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Hany
May 28, 1998
Xuid
William W. Wiles
Secretary of the Board
Board of Governors of the
Federal Reserve System
20th Street and Constitution Ave., NW
Washington, DC 20551
Dear Mr. Wiles:
We are submitting this comment in response to the Board's advance notice of proposed
rulemaking with respect to Regulation B, which implements the Equal Credit Opportunity
Act (ECOA).
In particular, we are writing to express our strong support and encouragement for the
Board to propose an amendment to Regulation B to allow lenders voluntarily to collect
information about the race and gender of applicants for non-mortgage credit. While the
Board recently considered the issue, we believe that its importance warrants a fresh look.
The current regulatory prohibition needlessly inhibits the ability of financial service
providers to learn about and respond to market opportunities to provide credit for
underserved communities. The prohibition makes it difficult for institutions to know
whether products intended to expand access to credit, including to minorities, reach their
intended customer base. Allowing creditors to collect data for business and consumer
loans will likely lead to innovation and increased access to credit, a greater level of
voluntary compliance, and more effective fair lending enforcement.
We also support additional changes to Regulation B concerning pre-application marketing
practices.
We are enclosing more detailed comments and supporting attachments.
Sincerely,
RNB.R
Robert E. Rubin
June Reent Janet Reno
Secretary of the Treasury
Attorney General
Aea
Sandwill
Andrew Cuomo
Julie Williams
Secretary of Housing and Urban
Acting Comptroller of the Currency
Development
Ele Side
Relut Pench
Ellen Seidman
Robert Pitofsky
Director, Office of Thrift Supervision
Chairman, by direction of the
Federal Trade Commission
Aida Administrator, Aida Alvarez Alvary Small Business
Administration
Enclosure
JOINT AGENCY COMMENTS ON ADVANCE NOTICE OF PROPOSED
RULEMAKING UNDER REGULATION B
I. Voluntary Data Collection
A.
Data Collected on Mortgage Loans Have Not Been Used to Discriminate
and Have Increased Access to Credit for Home Mortgages
In 1977, the Board published a revision of Regulation B, which implements the
Equal Credit Opportunity Act (ECOA), to prohibit creditors from collecting data on the
race, sex, marital status, color, religion or national origin of loan applicants, in order to
avoid discriminatory use of such data. However, the Board made an exception to this
general prohibition by requiring creditors to collect such information on home mortgage
loans. At that time, little was known (but assumptions were made) about the nature and
scope of lending discrimination. Since then, much has been learned about mortgage
lending discrimination. The original fear that race, national origin and gender data
collected under the Home Mortgage Disclosure Act (HMDA) would be used for
discriminatory purposes has not been realized. Instead, the requirement for recording and
reporting applicant data has contributed to increased access to credit for minority loan
applicants, assisted creditors in complying with the law and in developing innovative
products, and aided federal supervisory and enforcement efforts.
Recent data suggest that HMDA is having a salutary effect. During the 1990s,
lending to minorities has increased dramatically relative to non-minorities, and in 1996,
total home purchase loans (conventional and government-backed) to both blacks and
Hispanics reached record high levels. Between 1993 and 1996, mortgage originations for
Hispanics and blacks grew by 56 percent and 53 percent, respectively, more than three
times as rapidly as the 14 percent increase registered for white borrowers. Though
minority home ownership rates remain low relative to non-minorities, the gap is
diminishing. As Chairman Greenspan has stated, "[o]ur experience with mortgage
applications is one that underscores the role that free market competitive pressures can
play in undermining discrimination and improving the profitability of business activity."
B.
Lifting The Prohibition For Other Types Of Loans Would Eliminate an
Unnecessary Regulatory Restriction and Foster Innovation
In today's competitive financial services market, a creditor cannot afford to be
subject to a regulatory prohibition that limits its ability to have the information it needs to
be responsive to the credit demands of its market. The current prohibition in Regulation
B on the collection of the race and gender of loan applicants for non-mortgage credit
results in an unfortunate, and in our view, unnecessary, restriction on how a bank, thrift
or other creditor conducts its business. The restriction has the unintended consequence of
limiting a creditor's ability to expand its customer base because it lacks important
2
information necessary to identify potential new markets or to develop innovative products
to serve those markets. In particular, it inhibits the ability of financial service providers
to meet the needs of underserved communities with innovative new financial products, by
making it difficult for financial institutions to understand whether new products expand
access to credit for minorities. Race and gender data would help to provide a creditor
with the information it needs to help meet the credit needs of particular communities.
Permitting creditors to collect race and gender data from applicants for non-
mortgage credit would also enhance access to credit, by enabling lenders to identify gaps
in their efforts to serve customers. For example, Regulation B sets out a limited
exception to its general prohibition in order to permit lenders to establish "special
purpose credit programs" to serve economically disadvantaged persons, including
members of a prohibited basis group. However, to use this exception, a lender must
submit a written plan that supports the need for the program. Because lenders are
currently prohibited from collecting race and gender information from applicants for non-
mortgage credit, lenders often lack the supporting data that would enable them to take full
advantage of the special purpose credit program exception. In our judgment, if creditors
were permitted to collect race and gender information from applicants for non-mortgage
credit, overall lending to minorities, women, and other economically disadvantaged
persons would increase.
In addition, after the Board's decision in December of 1996 not to eliminate the
prohibition, institutions that have made commitments to lend to underserved markets
have expressed a desire to monitor information relating to loan applicants that would
enable them to determine the number and dollar volume of loans originated to minority or
women borrowers. Eliminating the prohibition in Regulation B would enable these
creditors to monitor their commitments.
With voluntary data collection, lenders would have maximum flexibility to collect
and use applicant data. The creditor might choose not to collect data on all non-mortgage
loan products; lenders could focus data collection, for example, on large volume loan
products that involve personal dealings with customers or on particular small business
product lines. Lenders would also be free to disclose statistical information publicly, if
they believe that would be useful, or not to disclose such information.
C.
Evidence Indicates That Discrimination in Business and Consumer
Lending Remains a Serious Problem
There is much evidence that discrimination remains a significant barrier in non-
mortgage credit markets, based upon both anecdotal information and studies that indicate
disparate treatment in business and consumer lending. See Attachment A (background
paper on studies of business and consumer credit discrimination and evidence that data
collection can improve access to credit).
