Rights Chief Praises Banks for Frank Talk On Bias in Lending

WASHINGTON - U.S. Civil Rights Commission Chairwoman Mary Frances Berry praised the banking industry Friday for its open discussion of lending discrimination.

"I have been impressed," Ms. Berry said of the industry at a commission hearing on fair lending. The rest of the world refuses to discuss discrimination, she said. "Do you folks eat something different or drink something different?"

Federal Reserve Governor Lawrence B. Lindsey credited the Fed's independence, which he said allowed it to emphasize fair lending during the years in which Republicans controlled the White House.

"I'll take what you say as a compliment and leave it at that," Mr. Lindsey said.

However, one antipoverty advocate said the industry hadn't even come close to solving the problems that have arisen from past lending discrimination.

"Maybe what we need is an affirmative-action approach that can help people up the economic ladder," said John Taylor, president of the national Community Reinvestment Coalition.

Mr. Taylor described his approach as a "reparations-like" system in which members of minority groups get subsidies to compensate for centuries of discrimination.

Society has not given minorities an equal opportunity for an education or a career, he said. So it's unfair to say they should be treated the same as whites when it comes to borrowing. Rather, he said, financial institutions should make it easier for members of minority groups to get loans.

The commission also should publicly support extending the Community Reinvestment Act to mortgage companies, endorse the CRA revisions regulators are considering, and push the banking agencies to adopt race and gender reporting requirements for small business lending, he said.

But Mr. Taylor agreed with Ms. Berry that lenders are taking their fair- lending obligations seriously. "It is good news," he said.

Mr. Lindsey was far more upbeat, saying that more blacks and Hispanics than ever are getting home mortgages.

He credited a more "innovative" financial services industry, which is willing to experiment with small down payments and different credit-rating standards.

The industry won't know whether it's taken these changes too far until it sees the effect on default rates during the next economic downturn, he said.

To help understand why discrimination occurs, the Fed has sponsored numerous studies, Mr. Lindsey said. These statistical approaches have looked at loan files and default rates.

The new emphasis on statistics has its drawbacks, Mr. Lindsey said. Computerized models tend to reject minority group members more frequently because more minorities have nontraditional income sources that the programs don't count, he said.

"If we get that unintended consequence, it would be a loss to us all," Mr. Lindsey said.

The plethora of recent fair-lending studies indicates that discrimination is occurring but to a limited degree. Even the Boston Fed study found that only 6% of minority applicants were treated unfairly, Mr. Lindsey said.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER