Objectives, Scope, and Methodology

The objectives of this study were to (1) review recent federal efforts to oversee and enforce the fair lending laws and (2) discuss the challenges federal regulators face in their efforts to detect discrimination and ensure compliance. At about the same time, DOJ began its first investigation into alleged discriminatory lending practices, and the federal banking regulators began to revise their fair lending policies and examination procedures. None of these cases has gone to court. Several units within HUD share fair lending oversight and enforcement responsibilities. The federal banking regulatory agencies have also moved to strengthen their ability to detect discrimination through improved examination procedures and techniques. A number of these agencies have also put forward a list of recommended compliance activities and programs for use by lenders who seek to ensure that all loan applicants are treated fairly. Additionally, some key legal issues associated with the interpretation and application of the fair lending laws remain unresolved. On the basis of our review, we found that past and current fair lending examination policies and procedures of the federal banking regulators: (1) lack uniformity across agencies—a situation that could result in inconsistent application and enforcement of the laws; (2) have inadequate methods for detecting discrimination prior to a prospective borrower’s submission of a formal application; and (3) have not resulted in vigorous enforcement of HMDA data reporting requirements by all agencies.
Why GAO Did This Study

Pursuant to congressional requests, GAO reviewed federal oversight and enforcement of fair lending laws, focusing on: (1) efforts to strengthen law enforcement procedures; and (2) challenges bank regulators face in their efforts to detect discrimination and ensure compliance.

What GAO Found

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.