WASHINGTON — Months after the Justice Department announced its biggest fair lending settlement in history, the banking industry continues to brace itself for the fallout from a renewed government focus on fairness.

The Dodd-Frank Act extended fair lending enforcement authority to the new Consumer Financial Protection Bureau, which has its own office dedicated to fair lending issues and has the unique ability to bring such cases to court.

At the same time, the Justice Department's fair lending unit shows no signs of slowing this year, with referrals from banking regulators contributing to more than 25 open investigations and eight certified lawsuits in the first part of 2012.

"The number of referrals partly reflects what other agencies are putting into it," Eric Halperin, the Justice Department's special counsel for fair lending, told a panel at the Consumer Bankers Association conference in Austin last month. "It's not just a DOJ priority; it's really a priority that has stretched across the entire federal government."

The angst over fair lending enforcement was palpable at the CBA conference, where organizers had to bring in extra chairs to accommodate standing-room only crowds and leave extra time for questions at fair lending sessions.

Jo Ann Barefoot, a co-chairman at Treliant Risk Advisors, said banks are caught up in a "fairness revolution" — fueled by Occupy Wall Street, Elizabeth Warren, politicians, the media — that is changing the way they must approach fair lending compliance.

Barefoot, a former deputy comptroller, said compliance has long been seen as a "side issue" in banking.

"It's something that we have to get right by knowing the rules and applying them accurately," she said. "Then all of a sudden these issues of fairness — spotlighted on UDAAP [unfair, deceptive or abusive acts or practices] — are not only critical to banking, they're the headline news. They're the most important thing out there."

The Justice Department established a dedicated fair lending unit in the Civil Rights Division's housing and civil enforcement section in early 2010.

Over the past three years, the agency has received 55 referrals from regulators alleging a pattern or practice of discrimination involving race or national origin, compared with only 30 in the eight years prior to that.

It received 26 such referrals in 2010 alone — a department record — and 18 referrals in 2011, according to the attorney general's annual fair lending report to Congress last month.

"Almost every enforcement action that we've brought in the last year has been the result of a referral or some other collaboration with another federal agency or regulator," Halperin said.

The agency received 29 total referrals in 2011: 14 from the Federal Deposit Insurance Corp., seven from the Federal Reserve, four from the Office of Thrift Supervision, one from the Office of the Comptroller of the Currency, one from the Department of Housing and Urban Development, and two from the Federal Trade Commission, according to the report.

Nearly two-thirds of the referrals related to pricing discrimination based on race or national origin, while others involved marital status, age, sex, source of income, disability and familial status.

Those referrals led to an unprecedented amount of fair lending enforcement in 2011, Halperin said.

The division filed eight lending-related lawsuits, and obtained eight settlements, including a $335 million settlement with Countrywide Financial over allegations that the company engaged in a widespread pattern of discrimination against qualified African-American and Hispanic borrowers in their mortgage lending.

In the meantime, the banking industry has been scrambling to keep up.

Fair lending experts are in high demand by financial services recruiting firms, as banks expand their compliance ranks to handle the impending fair lending scrutiny, observers said.

"People are beating the bushes looking for fair lending people," Edward Kramer, the executive vice president of regulatory affairs for Wolters Kluwer Financial Services, said outside the fair lending sessions at the CBA conference.

Consulting groups and law firms have also devoted new resources to fair lending issues, and at least one — Ballard Spahr LLP — created its own fair lending task force, comprised of lawyers with specialties in regulatory compliance, litigation and labor law, to confront fair lending challenges for its clients.

"A lot of people see it as the next big thing," said Steve Zeisel, CBA's executive vice president and general counsel. "Most people anticipate there will be one or more major enforcement actions coming down the pike, whether it's the Department of Justice pursuing something currently or CFPB or some combination thereof. And that will raise awareness."

Zeisel said several factors are driving the heightened focus from bankers over fair lending, including uncertainty about how CFPB will interpret and enforce rules under the Equal Credit Opportunity Act — the agency did not refer any cases to DOJ last year — and how the Justice Department is interpreting fair lending laws.

"I'm not sure there's a big increase in concern about traditional fair lending compliance issues at most banks," Zeisel said. "I think it has more to do with a growing concern about an expanded expectation of what is fair, responsible banking, without a clear idea of what that will mean."

The Justice Department has waded into new — or at least, unfamiliar — territory with a handful of cases in recent years.

Last year, it brought the first case ever under the Fair Housing Act that addressed discrimination against women on paid maternity leave who were prevented from refinancing their mortgages until they returned to work.

They also brought the first lending case dealing with unsecured consumer loans in at least 10 years, Halperin said, involving a small bank that had no pricing guidelines for such loans, no fair lending training and no fair lending compliance program.

And it reached three settlements last year — plus five more in early 2012 as part of the $25 billion mortgage servicing settlement — over violations of the Servicemembers Civil Relief Act, which generally prohibits banks from foreclosing on active-duty servicemembers without a court order, or refusing to lower their interest rate to at least 6% when they request it.

The agency has also brought cases claiming fair lending violations resulting from policies that had a disparate impact on a group of borrowers — a legal theory that hadn't applied to lending until recently, said Paul Hancock, a partner with K&L Gates LLP.

The Supreme Court was prepared to weigh in on one such case, but the plaintiffs withdrew their appeal before the high court heard arguments. In the meantime, the Department of Housing and Urban Development has proposed a rule that would essentially codify DOJ's interpretation.

"All this is up in the air, and … none of this is definitely resolved," Hancock told bankers at the CBA convention. "But it is clear how they're going forward in enforcing this — they're enforcing it very similarly to what HUD is" proposing.

All of this means prolonged uncertainty for banks that isn't expected to go away any time soon, observers said.

Halperin told bankers that the unit currently has eight active fair lending lawsuits, and 25 open investigations. Those investigations include 11 referrals received in prior years — three each from the FDIC and the Fed, two each from the OTS and the OCC, and one from HUD — 10 of which involved race and national origin discrimination and one involved discrimination based on sex.

Much of the unit's work will be similar to last year, with a focus on compliance with the recent Servicemembers Civil Relief Act settlements, and cases involving pricing discrimination, Halperin said.

"What I see in terms of fair lending risk in the marketplace … any time you're providing discretion to decision-makers, we're always looking at whether someone's compensation has been varied depending on how they're exercising that discretion," he said.

Observers also expect several more big enforcement actions this year from both the Justice Department and their new partner, the CFPB.

But despite Justice expectations, the government may not receive the same reaction from banks, which have routinely avoided going to court over fair lending allegations because of the risks to their reputations, observers said.

Andy Sandler, a partner with the law firm BuckleySandler LLP, said bankers are starting to reach a point where settling these cases is less appealing.

"I think sometimes there's a siege mentality in the boardroom — 'No matter what we do, we're banks, we're bad, so maybe it's time to start standing up for ourselves,'" Sandler said. "Now that's not across the industry, but there are boards at major banks and senior executives … that are starting to have that view. And there is going to be a tipping point."

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