A respected fair lending consultant to banks believes that the policy chaos created by the election offers a golden moment of opportunity for re-evaluating pending changes in the Community Reinvestment Act and enforcement of fair lending statutes to make them less burdensome and ultimately more effective.
Banking consultant Jo An Barefoot said policymakers should rethink their policies on enforcement of anti-bias laws in the wake of the elections substantive repudiation of Democratic leadership-- but not abandon their efforts, she says.
Government policy on CRA and credit bias enforcement is a juggernaut that has gathered speed and power with every passing month, Barefoot said. It is a problem for banks because, while the equal credit laws are old, the recent interpretation of them is new. The focus today is on very subtle and unintentional types of discrimination, and there are few standards on what is legal and illegal in this area.
Lenders should be allowed to charge for the extra costs and risks of serving marginally qualified customers, Barefoot said at a conference of Robert Morris Associates, a commercial lenders trade group.
This would reverse current regulatory thinking, which currently views differential pricing as potential discrimination, she said. Barefoot said it is too early to tell whether the conservative shift created by the election will slow or reverse aggressive enforcement of anti-bias laws and the Clinton administration's pending changes in the Community Reinvestment Act.
If they do, she said, these concepts should be part of that re-evaluation:
* Overt discrimination against clearly qualified applicants is rare, but not nonexistent, and should be subject to stringent enforcement.
* Lenders should be expected to make active efforts to prevent unintentional stereotyping and disparate treatment of different races, ethnic groups, ages or genders. However, the government should have to find clear cases of discrimination before bringing enforcement actions, Barefoot said.
* The government should do its homework before challenging banks on disparate impact issues, lender practices that have disproportionate adverse effects on protected groups and are now viewed as illegal unless the lender can justify them. We should have a transition period in which the agencies decide just what is illegal, working cooperatively with the industry to balance valid creditworthiness measures with the goal of inclusive lending, Barefoot said.
* The issue should be de-quantified. CRA and fair lending increasingly are numbers games based on a faulty assumption, that, in general, credit should be distributed about equally to all groups if there is no discrimination, Barefoot said.