Fair Lending

Federal Oversight and Enforcement Improved but Some Challenges Remain Gao ID: GGD-96-145 August 13, 1996

Discrimination in the credit markets, particularly in the market for home mortgages, has been a concern for some time. Recently, however, the media have reported instances when minorities were more likely to be denied credit for home mortgages than were white applicants with similar incomes. Although no single report has offered conclusive evidence that discrimination is pervasive, collectively they have heightened concerns. Partly because of these reports, Members of Congress and others have begun to question the effectiveness of federal oversight and enforcement in the fair lending area and the zeal with which the nation's principal fair lending laws have been enforced. This report (1) reviews federal efforts to oversee and enforce the fair lending laws and (2) discusses the challenges federal regulators face in their efforts to detect discrimination and ensure compliance.

GAO found that: (1) since 1992, bank regulators and other enforcement agencies have increased enforcement of fair lending laws and encouraged greater compliance by the lending industry; (2) bank regulators have also overhauled their compliance policies and examination procedures which strengthened their ability to detect discriminatory lending practices; (3) several agencies have recommended a number of compliance programs and activities that could help lenders ensure fair treatment of all loan applicants; (4) referrals to the Department of Justice (DOJ) have increased significantly and DOJ has settled several civil suits that alleged fair lending violations; (5) challenges to fair lending oversight and enforcement include nonuniform examination procedures among regulatory agencies, inadequate provisions to detect discrimination prior to submission of a formal loan application, inadequate disclosure data, examiners' inexperience and lack of training, and insufficient time allowances; (6) unresolved legal issues associated with the interpretation and application of these laws impede formulation of concise guidance and leave lending institutions confused and reluctant to implement voluntary compliance programs; and (7) resolution of these problems may require civil or administrative judicial proceedings or legislative action.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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