WASHINGTON — Limited data collection and inconsistent oversight among depository institutions and nonbank lenders are hamstringing regulators' enforcement of fair-lending laws, according to a Government Accountability Office report released Wednesday.
The report, which House Financial Services Committee Chairman Barney Frank released, said Congress should consider requiring more information from lenders, citing several weaknesses in reporting standards that hurt regulators' ability to crack down on potentially discriminatory lending practices.
For example, the report said that Home Mortgage Disclosure Act data, which includes a borrower's race and sex, is insufficient to determine if discrimination is present. It said other data, such as credit scores and loan-to-value and debt-to-income ratios, would allow for a more thorough analysis.
The GAO also backed concerns raised that Frank and other lawmakers have about the Federal Reserve Board's Regulation B, which generally prohibits lenders from collecting a borrower's personal information, including race, ethnicity and sex, on nonmortgage loans such as small-business, credit card and automobile lending.
"Congress should consider the merits of additional data collection and reporting options," the GAO said. "These varying options pertain to obtaining key underwriting data for mortgage loans, such as credit scores as well as LTV and DTI ratios, and personal characteristic (such as race, ethnicity and sex) and relevant underwriting data for nonmortgage loans."
Frank has backed Fed efforts to remove the prohibition on collecting such data, but to no avail. The central bank rejected such efforts in 2007, arguing it might spur more discrimination. As part of a bill to create a new consumer protection agency, Frank included a provision that would amend the Equal Credit Opportunity Act to require collection of race and ethnicity information and some loan data for small-business loans.
The GAO noted that additional reporting standards would increase costs for lenders and that policymakers need to consider the trade-offs that go along with such decisions, possibly balancing them by targeting larger institutions.
"While requiring lenders to report additional data would impose costs on them, particularly smaller institutions, options exist to mitigate such costs to some degree, such as limiting the reporting requirements to larger institutions," the agency said. "Without additional data, agencies' and regulators' capacity to identify potential lending discrimination is limited."
The report also paid considerable attention to the inconsistency of enforcement, adding ammunition to those advocating for a new consumer protection agency. The GAO found that each federal regulator uses a different approach to analyze HMDA data to identify outliers and examination documentation varies.
Since 2005 the Office of Thrift Supervision, the Fed and the Federal Deposit Insurance Corp. have referred more than 100 lenders to the Department of Justice for further investigations of potential fair-lending violations, as required by the Equal Credit Opportunity Act. The Office of the Comptroller of the Currency made one referral and the National Credit Union Administration made none.
"These differences raise questions about the consistency and effectiveness of regulatory oversight," the GAO said. "For example, the evidence suggests that lenders regulated by FDIC, the Federal Reserve, and OTS are more likely than lenders regulated by OCC and NCUA to be the subject of referrals to DOJ for being at potentially heightened risk of fair-lending violations."