The Federal Reserve Board's controversial proposal to let lenders record the race and gender of all potential borrowers has bankers circling the wagons -- again.
But the industry's continued opposition is not expected to deter the central bank, which has been trying since 1995 to end Regulation B's ban on such data collection. "They have already determined to go ahead with it," said Nessa Feddis, senior federal counsel at the American Bankers Association. Though the timing is uncertain, most observers expect that the Fed's board of governors will lift the ban in a vote in early spring.
High-profile champions of the change include Attorney General Janet Reno and Treasury Secretary Lawrence H. Summers, who told the Fed this week that the data would help banks funnel more credit to underserved communities. They also said the information could be used to police fair-lending violations.
The Fed backed off its first attempt to change the rules, saying in 1996 that Congress ought to tackle the contentious issue. But lawmakers did not, so the Fed came back in March 1998 with an advance notice of proposed rulemaking. Despite another wave of criticism from lenders, the Fed took the next step June 23 by issuing a formal proposal. Comment letters were due this month and by Thursday the Fed made about 700 publicly available.
Though the Home Mortgage Disclosure Act requires mortgage lenders to collect such data on mortgage borrowers, the Equal Credit Opportunity Act -- which Regulation B implements -- bars banks from noting a borrower's race, marital status, sex, or religion. The law is designed to prevent discrimination.
Most lenders oppose the Fed's plan, even though compliance would be voluntary.
"The data will be obtained by advocacy groups and the media and used to draw inaccurate conclusions regarding the fair lending performance of lenders," according to a letter signed by the ABA, Americas Community Bankers, the Consumer Bankers Association, the Financial Services Roundtable, and the Independent Community Bankers of America.
Still, a handful of banks praised the idea. "The revised Regulation B will allow us to monitor the progress we are making in loans to typically underserved markets, including small minority-owned institutions," wrote Richard C. Hartnack, vice chairman of Union Bank of California.
Other proponents, especially community groups and small-business owners, said the data could help end discriminatory lending. They cited the increased rates of homeownership by minorities since the collection of Home Mortgage Disclosure Act information began more than 20 years ago.
"Did we not learn the tremendous value of understanding the discriminatory nature of the credit markets once individual (mortgage) application data was gathered?" wrote Peter Skillern, executive director of the Community Reinvestment Association of North Carolina. "Why would we not apply this same standard to other types of credit?"
But several consumers complained in their comments to the Fed that collecting race and gender data smacks of Big Brother, and they suggested it be dumped just as the Fed's planned "know-your-customer" guidelines were this year. Some individuals, including House Majority Leader Richard K. Armey, said the data-gathering would be an invasion of privacy.
"I believe this proposal flies in the face of our efforts to create a more 'colorblind' society," the Texas Republican wrote. "The Federal Reserve is sending the message that American business activity should be conducted based on race or religion. That is wrong."
The proposal is part of the Fed's general review of equal-opportunity credit rules, which have not been revised since 1985.