Warning to bankers: fair lending and CRA are not the same thing.

SAN DIEGO -- Bankers shouldn't lump fair4ending laws and the Community Reinvestment Act together unless they want to live with the government enforcing them the same way.

While the two most talked about areas in banking clearly overlap, fusing the them together is wrong and misleading, said Karen D. Shaw, president of the ISD/Shaw Inc., a financial institution consulting firm in Washington.

Everyone from regulators to bankers has been making that mistake, she said. "I hope that bankers will fight back."

The new CRA proposal, with its lending provisions, has intensified the confusion, Ms. Shaw said. "CRA is an economic development statute, not a social justice statute," Ms. Shaw said at the California Bankers Association's annual compliance conference here last week.

To illustrate her point, Ms. Shaw said that when a bank finances a luxury-car loan for the town's black dentist, it's not doing CRA.

The whole process of CRA reform has been unproductive, she said, but bankers have only themselves to blame because they asked for changes.

"The only way for clear guidance under CRA is loan quotas," Ms. Shaw said. "And we don't like loan quotas."

Besides separating fair lending from CRA, there are a few other things bankers can do in this volatile atmosphere. The most important, said Ms. Shaw, is to not just look at race and mortgages for signs of discrimination.

"Look at all of the protected classes," she said. Those include gender, disability, national origin, familial status, and marital status.

Bankers next may find themselves faced with fair-lending issues in auto loans, Ms. Shaw said.

Richard R. Ranftle, a west region field office supervisor for the Federal Deposit Insurance Corp., agreed that fair lending enforcement will be expanded.

For example, he said banks not lending on studio apartments could be considered redlining because most people who live in studios are unmarried.

Not making these loans would punish that class of people, Mr. Rantfle said, adding: "We would ask you to show us the business purpose of that decision."

The best thing bankers can do to comply with fair-lending laws is to really understand them.

"If your regulators are talking out of both sides of their mouths ... it is important for you to what the law says," Mr. Ranftle said.

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