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Last update: 09/02/14

ICBA Policy Resolutions for 2014
ICBA Priorities for 2014

FAIR LENDING

Position

  • ICBA supports equal access to credit and fair lending and condemns discrimination based on race, ethnicity, national origin, gender, religion or other listed classification.

  • ICBA supports the use of consistent and transparent standards when evaluating a community bank’s fair lending practices.

  • ICBA opposes changes to methodologies, standards or analysis used to assess fair lending compliance without providing proper notice to community banks.

  • ICBA supports transparency regarding the legal theories and methodologies used when enforcing fair lending laws while preserving the confidentiality of specific community bank information. Analytical methods used to evaluate fair lending law compliance must be disclosed.

  • ICBA opposes any cause of action under the fair lending laws, including the Equal Credit Opportunity Act and Fair Housing Act for disparate impact without a finding of intentional discrimination.

  • ICBA opposes the use of disparate impact to enforce fair lending laws against indirect auto lenders to combat the discriminatory behavior of auto dealers.

Background

Community banks have a strong track record of providing access to credit in the communities in which they are located and take their fair lending obligations very seriously. A recent trend of increased scrutiny and changed methodologies in fair lending exams and investigations has resulted in “false positive” findings of disparate treatment, thus requiring the affected community banks to spend large amounts of time and money in disproving false fair lending allegations. Community banks are particularly vulnerable to such allegations. While large, conventional lenders typically take a “check list” approach to granting credit, community banks, by contrast, are committed to working with their customers to provide customized loans under exceptional circumstances. Unfortunately, this form of “exception lending” raises red flags and too often draws fair lending allegations.

Community banks work hard to comply with laws and regulations and consistently seek information and guidance on how to implement applicable rules. Regulators must provide certainty to those who comply with the law that they will not be unfairly targeted. Information and guidance on the methodologies, standards, and analysis that are used when examining and investigating banks for fair lending should be explicit and publicly available before they are implemented. In addition, new methodologies, standards, and analysis should be applied proactively so that community banks can assess and refine if necessary their own policies and procedures to ensure compliance with fair lending laws.

While ICBA strongly supports transparency in government agency action with regard to fair lending action, because premature allegations of racial or ethnic discrimination can harm a community bank’s reputation, the confidentiality of specific community bank information should be preserved while investigations are being conducted and before conclusions are reached.

ICBA strongly supports the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA). Community banks devote substantial resources to the advancement of fair lending. ICBA and its members also emphatically oppose the disparate treatment of individuals. However, ICBA does not support a disparate-impact cause of action under either the ECOA or the FHA. Disparate impact describes the differential results that arise from “practices that are facially neutral in their treatment of different groups” but that may “fall more harshly on one group than another.” In other words, disparate-impact may arise when the end results of a lender’s operations have different demographic results despite the uniform application of sound, neutral financial standards. A disparate impact cause of action would impose an additional obligation on lenders to consider such factors as race or national origin in individual credit decisions, which is specifically precluded by the law. Additionally, ICBA believes such a cause of action would permit the filing of frivolous lawsuits based on statistical data alone. The plain language of the FHA contains no recognition of disparate-impact liability.

ICBA strongly believes that there is no place for discrimination in the auto lending industry. Auto dealers who intentionally discriminate should be appropriately dealt with through the enforcement of existing laws by the agencies responsible for overseeing those dealers and not through the use of disparate impact against indirect auto lenders. Indirect auto lenders do not have a direct relationship with the customer and do not have knowledge of a customer’s race, ethnicity or gender. The targeting of such lenders to address the discriminatory practices of auto dealers is misguided and harmful.

Staff Contact: Lilly Thomas

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