3
D.
Allowing Voluntary Collection of Data Would Permit Creditors to
Monitor Their Own Performance
The supervisory and enforcement agencies have consistently encouraged
institutions to conduct self-evaluations of their lending practices. However, creditors
cannot conduct fair lending self-evaluations for non-mortgage lending without
appropriate monitoring information. Many institutions have sought permission from
supervisory agencies to collect such information in order to monitor their fair lending
compliance.
To be fully effective, self-evaluation and subsequent corrective action for
problems found requires documentation of loan applicant data such as the race, ethnicity,
sex, and age of applicants. Without the data that creditors are prohibited from collecting
under Regulation B, lenders currently have no systematic way to evaluate their own fair
lending performance in these markets, or to defend themselves with hard data against any
charges of biased lending practices.
E.
Without Monitoring information, the Ability of the Agencies to Detect
Discrimination on the Basis of Race or National Origin in Consumer or
Business Loans is Limited
The prohibition also inhibits effective monitoring and enforcement of ECOA.
Without the necessary data, enforcement agencies must rely on other investigative
techniques that are less efficient, accurate, or complete. In the home mortgage area, data
collected under the HMDA is critical to the decision whether or not to delve deeper into
an institution's lending practices when complaints are raised. Indeed, the prohibition has
the effect of skewing enforcement efforts towards cases involving discrimination by
regulated creditors in the home mortgage market, because the enforcement agencies do
not have sufficient information to enforce the ECOA effectively with respect to business
and consumer loans, particularly those made by non-depository institutions. Moreover,
when evidence of discriminatory lending practices is found, self-evaluation - which
would include the voluntary collection of monitoring data - and prompt corrective
actions by the lender as needed will be considered as a substantial mitigating factor in
considering any remedies. See Policy Statement on Discrimination in Lending, 59 Fed.
Reg. 18,266-69 (April 15, 1994).
II. Pre-application Marketing Practices
We believe that the Board should clarify that creditors may not discriminate on a
prohibited basis in their pre-application marketing practices. Pre-application marketing
practices are becoming an increasingly significant factor in determining which consumers
obtain credit. and at what price. This type of marketing is now frequently used to market
special rates and terms for credit cards and increasingly, home equity and other types of
loans. Regulation B should be amended to keep pace with the evolving marketing
4
practices of the industry, by prohibiting discrimination on prohibited bases in marketing.
Regulation B should also prohibit creditors from considering prohibited bases in
pre-screening solicitations for credit. Under the current regulation, a creditor could
intentionally decide not to send credit card solicitations to individuals residing in areas in
which the population is predominantly African American or Hispanic without violating
Regulation B. As a result, such individuals are effectively discouraged from applying for
those credit offers because they are denied the information that would cause them to
approach the creditor and apply. We suggest that the Board address this issue by
explaining that the consideration of one or more prohibited bases in deciding to whom to
send solicitations for credit constitutes discouraging applicants in violation of 12 C.F.R.
section 202.5(a), and that the consideration of factors that are close proxies for a
prohibited basis may constitute evidence of such discouragement.
The Board notes in the advance notice of proposed rulemaking that in some
instances pre-screening on a prohibited basis may facilitate the identification of potential
customers and provide greater access to credit for some customers (e.g., using age to
target older individuals or college students for credit solicitations and related financial
services). We believe that the Board's exception authority would enable it to allow such
pre-screening where it serves to expand credit opportunities, while simultaneously
prohibiting pre-screening where it limits access to credit on a prohibited basis. The
ECOA authorizes the Board to exempt a class of transactions, or a particular type of
transaction within a class, if the Board determines that the application of all or part of the
regulation to such transactions would not contribute substantially to effectuating the
purpose of the regulation. 15 U.S.C. section 1691b(a)(1).
0202 622 1829
WATCH
001/002
#
THE
1216
DEPARTMENT OF THE TREASURY
THE
TREASURY
WASHINGTON, P999 20220
1789
IMMEDIATE DELIVERY!!!!!
FAX TO: FAIR LENDING GROUP
Faiguly
HUD
Peter Kaplan
708-4886
Gail W. Laster
708-3389
Kenneth Zimmerman
708-2703
Kenneth Markison
708-5689
Brian Doherty
708-2703
OCC
Mike Bylsma
874-5322
Steve Cross
874-5221
Steve Lindsey
874-5221
Russ Bailey
874-5221
DOJ
Stuart Ishimura
514-1116
Joan Magagna
514-1116
Sandy Ross
514-1116
TREASURY
Michael Barr
622-5672
Cliff Kellogg
622-5672
Melissa Welss
622-0256
OTS
Paul Robin
906-5735
Tim Burniston
906-5735
David Enzel
906-7606
Ellen Seidman
898-0230
WHITE HOUSE
Sarah Rosen
456-2223
Lisa Green
456-2223
Paul Weinstein
456-7028
Peter Rundlet
456-5053
FTC
Jodie Bemstein
326-3799
David Medine
326-2558
Peggy Twohig
326-2558
OFHEO
Ann Dewey
414-3823
Judith Naiman
414-6504
Tina Dion
414-6504
FROM:
Michael Barr
Deputy Assistant Secretary
Community Development Policy
We would like to convene a Fair Lending Group meeting on Wednesday, June 23, at 3:30pm, in Room 2127
(Grant Room). Please confirm your attendance by internet if you are available to meet on Wednesday, June 23.
Irma Tucker's internet address is [email protected], or my internet address is [email protected]
Attached is the agenda for the meeting.
00/10/98
17:20
0202 022 1828
WATCH
0. 002/002
FAIR LENDING MEETING
JUNE 23, 1999
3:30PM - ROOM 2127 (GRANT ROOM)
1.
HOEPA (Treasury issues paper)
2.
Credit Scoring (OTS lead discussion)
3.
Testing (HUD update)
4.
Reg. B/Reg. C (vote status update)
MEMORANDUM
had w/ te dinn
FROM:
Michael Barr
TO:
Fair Lending Interagency Working Group
DATE:
July 14, 1999
RE:
Attached draft
Attached please find a draft of a document describing proposed changes to the regulations
implementing the Home Ownership and Equity Protection Act. Once we have reached
agreement on the document, I propose that it be the basis for memoranda from each of us to our
respective agency or department heads requesting approval to approach the Fed informally to
gauge its interest in the proposed reforms. Please forward your comments and suggested edits
to Don Graves or Dan Sokolov as soon as possible.
