WASHINGTON -- The Federal Reserve Board signaled a new get-tough policy against lending discrimination Monday when it denied Shawmut National Corp.'s application to acquire New Dartmouth Bank of Manchester, N.H.
"The rules have changed," said an industry source who asked not to be identified. "The bar has been raised, but nobody knows how high."
Powerful Opposition
The action was the first denial by the Fed because of concerns about the handling of fair lending issues by a bank's management. The board doubled the seriousness with which Shawmut management has responded to concerns about the company's fair lending record, the order said.
A powerful contingent of the board -- Chairman Alan Greenspan. Vice Chairman David Mullins and Governor Lawrence Lidsey -- blocked Shawmut's bid to acquire New Dartmouth with their "no" votes.
Three others -- Wayne Angell, Edward Kelley and Susan Phillips -- voted to support the measure. John LaWare, a former Shawmut chairman, abstained from the vote. A majority must support the measure in order for it to be approved by the Fed.
Shawmut officials said they were surprised by the Fed's decision and are considering an appeal. The Fed rarely considers an appeal unless crucial new information is presented.
In addition to the Shawmut decision, the Fed has denied four "corporate" applications this year, three of them on community reinvestment grounds, Mr. Lindsey said.
Congress and community groups have criticized the Fed foir not denying more applications on fair-lending grounds. Thus, the Fed action Monday surprised many.
|Significant Signal'
"I think the Shawmut denial sends a significant signal," said John Taylor, executive director of the National Community Reinvestment Coalition. "But I wouldn't say it's a new pattern and practice at the Fed," he added.
Many of the coalition's New England members supported Shawmut's acquisition applications, he said, because of the bank's recent efforts to step up its fair lending initiatives.
But the board's approval does not mention CRA problems. Instead, it notes "concerns raised by the mortgage lending operations of Shawmut."
In particular, it cites insufficient evidence of the "effectiveness or adequacy of steps recently taken by Shawmut" in response to concerns that, it is not fully complying with the Equal Credit Opportunity Act, which requires lenders to treat all applicants equally, and the Home Mortgage Disclosure Act, which requires lenders to submit data about their mortgage lending.
Shawmut Mortgage Co. is being investigated by the Justice Department for possible lending discrimination. That probe was launched after the Fed discovered possible problems with Shawmut's lending and referred the lender to the attorney general for review.
|Very Concerned'
Some at the Fed have suggested it would be improper for the agency to approve the application while the investigation is ongoing, especially since it was initiated by the Fed.
"I was very concerned about the Justice Department investigation," Mr. Lindsey said.
But the agency's concerns extend beyond the mere fact that the lender is under Justice review.
For example, more than half of the Home Mortgage Disclosure Act files submitted by Shawmut in one year were inaccurate. Mr. Lindsey said.
"They really had problems with this, a magnitude of which they shouldn't have if it were a priority of the management to get it right," he said.
