When asked, most bankers insist there is no lending discrimination at their institutions. They may be right. But the real question is: Can they prove it?

Prodded by Congress, the four federal banking regulators are scrutinizing the lending patterns and practices of the banks they regulate to identify and, where appropriate, punish banks that discriminate in their lending.

The regulatory mandate principally comes from three laws: the Civil Rights Act and the Equal Credit Opportunity Act, which prohibit discrimination in lending on the basis of race, religion, sex, age, or national origin; and the Community Reinvestment Act, which requires that insured depository institutions meet the credit needs of their entire community, including those of low- and moderate-income groups.

With a more liberal administration in Washington, bank regulators are actively seeking out large and small banks that discriminate in lending. Shawmut National Corp., Decatur Federal, First National Bank of Vicksburg, and Blackpipe State Bank are just four of the banks that have been fined by the U.S. Department of Justice for lending discrimination. And more regulatory enforcement actions are expected.

Who Gets the Money?

In the process, the regulators are proposing a new technique of enforcement. Instead of just reviewing the bank's records to see what kind of lending it has been doing, the regulators are concentrating on where and to whom loans have actually been made. If the regulators determine that a bank made a larger proportion of its loans in affluent rather than low- and moderate-income neighborhoods, they take the position that this is a prima facie indication that the bank is discriminating. Then the burden is on the bank to prove that it is not discriminating.

The regulators are much tougher on banks that make no effort to seek out and correct discrimination in their institutions than on those which recognize the problem and take steps to correct it.

Most bankers do not knowingly discriminate in lending, nor do they permit or condone discrimination by their employees. But what most bankers don't know is that in many instances they and their employees unconsciously discriminate on the basis of race, sex, or age.

In our test-shopping of hundreds of banking offices over the last six years, our shoppers have uncovered examples of unconscious lending discrimination.

Some banks tend to screen out low- and moderate-income borrowers during their initial telephone inquiries. This occurs because many mortgage originators at banks who work primarily on commission have been swamped with mortgage refinancing inquiries.

Fees a Turn-Off

Many minority applicants view such questions such as "Are you self-employed?" "Do you presently have a mortgage?" or "Do you have an account with us?" as offensive -- "just a way to find out what my income is," said one of our Hispanic shoppers.

Application fees can also be a problem for low- and moderate-income populations. One of our shoppers was told that there would be a $50 application fee before he would learn whether he could qualify for a residential mortgage. Even though he was also told that the fee would apply toward any eventual closing costs, the shopper commented that the $50 fee "was enough to put me off" from applying.

Finally, many minority shoppers are suspicious of banks in general and wary of the entire credit-granting process. One of our black mystery shoppers said, "I expect to be hassled when I go into a bank."

Few banks make an effort to carter to low- and middle-income borrowers, many of whom are minorities. Bank offices in their neighborhoods are sparse. Few banks have more than a handful of front-line employees who are minorities. And the loan application procedures at many banks can be intimidating.

In other words, many banks try harder to attract affluent customers, most of whom are white. The banking regulators have made it clear that banks and thrifts have an obligation to attract minorities, too -- or face the consequences.

Bank lenders can no longer put their heads in the sand and assume that they do not discriminate. Just sending a memo to the effect that "we will not discriminate" is not enough.

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