DRAFT - CIRCULATED TO FAIR LENDING INTERAGENCY WORKING GROUP
July 14, 1999
Fair Lending: Proposal to Seek Federal Reserve Board Regulatory Changes Under the
Home Ownership Equity Protection Act
Summary: Treasury and other agencies should approach the Federal Reserve Board (FRB)
to seek to persuade it to adopt by regulation enhanced protections for consumers in the home-
equity lending market.
The expansion of credit to Americans of even the most limited means is a welcome
development, but it has increased opportunities for unscrupulous lenders to take advantage of
vulnerable or disadvantaged populations. Americans who are poor but own homes - especially
the elderly - have been particular targets of abusive practices in the home-equity lending market.
In that market, homeowners pledge their homes as collateral for high-priced consumer loans
(usually for home repairs, improvements or debt consolidation). Abusive practices in the home-
equity lending market include, for example, falsifying loan applicants' income or the appraised
value of the property and overcharging consumers with illegitimate fees. Other common
practices, such as balloon payments far beyond the means of borrowers and penalties for early
repayment of loans, also tend to be traps for the uneducated and unwary.
Several statutes, including the Truth in Lending Act (TILA), the Real Estate Settlement
Procedures Act (RESPA), and the Home Ownership and Equity Protection Act (HOEPA), are
designed to protect American consumers against illegitimate creditor practices. HOEPA, which
was passed in 1994 in the form of amendments to TILA, targets abuses in the home-equity
1
DRAFT - CIRCULATED TO FAIR LENDING INTERAGENCY WORKING GROUP
July 14, 1999
lending market. It was intended to protect homeowners from loan agreements that are likely to
result in default, through disclosure requirements and prohibitions of certain onerous terms,
without actually limiting the rates that creditors may charge or banning high-priced loans.
Abusive and deceptive practices persist despite these statutes. Recognizing this reality,
Congress directed the FRB and the Department of Housing and Urban Development (HUD) to
recommend improvements to TILA, RESPA, and HOEPA. In a joint report in July 1998, the
agencies presented a number of helpful recommendations that would provide consumers with
greater information to shop for loans, as well as clear up consumers' confusion regarding the key
terms of loan agreements. In addition, the agencies recommended the adoption of substantive
protections against abusive lending practices with respect to loans covered by HOEPA. HUD
made a number of specific recommendations with respect to these protections. In May 1999, the
President called on Congress and the agencies to adopt these reforms, as well as additional
measures we believe are necessary to protect consumers adequately from spurious and abusive
practices in the home-equity lending market. Legislative reforms will no doubt take time to
enact.
In the meantime, the FRB can make certain improvements to existing law under its authority
to promulgate regulations and orders. We have discussed these changes in the Fair Lending
Working Group (with staff from the OCC, OTS, FTC, HUD, Justice and Treasury) and we
believe that these changes should include:
Lowering the current HOEPA APR trigger from 10% over comparable Treasury securities to
8% over such securities;
2
DRAFT - CIRCULATED TO FAIR LENDING INTERAGENCY WORKING GROUP
July 14, 1999
Broadening the class of costs counted toward the HOEPA trigger, including all amounts paid
by a borrower;
Making fraudulent practices now illegal under the Federal Trade Commission Act (the
FTCA) also illegal under HOEPA, thereby expanding the enforcement authority of the
banking regulators and the FTC, and adding additional penalties for non-compliance;
Regulating the extent to which consumers may finance fees charged for a high-cost loan;
Expanding the HOEPA provisions barring prepayment penalties and balloon payments;
Clarifying that the phrase "pattern and practice" under HOEPA has the same meaning as that
phrase as it is used in the Fair Housing Act (FHA), 42 U.S.C. § 3613;
Requiring creditors to document the income of loan applicants and other pertinent data;
Requiring creditors to inform high-cost-loan applicants of available home counseling
programs prior to closing, which should help to lower the number of foreclosures.
The FRB currently has statutory authority to make many of these changes by amending
Regulation Z, 12 CFR part 226, the regulation that implements TILA and HOEPA. HOEPA
authorizes the FRB to decrease the interest-rate trigger (but not below 8% above comparable
Treasury securities), 15 U.S.C. § 1602(aa)(2), and to include in the points-and-fees trigger, in
addition to charges enumerated in the statute, "such other charges as the Board determines to be
appropriate," 15 U.S.C. § 1602(aa)(4)(D).
1
Congress left to the courts the task of defining the phrase "pattern and practice" as it is used in the FHA.
The courts have given the phrase a broader interpretation under the FHA than at least one court has given the same
phrase under HOEPA. As it is used in HOEPA, the phrase has been interpreted by a district court to require proof of
"a representative sample of [the lender's] loans analyzed empirically." Newton V. United Companies Financial
Corp., 24 F. Supp. 2d 444, 457 (E.D. Pa. 1998) (holding proof inadequate despite evidence of asset-based lending by
defendant to several plaintiffs). That is ostensibly a stricter requirement than the courts have imposed in interpreting
the identical phrase under the FHA and other civil rights acts. Although the FHA's pattern-and-practice requirement
cannot be satisfied by an isolated instance, unlike the requirement enunciated in Newton, supra, it can be satisfied by
proof of several examples of such conduct, at least if they occur within a relatively short period. See, e.g., United
States V. Balistrieri, 981 F.2d 916, 929-30 (7th Cir. 1992) (holding evidence of discriminatory treatment of five
black testers over a little more than a month sufficient).
