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Credit Discrimination: 4.4.1 The Consumer’s Own Records

The plaintiff should possess certain information useful for a credit discrimination case. The first item to check for is whether the plaintiff received a notice of action taken by the creditor and whether this notice is in the proper format.172 The Equal Credit Opportunity Act (ECOA) requires that creditors provide notice of an adverse action, generally in writing.173 The notice must either state the reason for the action taken or give the applicant the right to request the reason.

Credit Discrimination: 4.4.2 The Creditor’s Own Files

The creditor’s files are critical in any credit discrimination case. The ECOA sets out specific records that creditors must retain for twenty-five months following the date the creditor notifies an applicant of the action taken on an application (that is, the records are supposed to be retained until the statute of limitations usually has expired on possible ECOA actions).181

The creditor must retain the following documents:

Credit Discrimination: 4.4.4 Testers

Testers are an important source of information about a creditor’s practices. Testers are most frequently used by fair housing organizations, other nonprofit organizations and, in some cases, the government. Typically, paired testers have been similarly trained and are instructed to act in an identical manner and provide identical information. The only difference is the tester’s race, sex, or other characteristic that would suggest discrimination on a prohibited basis.

Credit Discrimination: 4.4.5.1 General

The Home Mortgage Disclosure Act (HMDA)215 and the implementing regulations (“Regulation C”216) require that lenders collect certain data on loan applicants and that the Federal Financial Institutions Examination Council (FFIEC) prepare disclosure statements and produce various reports on the practices of these individual lenders.

Credit Discrimination: 4.4.5.2.1 Covered lenders

The HMDA reporting requirements apply to federally insured or regulated lenders or to loans that are insured by a federal agency or that the lender intends to sell to Fannie Mae or Freddie Mac.239 These institutions must also have a home or branch office in a metropolitan statistical area (MSA) or Metropolitan Division, originate at least one home purchase loan or refinancing loan secured by a first lien on a one-family to four-family dwelling, and have total assets above a threshold set annually by the CFPB.

Credit Discrimination: 4.4.5.2.2 Required data collection

Financial institutions are required to collect data regarding applications for covered loans that it receives, originates, and purchases for each calendar year.246 A covered loan is defined as a closed-end mortgage loan or open-end line of credit not considered an excluded transaction.247 Financial institutions are also required to collect data concerning requests under a preapproval program provided the request is denied, approved by the financial institution and rejected by the applicant, or r

Credit Discrimination: 4.4.5.3 Access to HMDA Data

The Home Mortgage Disclosure Act (HMDA) disclosure statements, aggregate data, and other reports are available to the public at central data depositories in each metropolitan area.254 They are also available electronically.255 Depository institutions are to make every effort to have disclosure statements available before July 1 of the following year.256 The aggregate data should be produced a few months later.2

Credit Discrimination: 4.4.5.4 Limitations of HMDA Data

Great care must be taken in using HMDA and other monitoring data. Data showing higher rejection rates for members of protected groups may not prove illegal discrimination. It may be that these applicants have lower incomes, have different housing collateral, have different credit histories, or some other variable. Further refinement of data is needed to present a persuasive case.

Credit Discrimination: 4.4.5.5 HMDA Analysis

The Federal Reserve Board (FRB)has released an overview of each year’s HMDA data since 2004.272 These FRB overviews focus on many different aspects of mortgage market activity but over the years have consistently found substantial differences in the incidence of higher-priced lending and in application denial rates across racial and ethnic lines.273 These differences cannot be fully explained by factors included in the HMDA data.274

Credit Discrimination: 4.4.6.2 Government-Sponsored Enterprise (Freddie Mac and Fannie Mae) Data

Federal law requires HUD to make available to the public data submitted to HUD by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) relating to those entities’ mortgage purchases.298 However, the statute allows HUD to withhold “proprietary information” from release.299 HUD’s regulations define “proprietary information” as data submitted by Fannie Mae and Freddie Mac that contains “trade secrets or privileged or confidential, comme

Credit Discrimination: 4.4.8 Non-Mortgage Data

Except for HMDA and ECOA mortgage data, a creditor legally should not have statistics as to the racial, sexual, or other characteristics of those denied or approved for credit. However, there are other possible sources of data. For example, in cases challenging the mark-up policies of car financing creditors, plaintiffs based their statistical proof of discrimination on race-coded driver’s licenses.311

Credit Discrimination: 4.4.9 Non-Mortgage Creditors’ Self-Testing Data

In 1999, the Federal Reserve Board (FRB) proposed removing the prohibition on seeking information about an applicant’s race, color, religion, national origin, and sex for non-mortgage credit products.317 This proposal was made in response to comments from the Department of Justice and the federal financial enforcement agencies that the enhanced ability to obtain data on race and ethnicity would aid fair lending enforcement, particularly with respect to small business lending.318 The proposal wou

Credit Discrimination: 12.1 Introduction

Several federal and state agencies are responsible for ensuring compliance with the various laws prohibiting credit discrimination. This chapter identifies those agencies and their respective enforcement roles and responsibilities under each of the applicable statutes. These agencies have brought some important cases that have explored significant discrimination claims. The substance of these cases is discussed in various other chapters, according to the underlying subject matter of the claims and the federal statute sought to be enforced.

Credit Discrimination: 12.2.1 U.S. Attorney General

The U.S. Attorney General, as head of the Department of Justice, may bring a civil action against a creditor for violations of the Equal Credit Opportunity Act (ECOA) when a federal agency with ECOA enforcement authority refers a case to the Attorney General for prosecution or the Attorney General has reason to believe that a creditor is engaging in a pattern or practice of ECOA violations.1 Relief available in such actions includes actual and punitive damages and injunctive relief.2

Credit Discrimination: 12.2.2 Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau (CFPB), created by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”),7 has been given rule-writing authority for all the major consumer financial protection statutes—called the “enumerated statutes”—including the ECOA.8 The CFPB has rule-writing authority over virtually every type of entity in the financial services area, including banks, credit unions, mortgage lenders, credit bureaus, automobile finance companies, debt col

Credit Discrimination: 12.2.3 Federal Trade Commission

As a result of the Dodd-Frank Act,13 the FTC’s primary jurisdiction for enforcing the ECOA, among many other consumer statutes, was transferred to the CFPB. Most dealers of automobiles, motorcycles, boats, recreational vehicles, and motor homes are exempt and stay under FTC authority.14 While the FTC no longer has ECOA authority over many lenders, it retains authority to enforce the FTC Act against those entities.

Credit Discrimination: 12.2.4 Federal Reserve Board

Until the passage of the Dodd-Frank Act,15 the Federal Reserve Board (FRB) played the most important role in setting ECOA standards by promulgating regulations and staff interpretations of the rule. The CFPB now also has that role, although the FRB retains jurisdiction over smaller banks previously under its jurisdiction, and the FRB version of Regulation B is still in place.16

Credit Discrimination: 12.2.5 Other Federal Agencies

The ECOA delegates specific enforcement authority to nine different federal agencies, each having jurisdiction over a particular type of credit institution.17

Below is a list of banking regulators other than the CFPB and their areas of responsibility (subject to the foregoing discussion on the transfer of authority to the CFPB):

Credit Discrimination: 12.4.1.1 Introduction

The Equal Credit Opportunity Act (ECOA) and Fair Housing Act (FHA) do not explicitly authorize investigations or enforcement by state or local agencies (although the FHA allows for certain administrative enforcement by certified state or local agencies).