Fair Lending

Position

• ICBA strongly supports equal access to credit through the fair lending laws – the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA) – and condemns discrimination based on race, ethnicity, national origin, sex, religion, or other listed classification.
• As permitted by ECOA, community banks should continue to be permitted to voluntarily create Special Purpose Credit Programs (SPCPs) to benefit an economically disadvantaged class of persons without fear of violating fair lending laws.
• In general, banks should be permitted to delineate fair lending Reasonably Expected Market Areas (REMAs) that closely align with their CRA Assessment Areas and are not unreasonably broad.
• ICBA supports transparency regarding the legal theories and methodologies used when enforcing fair lending laws while preserving the confidentiality of specific community bank information. Analytical methods used to evaluate fair lending law compliance must be disclosed.
• ICBA opposes any cause of action under the fair lending laws for disparate impact that relies on statistical disparity alone without a robust causal connection to a specific policy or practice.
• The 2013 Discriminatory Effect rules under the FHA are not in line with current Supreme Court precedent. Regulators should update fair lending regulations to specifically include the “robust causality” standard established by the Supreme Court in Texas Dept. of Housing and Community Affairs v. Inclusive Communities Project, Inc (Inclusive Communities).
• ICBA supports amending the fair lending laws to clarify that disparate impact without a finding of intentional discrimination does not violate fair lending.

Background

Community banks have a strong track record of providing access to credit in the communities in which they are located and take their fair lending obligations very seriously. A recent trend of increased scrutiny and changed methodologies in fair lending exams and investigations has resulted in “false positive” findings of disparate treatment, thus requiring the affected community banks to spend large amounts of time and money in disproving false fair lending allegations.

Community banks are particularly vulnerable to such allegations because they are committed to working with their customers to provide customized loans under exceptional circumstances. This raises red flags and too often draws fair lending allegations.

Premature or unfounded allegations of racial or ethnic discrimination can harm a community bank’s reputation. Therefore, the confidentiality of specific community bank information should be preserved while investigations are being conducted and before conclusions are reached.

In September of 2020, HUD finalized a rule that amended the agency’s interpretation of the Fair Housing Act’s disparate impact standard to better reflect the Supreme Court’s 2015 ruling. However, in June of 2021 HUD proposed rescinding the 2020 rule in favor of returning to the 2013 standard. ICBA believes that an outright return to the 2013 rule is inappropriate because that standard is not in line with the Supreme Court’s decision in Inclusive Communities.