3
DRAFT - CIRCULATED TO FAIR LENDING INTERAGENCY WORKING GROUP
July 14, 1999
In addition, the FRB is required by HOEPA to prohibit acts or practices in connection
with mortgage loans that the Board finds to be unfair, deceptive, or designed to evade HOEPA's
provisions, and to prohibit acts or practices in connection with refinancing of mortgage loans that
it finds to be associated with abusive lending practices or otherwise not in the interest of the
borrower. 15 U.S.C. § 1639(1). These mandates supply the FRB with authority to regulate or
prohibit unfair, deceptive and fraudulent practices.²
Congress' directive to the FRB to "issue such regulations as may be necessary to carry
out" HOEPA, P.L. 103-325 § 155, 108 Stat. at 2197 (Sept. 23, 1994), arguably empowers the
agency to incorporate the courts' definition of "pattern and practice" under the FHA into its
regulation implementing HOEPA's ban on a "pattern and practice" of asset-based lending. See
Chevron V. NRDC, 467 U.S. 837, 843 (1984) ("The power of an administrative agency to
administer a congressionally created program necessarily requires the formulation of policy and
the making of rules to fill any gap left, implicitly or explicitly, by Congress." (quotation and
ellipsis omitted)). Because the delegation of a law-declaring function is implied, rather than
express, however, the issue is not free from doubt.
The power to promulgate regulations necessary to carry out the statute arguably also
extends to requiring lenders to (1) collect income and other information from consumers and (2)
inform applicants of available home counseling. To be sure, the statute does not expressly
authorize or require either of these measures. Requiring lenders to inform applicants of available
home counseling, however, is a reasonable means to carry out a principal purpose of the statute -
2 "The Federal Trade Commission Act (FTCA) also requires the Board to adopt regulations to prevent "unfair or
deceptive acts or practices" by banks. 15 U.S.C. § 57a(f)(1). In addition, it requires the FRB to adopt credit
practice regulations adopted by the FTC. Id. The FRB indeed adopted Regulation AA, Unfair or Deceptive Acts
or Practices (12 CFR 227), following promulgation of a similar regulation by the FTC. Regulation AA applies
4
DRAFT - CIRCULATED TO FAIR LENDING INTERAGENCY WORKING GROUP
July 14, 1999
to reduce unnecessary loan defaults by maximizing consumer understanding of borrowing risks.
Likewise, requiring lenders to collect income and other pertinent information will further another
principal purpose of the statute - to curb abusive lending, especially asset-based lending - by
enabling both lenders and the agencies to detect illegitimate practices. There is precedent for an
information-collection requirement in the absence of express statutory authorization. Regulation
B, promulgated by the FRB to implement the Equal Credit Opportunity Act (ECOA), requires
creditors to collect information about the race, gender, marital status, and age of mortgage
applicants. 12 C.F.R. § 202.13. The grant of authority under which the FRB imposed that
requirement - a directive to "prescribe regulations to carry out the purposes of this subchapter,"
see 15 U.S.C.A. $ 1691b(a)(1) & note following - was no more specific than HOEPA's
delegation of rulemaking authority to the FRB. 3
Three additional reforms - expanding the statutory prohibitions on balloon payments and
early payment penalties, and creating liability for asset-based lending in the absence of a pattern
or practice of such conduct - may require legislation, depending on the extent of the reforms.
Congress already has spoken to these issues with some specificity. See 15 U.S.C. § 1639(c)
(barring prepayment penalty but stating exceptions); 1639(e) (barring balloon payments for
mortgages of less than 5 years); 1639(h) (barring a "pattern and practice" of asset-based
lending). Nevertheless, the extent to which these protections can be tightened by additional
regulations, perhaps under FRB's authority to ban abusive or deceptive practices, should be
explored.
only to banks and their subsidiaries, however. See 12 CFR § 227.11(c). The FRB could amend Regulation Z to
make clear that Regulation AA also applies to all other persons whose lending activity comes under HOEPA.
3 The ECOA statutory provision requiring lenders to "maintain such records or other data relating to such loans as
may be necessary to evidence compliance with this subsection or to enforce any action pursuant to the authority of
this chapter," 15 U.S.C. 1691b(a)(4) - which could be read as authorizing the FRB to impose an information
5
DRAFT - CIRCULATED TO FAIR LENDING INTERAGENCY WORKING GROUP
July 14, 1999
collection requirement - was not enacted until 1988, see P.L. 100-533 § 301, 102 Stat. at 2692 (Oct. 25, 1988), after
the FRB already had promulgated such a requirement by regulation.
6
Lisa Green
07/14/99 01:10:55 PM
Record Type:
Record
To:
Jonathan A. Kaplan/OPD/EOP@EOP. Melissa G. Green/OPD/EOP@EOP
CC:
Subject: Prep for 2:00 Meeting
The following is information that I think Gene will want to know prior to the 2:00 meeting. Please let me
know if you think I've forgotten anything? Melissa, I'll stop by at about 1:45 to be ready to brief Gene:
OPL
Letter has already been sent by Mary Beth thanking all Corporate leaders that participated in the trip.
(I will have a copy if Gene wants to see what it said)
Followup meetings have been scheduled for this week and next with Washington Reps and senior
executives from companies that did and did not participate on the trip. (Jay/Marybeth will report at
2:00 meeting)
IGA
Bill White/Mickey are working to include New Markets and a speech by the President as part of the
NGA conference Aug 7-10. This is considered a heavy lift since there are 32 Republican Mayors.
Underwood and Patton are very supportive of the idea, but IGA may ask Gene to make a call to enlist
their help in getting us on the agenda.
Mayors and local electeds from the cities we visited are thrilled. (Barbara Hunt will be prepared to
report at the meeting about phone calls, letters to the President, etc. indicating their support of our
effot -- i.e. the mayor of Clarksdale sent a letter to Lott expressing his disappointment that Lott did not
participate in this historic trip).
Several local governments have already been contacted directly by business interests/companies
interested in investing in their communities. (Barbara will report at 2:00 meeting)
Legislative Affairs
Sen. Kennedy and Sen. Conrad have expressed interest in co-sponsoring legsilation as a result of the
trip.
Drafts of the NMVC Firms bill have been distributed by SBA. Treasury, Rangel and Rockefeller are
waiting with baited breath to get an okay to introduce the Tax Credit piece prior to next week's markup
of the Tax Bill. HUD is waiting to distribute drafts of APIC piece until FHLB issue is resolved.
Lot's to discuss on Legislative Strategy -- maybe need a separate meeting to provide a complete
update. Most important issue is guidance on when/how the legislation will be introduced. Do we have
a
date for the proposed legislative event should we be pushing for one?
Upcoming Events
Waiting for info from Jon and Pete on POTUS Schedule
Additional NM Deliverables
Dreamworks announced their LA program on Monday without mentioning the President's initiative
(see press release that was distributed to Maria and Gene from Minyon I will have a copy with
me).
