- ICBA strongly supports equal access to credit through the fair lending laws -- Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA) -- 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 regulators evaluate 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 for disparate impact that relies on statistical disparity alone without a robust causal connection to a specific policy or practice. ICBA supports amending the fair lending laws to clarify that disparate impact without a finding of intentional discrimination does not violate fair lending.
- ICBA opposes the use of statistical disparity alone to enforce fair lending laws against indirect auto lenders to combat the discriminatory behavior of auto dealers.
- The CFPB should establish a process for consulting with financial regulators and receiving public input with respect to any guidance it publishes regarding indirect auto lending
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.
Fair Lending Standards Should Be Consistent and Transparent. 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 prospectively so that community banks can assess and refine if necessary their own policies and procedures to ensure compliance with fair lending laws.
Premature allegations of racial or ethnic discrimination can harm a community bank’s reputation. Therefore, the confidentiality of specific community bank information should be preserved while investigations are being conducted and before conclusions are reached.
ICBA Opposes the Use of Statistical Disparity Alone in a Disparate Impact Cause of Action. Community banks devote substantial resources to the advancement of fair lending. In June, 2015, the United States Supreme Court upheld the application of disparate impact under the Fair Housing Act. 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. However, the Court imposed important limitations to the disparate impact application. The Court ruled that disparate-impact claims that rely on statistical disparity alone must fail if they cannot be tied to a policy or policies that caused that disparity. ICBA believes that a robust causal connection should be clearly identified before bringing a cause of action in fair lending laws. In this regard, ICBA believes that data collected under Section 1071 of the Dodd-Frank Act, which requires lenders to collect data on small business loan applications, could lead to a proliferation of meritless disparate impact claims based on statistical disparity alone. Small business loans are particularly difficult to analyze for disparate impact because, unlike other lending products, they do not use standardized terms. ICBA urges the full repeal of Section 1071. (See Loan Data Collection resolution for more information on Section 1071.)
Statistical Data Alone Should Not Be Used to Identify Disparate Impact Violations by Indirect Auto Lenders. 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. Statistical data alone should not be used to identify disparate impact violations by 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.
Agency Guidance Related to Indirect Auto Lending Should be Subject to Public Notice and Comment. ICBA supports legislation that would require the CFPB to provide a public notice and comment period for any guidance it publishes on indirect auto lending. The process should be should be open, transparent, and responsive to public input. All studies, data, and other information on which the guidance is based should be made public. ICBA also supports legislation that would require the CFPB to consult with the Board of Governors of the Federal Reserve System, the Federal Trade Commission, the Department of Justice, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.
Staff Contact: Lilly Thomas