fair lending laws. Such lenders have been large originators of
subprime mortgage loans in recent years and have more frequently been
identified through analysis of HMDA data as outliers than depository
institutions, such as banks. Depository institution regulators are more
likely to assess the activities of outliers and, unlike enforcement agencies,
they routinely assess the compliance of lenders that are not outliers. As a
result, many fair lending violations at independent lenders may go
undetected, and efforts to deter potential violations may be ineffective.
* Although depository institution regulators' fair lending oversight efforts
may be more comprehensive, the division of responsibility among multiple
agencies raises questions about the consistency and effectiveness of their
efforts. For example, each regulator uses a different approach to analyze
HMDA data to identify outliers and examination documentation varies.
Moreover, since 2005, OTS, the Federal Reserve, and FDIC have referred
more than 100 lenders to DOJ for further investigations of potential fair
lending violations, as required by ECOA, while OCC made one referral and
Enforcement agencies have settled relatively few (eight) fair lending cases
since 2005. Agencies identified several enforcement challenges, including the
complexity of fair lending cases, difficulties in recruiting and retaining staff,
and the constraints of ECOA's 2-year statute of limitations.
.United States Government Accountability Office
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United States. Government Accountability Office. Fair Lending: Data Limitations and the Fragmented U.S. Financial Regulatory Structure Challenge Federal Oversight and Enforcement Efforts, report, July 15, 2009; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc300268/m1/2/: accessed November 16, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.