Data Collection - Proposal for an Executive Order - One of the deliverables that we were working on
and didn't complete prior to the trip was an EO to create an interagency working group that would
develop statistical information and provide data helpful to companies as they evaluate investment
opportunities in New Markets. The model for the type of report that would be published is the Child
Welfare annual indicators report which just received front page coverage by the Washington Post a
few days ago. I think this is a good followup deliverable that we should pursue (but I'm not sure that
Gene knows about it in any detail) and it is on the agenda.
Anything else?????
THE WHITE HOUSE
WASHINGTON
July 14, 1999
Mr. Jesse White, Jr
Federal Co-Chairman
Appalachian Regional Commission
1666 Connecticut-Avenue NW, Suite 600
Washington, D.C. 20235
Dear Mr. White, Ir
Thank you for participating in the President's Tour of
America's New Markets. Your personal involvement and
commitment to the tour was important to the credibility of the
trip and complimented the President's message of private
sector investment in under-served areas. Your leadership on
these issues is greatly appreciated.
Attached please find a few articles on last week's tour that I
thought you might enjoy. Again, thank you for your
participation.
I hope to speak with you again soon.
Sincerely,
Mary Beth Cahill
Assistant to the President and
Director of Public Liaison
JUL-12-1999 16:03
DREAMWORKS
P.02/03
DREAMWORKS
SKG
LISA CC: Maric Freen
FOR IMMEDIATE RELEASE
CONTACT: Andy Spahn
Monday, July 12, 1999
(818) 733-6336
Minya
Niki Tennant
(213) 473-2355
DREAMWORKS ANNOUNCES UNPRECEDENTED $5 MILLION GIFT TO
JOB TRAINING PROGRAM
Steven Spielberg, Jeffrey Katzenberg, and David Geffen announced today that they,
along with their studio Dream Works SKG, are making a combined $5 million
commitment to "JobLink," an innovative entertainment industry training program
developed by Los Angeles City Councilmember Ruth Galanter.
According to Katzenberg, this financial support is a signal of Dream Works' ongoing
commitment to bring diversity to Los Angeles' entertainment industry. "Steven, David
and I made a commitment, both personally and for Dream Works, to invest in the future
of the City of Los Angeles. Even though we are not going to Playa Vista, we are still
going to proceed with that commitment to the City of Los Angeles and the surrounding
communities. We want to create opportunities and provide training for people who
normally don't have access to the entertainment industry. We applaud Councilmember
Galanter for making JobLink a reality so that disadvantaged and disenfranchised L.A.
residents will have career opportunities in the industry. We are proud to support her in
her efforts."
"I created JobLink to bring the industry within reach of those who have been historically
underrepresented," said Councilwoman Ruth Galanter. "Although Dream Works will not
be locating at Playa Vista, this $5 million gift represents an unprecedented commitment
to help open doors to the industry."
Within the coming months, Galanter's office will put together an advisory board for
JobLink that will include representatives from Dream Works, Galanter's office,
community representatives and close involvement by the community colleges. This
board will determine criteria by which community-based, college-based, and high school-
based programs will receive funding from JobLink.
JUL-12-1999 16:03
DREAMWORKS
P.03/03
Last April, Galanter and Katzenberg announced a new Entertainment Studies program
within the Los Angeles Community College District as one of the first initiatives of the
JobLink program. The Entertainment Studies program will have an entertainment studies
core curriculum, as well as an advanced curriculum in Information Technology.
Dream Works executives and staff will participate in the design of the curricula, serve as
guest lecturers and technical advisors, and offer work-based learning opportunities such
as internships and mentorships.
"This is a landmark in job training assistance to the impoverished communities of Los
Angeles," said Pastor Cecil E. Murray, Senior Pastor of First A.M.E. Church.
"Dream Works is building dreamers using the magic of Hollywood."
Kelly Candaele, trustee for the Los Angeles Community College District, congratulated
Dream Works for their donation to JobLink. "I commend Steven Spielberg, Jeffrey
Katzenberg, and David Geffen on their follow-through and commitment to our
community colleges. This is an amazing opportunity for our students, our faculty and our
administration. Kudos to Councilmember Galanter for bringing this partnership to
fruition. We expect our relationship with Dream Works to blossom into a long-lasting
one that will benefit many, many students and encourage other studios to participate in
JobLink."
###
TOTAL P.03
Lisa Green
07/14/99 01:10:55 PM
Record Type:
Record
To:
Jonathan A. Kaplan/OPD/EOP@EOP. Melissa G. Green/OPD/EOP@EOP
CC:
Subject: Prep for 2:00 Meeting
The following is information that I think Gene will want to know prior to the 2:00 meeting. Please let me
know if you think I've forgotten anything? Melissa, I'll stop by at about 1:45 to be ready to brief Gene:
OPL
Letter has already been sent by Mary Beth thanking all Corporate leaders that participated in the trip.
(I will have a copy if Gene wants to see what it said)
Followup meetings have been scheduled for this week and next with Washington Reps and senior
executives from companies that did and did not participate on the trip. (Jay/Marybeth will report at
2:00 meeting)
IGA
Bill White/Mickey are working to include New Markets and a speech by the President as part of the
NGA conference Aug 7-10. This is considered a heavy lift since there are 32 Republican Mayors.
Underwood and Patton are very supportive of the idea, but IGA may ask Gene to make a call to enlist
their help in getting us on the agenda.
Mayors and local electeds from the cities we visited are thrilled. (Barbara Hunt will be prepared to
report at the meeting about phone calls, letters to the President, indicating their support of our
effot -- i.e. the mayor of Clarksdale sent a letter to Lott expressing his disappointment that Lott did not
participate in this historic trip).
Several local governments have already been contacted directly by business interests/companies
interested in investing in their communities. (Barbara will report at 2:00 meeting)
Legislative Affairs
Sen. Kennedy and Sen. Conrad have expressed interest in co-sponsoring legsilation as a result of the
trip.
Drafts of the NMVC Firms bill have been distributed by SBA. Treasury, Rangel and Rockefeller are
waiting with baited breath to get an okay to introduce the Tax Credit piece prior to next week's markup
of the Tax Bill. HUD is waiting to distribute drafts of APIC piece until FHLB issue is resolved.
