WASHINGTON - Siding with the banking industry on Monday, Chairman Phil Gramm and fellow Republicans on the Senate Banking Committee urged the Federal Reserve Board to withdraw its plan to let lenders record the race and gender of all potential borrowers.
"We strongly urge the board not to adopt that proposal and instead to preserve the current ban on creditors collecting such data," said a letter to Fed Chairman Alan Greenspan that was signed by all 10 GOP committee members. "There is simply no justification for removing the existing prohibition," which is contained in Regulation B.
Proponents of the data collection, including the Clinton administration, have argued that the data would help banks steer more credit to underserved communities and help law enforcement catch fair-lending violators. But the lawmakers countered that the 22-year-old Regulation B was implemented to prevent loans from being denied because of the race, sex, or religion of applicants and remains "the best way to protect" against biased lenders.
"The credit process should be color-blind," Sen. Gramm added in a separate statement. "At a time when we should be rooting out discriminatory practices, this proposal will make discrimination too easy to be tolerated. The Fed should retain Regulation B."
Also, the lawmakers said, the data are likely to be full of errors and open to misinterpretation. They noted that similar information collected under the Home Mortgage Disclosure Act has been "faulty" and does not account for the larger proportion of uncreditworthy applicants that a bank's outreach efforts may attract. For that reason, they said, lenders might shy away from outreach programs rather than be subject to charges of discrimination.
Furthermore, as banks take more applications by phone and the Internet, it would be harder to verify whether applicants are giving accurate information, the lawmakers said.
Under the Fed's plan, data collection would be voluntary, but most bankers have used similar arguments to oppose it. The Fed is expected to make a final decision in the spring.