The Office of the Comptroller of the Currency’s examination process on fair-lending practices is outdated, according to a new report from the Government Accountability Office.
In a review of five examinations of potential redlining, the GAO found that examiner guidance didn’t account for new statistical methods to analyze redlining, and that examiners were sometimes inconsistent.
Examiners in three of those cases didn’t find banks’ responses sufficient in the face of the examiners’ statistical analysis. However, two of the examiners considered banks’ responses and did additional work, concluding that the banks didn’t engage in redlining.
“The guidance lacks specificity in some procedures in light of new statistical analyses,” the report found. “Since examiners' conclusions are the basis for supervisory action, updated and clearer guidance could help ensure the consistency of redlining examinations and enforcement of fair-lending laws.”
The report also noted that the OCC recently changed its policy regarding fair-lending investigations. In 2021, under the Biden administration, the agency began considering an enforcement action in every matter that’s referred to the Department of Justice. Previously, the OCC generally wouldn’t consider taking that step until the Justice Department turned the issue over to the agency.
“In 2021, the Acting Comptroller asked OCC staff to review OCC’s fair-lending examination processes and to make recommendations regarding changes to be considered, including to the DOJ referral process, according to OCC staff,” the report said. “They said that this review prompted OCC to begin considering whether an enforcement action is warranted in every fair-lending matter referred to DOJ going forward, including when DOJ settles with an OCC-supervised bank or brings a separate civil action.”
In 2018, during the Trump administration, the OCC made major changes in its annual process for retail lending at mid-sized and community banks, significantly cutting the number of annual fair-lending exams. This “likely” contributed to a decrease in informal supervisory actions immediately afterwards, the report found.
While staff has made some changes to the process, the agency hasn’t assessed how the lower number of examinations has impacted the agency’s ability to suss out fair-lending violations at smaller banks.
“Going forward, centralized data linking the screening, selection and examination outcomes would allow OCC to better evaluate the trade-offs between efficient resource allocation and the effectiveness of its fair-lending examinations,” the report said.
In response to the GAO report, the OCC said it plans to update the fair-lending booklet included in the agency’s handbook to, among other measures, clarify and expand the list of redlining risk factors. The updated booklet should be published before the end of the year, the agency said.
The OCC also said it would “develop additional training for examiners to highlight redlining examination best practices.” That should be available to examiners by Sept. 20.