Lot's to discuss on Legislative Strategy -- maybe need a separate meeting to provide a complete
update. Most important issue is guidance on when/how the legislation will be introduced. Do we have
a date for the proposed legislative event should we be pushing for one?
Upcoming Events
Waiting for info from Jon and Pete on POTUS Schedule
Additional NM Deliverables
Dreamworks announced their LA program on Monday without mentioning the President's initiative
(see press release that was distributed to Maria and Gene from Minyon I will have a copy with me).
Data Collection - Proposal for an Executive Order - One of the deliverables that we were working on
and didn't complete prior to the trip was an EO to create an interagency working group that would
develop statistical information and provide data helpful to companies as they evaluate investment
opportunities in New Markets. The model for the type of report that would be published is the Child
Welfare annual indicators report which just received front page coverage by the Washington Post a
few days ago. I think this is a good followup deliverable that we should pursue (but I'm not sure that
Gene knows about it in any detail) and it is on the agenda.
Anything else?????
Julia M. Payne@EOP
Farthey
06/23/99 05:46:00 PM
Record Type:
Record
To:
See the distribution list at the bottom of this message
CC:
Subject: Statement by the President
Message Creation Date was at 23-JUN-1999 17:46:00
THE WHITE HOUSE
Office of the Press Secretary
For Immediate Release June 23, 1999
STATEMENT BY THE PRESIDENT
I am pleased that the Federal Reserve Board has acted on my Administration's
request by voting this morning to propose, under the Equal Credit Opportunity
Act, that lenders may choose to collect information about the race and gender
of individuals applying for loans beyond home mortgages. This action is an
important step to expand access to capital for all Americans. Allowing
creditors to collect data for business and consumer loans will create greater
innovation and increased access to credit, a higher level of voluntary
compliance, and more effective fair lending enforcement.
Along with my Administration's reform of the Community Reinvestment Act
regulations, enactment of the Community Development Financial Institutions
legislation, and the proposed New Markets Initiative, today's historic action
by the Federal Reserve Board will ensure that more Americans have access to
capital. The record has shown that the Administration's Community Empowerment
strategy is working in helping to revitalize our distressed inner city
neighborhoods and rural communities by spurring more private investment,
igniting the spark of entrepreneurship, and providing opportunity for more
Americans.
30-30-30
insurant all be its not only
withholding will will for director
Message Sent To:
JUN-30-1999 15:18
GOVT.FIN.POLICY
2026224774
P.01/03
OF
THE
TREASURY
DEPARTMENT OF THE TREASURY
THE
WASHINGTON June 30,
Ford
1789
IMMEDIATE DELIVERY!!!!!
FAX TO: FAIR LENDING GROUP
HUD
Peter Kaplan
708-4886
Gail W. Laster
708-3389
Kenneth Zimmerman
708-2703
Kenneth Markison
708-5689
Brian Doherty
708-2703
OCC
Mike Bylsma
874-5322
Ralph Sharpe
874-5521
Russ Bailey
874-5221
DOJ
Stuart Ishimura
514-1116
Joan Magagna
514-1116
Sandy Ross
514-1116
TREASURY
Michael Barr
622-5672
Cliff Kellogg
622-5672
Don Graves
622-5672
Melissa Weiss
622-0256
OTS
Paul Robin
906-5735
Tim Burniston
906-5735
David Enzel
906-7606
Ellen Scidman
898-0230
Richard Riese
906-5735
WHITE HOUSE
Sarah Rosen
456-2223
Lisa Green
456-2223
Paul Weinstein
456-7028
Peter Rundlet
456-5053
FTC
Jodie Bernstein
326-3799
David Medine
326-2558
Peggy Twohig
326-2558
OFHEO
Ann Dewey
414-3823
Judith Naiman
414-6504
Tina Dion
414-6504
FROM:
Michael Barr
Deputy Assistant Secretary
Community Development Policy
There WILL NOT be a Fair Lending Group meeting on, Wednesday, June 30, The next Fair Lending meeting
will be on Wednesday, July 14, at 3:30pm, in Room 2127. Please confirm your attendance by internet if you are
available to meet on Wednesday, July14. Irma Tucker's internet address is [email protected], or my
internet address is [email protected].
JUN-30-1999 15:18
GOVT.FIN.POLICY
2026224774 P.02/03
- 2 -
1) Please review the draft paper that was provided to you at the last meeting and provide comments to Don
Graves ([email protected]) by Tuesday (June 30). A new version will be completed by the end of the
week for review, in the hopes that we can have something more formal by July 12.
JUN-30-1999 15:18
GOVT.FIN.POLICY
2026224774 P.03/03
Agenda
Wednesday, July 14, 1999
3:30pm - 5:00pm
Room 2127
Reg. B and HOEPA.
HUD to Talk About Testing
At our next meeting which will be July 21, the following will be discussed.
OTS to do a Presentation on Credit Scoring
Reg. B and HOEPA.
TOTAL P.03
09/14/99
TUE 19:12 FAX 2026221829
Date: 9/14/99 Time: 22:02:03
US TREASURY DEPARTMENT
Page 1 of 7
001
of
THE
DEPARTMENT OF THE TREASURY
THE TREASURY
Have Gay
WASHINGTON
1789
make a
September 14, 1999
copyuhu
IMMEDIATE DELIVERY!!!!!
she
FAX TO: FAIR LENDING GROUP
HUD
Only Don't got
Peter Kaplan
1.
708-4886
Gail W. Laster
708-3389
Kenneth Markison
708-5689
need it nov.
Brian Doherty
708-3527
Michael Price
708-7446
OCC
This
Mike Bylsma
874-5322
Ralph Sharpe
874-5221
Russ Bailey
874-5221
DOJ
jo
Stuart Ishimura
514-1116
Joan Magagna
514-1116
Sandy Ross
514-1116
TREASURY
Michael Barr
622-5672
Cliff Kellogg
622-5672
Don Graves
622-1049
Melissa Weiss
622-0256
OTS
Paul Robin
906-5735
Tim Burniston
906-5735
David Enzel
906-7606
Ellen Seidman
898-0230
Richard Riese
906-5735
WHITE HOUSE
Sarah Roscn
456-2223
Lisa Green
456-2223
Paul Weinstein
456-7028
Peter Rundlet
456-5053
FTC
Jodie Bernstein
326-3799
David Medine
326-2558
Peggy Twohig
326-2558
OFHEO
Ann Dewcy
414-3823
Judith Naiman
414-6504
Tina Dion
414-6504
FROM:
Michael Barr
Deputy Assistant Secretary
Community Development Policy
\ttached is the Joint Agency Comments on Notice of Proposed Rulemaking Under Regulation B. Please submit
your comments by September 27th. Your comments can bc fax to 622-1049 or by internet to Donet Graves. His
internet address is [email protected].
09/14/99 TUE 19:13 FAX 2026221829
Date: 9/14/99 Time: 22:02:26
US TREASURY DEPARTMENT
Page 2 of 7
002
1
DRAFT August 27, 1999 11:00 am
JOINT AGENCY COMMENTS ON NOTICE OF PROPOSED RULEMAKING
UNDER REGULATION B
I. Voluntary Data Collection
The Department of the Treasury, the Department of Justice, the Department of
Housing and Urban Development, the Federal Trade Commission, the Comptroller of
the Currency, the Office of Thrift Supervision, and the Small Business Administration
("the agencies") join in welcoming and supporting the Federal Reserve Board's
proposal to amend Regulation B to permit lenders to collect data concerning the race,
color, religion, sex, or national origin of loan applicants. Permitting collection of such
data will enable creditors to increase credit availability to economically disadvantaged
practices. groups and will facilitate private sector and government detection of discriminatory
A.
Experience with Mortgage Loans Shows that Data Collection Has Not
Been Used to Discriminate and Has in Fact Increased Access to Credit
In 1977, the Board revised Regulation B, which implements the Equal Credit
Opportunity Act (ECOA), to prohibit creditors from collecting data on the race, sex,
marital status, color, religion or national origin of loan applicants, in order to avoid
discriminatory use of such data. However, the Board made an exception to this general
prohibition by requiring creditors to collect such information on home mortgage loans.
At that time, little was known (but assumptions were made) about the nature and scope
of lending discrimination. Since then, much has been learned about mortgage lending
discrimination. The original fear that race, national origin and gender data collected
under the Home Mortgage Disclosure Act (HMDA) would be used for discriminatory
purposes has not been realized. Instead, the requirement for recording and reporting
applicant data has contributed to increased access to credit for minority loan applicants,
assisted creditors in complying with the law and in developing innovative products, and
aided federal supervisory and enforcement efforts.
Recent data suggest that HMDA's disclosure requirements are having a salutary
effect. During the 1990s, lending to minorities has increased dramatically relative to
non-minorities, and in 1996, total home purchase loans (conventional and government-
backed) to both blacks and Hispanics reached record high levels. Between 1993 and
199 , mortgage originations for Hispanics and blacks grew by percent and
percent, respectively, more than
times
as
rapidly
as
the
percent
increase
registered for white borrowers. Though minority home ownership rates remain low
Date: 9/14/99 Time: 22:02:53
09/14/99 TUE 19:13 FAX 2026221829
Page 3 of 7
US TREASURY DEPARTMENT
003
2
relative to non-minorities, the gap is diminishing. As Chairman Greenspan has stated,
"[o]ur experience with mortgage applications is one that underscores the role that free
market competitive pressures can play in undermining discrimination and improving the
profitability of business activity."
B.
Lifting The Prohibition For Other Types Of Loans Would Eliminate an
Unnecessary Regulatory Restriction and Foster Innovation that Would
Expand Access to Business and Consumer Credit
In today's competitive financial services market, a creditor cannot afford to be
subject to a regulatory prohibition that limits its ability to have the information it needs
to be responsive to the demands of its potential customers. The current prohibition in
Regulation B of the collection of the race and gender of loan applicants for non-
mortgage credit results in an unfortunate, and in our view, unnecessary restriction on
how a bank, thrift or other creditor conducts its business. The restriction has the
unintended consequence of limiting a creditor's ability to expand its customer base
because it lacks important information necessary to identify potential new markets or to
develop innovative products to serve those markets. In particular, it inhibits the ability
of financial service providers to meet the needs of underserved communities with
innovative new financial products and marketing programs, by making it difficult for
financial institutions to determine whether new products or marketing programs in fact
expand minority access to credit. Collecting, processing, and analyzing race, gender,
and other data would help creditors mcet the credit needs of particular communities.
Permitting creditors to collect race and gender data from applicants for non-
mortgage credit would also enhance access to credit, by enabling lenders to identify
gaps in their efforts to serve customers. For example, Regulation B sets out a limited
exception to its general prohibition in order to permit lenders to establish "special
purpose credit programs" to serve economically disadvantaged persons, including
members of a prohibited basis group. However, to use this exception, a lender must
submit [create?]¹ a written plan that supports the need for the program. Because lenders
are currently prohibited from collecting race and gender information from applicants
for non-mortgage credit, lenders often lack the data that would enable them to assess
fully the need for a special purpose credit program and, therefore, implement an
appropriate and effective program. [Indeed, our experience has been that the special
purpose credit program provision of Regulation B is underused.] In our judgment, if
creditors were permitted to collect race and gender information from applicants for
non-mortgage credit, overall lending to minorities, women, and other economically
disadvantaged persons would increase.
N.b., the regulations do not require submittal of the plan to an agency.
Date: 9/14/99 Time: 22:03:22
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US TREASURY DEPARTMENT
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3
In addition, since the Board decided in December 1996 not to lift the
prohibition, institutions that have made commitments to lend to underserved markets
have expressed a desire to gather information relating to loan applicants that would
enable them to determine the number and dollar volume of loans originated to minority
or women borrowers. Eliminating the prohibition in Regulation B would enable these
creditors to monitor their commitments.
With voluntary data collection, lenders would have maximum flexibility to
collect and use applicant data. The creditor might choose not to collect data on all non-
mortgage loan products; lenders could focus data collection, for example, on high-
volume loan products that involve personal dealings with customers or on particular
small business product lines. Lenders would also be free to disclose statistical
information publicly, if they believed that would be useful, or not to disclose such
information.
C.
Lifting the Prohibition Would Facilitate Private Sector and Government
Monitoring of Creditor Performance as well as Detection and Prevention
of Discrimination
We agree with the Board's assessment that removing the prohibition on data
collection for nonmortgage credit would allow issues of credit discrimination to be
better addressed.
1.
Evidence Indicates That Discrimination in Business and
Consumer Lending Remains a Serious Problem
There is much evidence that discrimination remains a significant barrier in non-
mortgage credit markets, based upon both anecdotal information and studies that
indicate disparate treatment in business and consumer lending. See Attachment A
(background paper on studies of business and consumer credit discrimination and
evidence that data collection can improve access to credit).
2.
Allowing Voluntary Data Collection Would Permit Creditors to
Monitor Their Own Performance
The supervisory and enforcement agencies consistently have encouraged
institutions to conduct self-evaluations of their lending practices. However, creditors
cannot conduct fair lending self-evaluations for non-mortgage lending without
appropriate monitoring information. Many institutions have sought permission from
TO: Fax#94582223
09/14/99 TUE 19:14 FAX 2026221829
Date: 9/14/99 Time: 22:03:48
US TREASURY DEPARTMENT
Page 5 of 7
5.
005
4
compliance. supervisory agencies to collect such information in order to monitor their fair lending
To be fully effective, self-evaluation and subsequent corrective action for
problems found require documentation of loan applicant data such as the race,
ethnicity, sex, and age of applicants. Without the data that creditors are prohibited
from collecting under Regulation B, lenders currently have no systematic way to
evaluate their own fair lending performance in these markets, or to defend themselves
with hard data against any charges of biased lending practices.
3.
Allowing Voluntary Data Collection Would Improve Substantially
the Ability of the Agencies to Detect and Deter Unlawful
Discrimination
The prohibition also inhibits effective monitoring and enforcement of ECOA.
Without the necessary data, enforcement agencies must rely on other investigative
techniques that are less efficient, accurate, or complete. In the home mortgage area,
data collected under HMDA is critical to the decision whether or not to delve deeper
into an institution's lending practices when complaints are raised. Indeed, the
prohibition has the effect of skewing enforcement efforts towards cases involving
discrimination by regulated creditors in the home mortgage market, because the
enforcement agencies do not have sufficient information to enforce ECOA effectively
with respect to business and consumer loans, particularly those made by non-depository
institutions. Moreover, when evidence of discriminatory lending practices is found,
self-evaluation - which would include the voluntary collection of monitoring data - - and
prompt corrective actions by the lender as needed will be considered as a substantial
mitigating factor in considering any remedies. See Policy Statement on Discrimination
in Lending, 59 Fed. Reg. 18,266-69 (April 15, 1994).
II. Pre-application Marketing Practices
Citing the potential for discrimination in preapplication marketing practices, the
Board's 1998 Advance Notice of Proposed Rulemaking requested comment on the
concept of extending Regulation B to prohibit expressly such discrimination. In the
discussion accompanying the Board's proposed revisions to the regulation, the Board
recognizes that creditors have at times used age to identify potential recipients of
preapproved credit and zip codes to exclude credit solicitations in low-income areas
that are predominantly minority. Nevertheless, the Board states that evidence of such
practices is "somewhat limited" and does not warrant the application of Regulation B
anti-discrimination rules "at this time." Instead, it has proposed that, in order to
facilitate monitoring of the problem, creditors be required to retain certain information
TO: Fax#94562223
09/14/99 TUE 19:14 FAX 2026221829
Date: 9/14/99 Time: 22:04:14
US TREASURY DEPARTMENT
Page 6 of 7
5
006
5
about preapproved credit solicitations that constitute "firm offers of credit" under the
Fair Credit Reporting Act.
We welcome and support the Board's proposal to enact this information retention
requirement, which should improve monitoring of marketing practices without placing
a substantial additional burden on creditors. We believe, however, that the proposal
does not go far enough to address discrimination on prohibited bases in preapplication
marketing. Our experience in the field suggests to us that such discrimination is a
problem sufficiently serious [?] to justify a regulation that prohibits it expressly. The
problem is not resolved, as some industry commenters suggested, by their use of non-
targeted marketing such as "take-one" applications available at lenders' facilities. Even
ostensibly non-targeted marketing does not reach all populations to the same extent.
For instance, "take-one" applications placed in banks are not readily available to poor
individuals who live in neighborhoods that lack banks. Those individuals generally do
not have the same quantity and quality of information about the market that residents of
well-off neighborhoods have and, therefore, they are more susceptible to predatory
marketing.
Thus, we continue to believe, as we recommended in our May 28, 1998 comment in
response to the Advance Notice, that the Board should clarify that the consideration of
one or more prohibited bases in deciding to whom to send solicitations for credit
constitutes discouraging prospective applicants in violation of 12 C.F.R. § 202.5(a)
(proposed § 202.4(b)), and that the consideration of factors that are close proxies for a
prohibited basis may constitute evidence of such discouragement.
The Board has declined to adopt such a rule because of its concern for unintended
consequences. Indeed, many commenters opposing Regulation B's expansion to
preapplication marketing contended that it would prevent creditors from marketing
their products to those most likely to respond. As examples of potentially benign
targeted marketing on a prohibited basis, they cited the women's clothing store that
promotes a private label credit card by mailing prescreened applications to women, and
the credit card issuer that purchases a subscriber list from a magazine with a mostly
African-American readership. We believe that it is feasible to promulgate a rule that
would prohibit invidious discrimination that restricts a group's access to credit while
permitting practices represented by these examples, so long as such practices were not
merely an effort to circumvent the purposes of Regulation B and ECOA. So, too,
could the Board create an exception for affirmative marketing programs designed to
expand the availability of credit to certain groups. Indeed, a model for such an
exception exists already in the official staff comment to existing § 202.5(a), which
provides that "[a] creditor may affirmatively solicit or encourage members of
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US TREASURY DEPARTMENT
Page 7 of 7
5.
007
6
traditionally disadvantaged groups to apply for credit, especially groups that might not
normally seek credit from that creditor."
At the very minimum, the Board should complement the proposed record retention
requirement for prescreened solicitations that constitute firm offers of credit with a
limited expansion of the anti-discrimination provisions of Regulation B to such
solicitations. This could be accomplished by clarifying that such conduct constitutes
discouragement of prospective applicants in violation of existing § 202.5(a), while
creating appropriate exceptions.