GAO 

United States Government Accountability Office

Report to Congressional Requesters

FAIR LENDING 

Data Limitations and 

the Fragmented U.S. 

Financial Regulatory 

Structure Challenge 

Federal Oversight and 

Enforcement Efforts 

July 2009 

GAO-09-704 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

July 2009

FAIR LENDING

Data Limitations and the Fragmented U.S. Financial 

Regulatory Structure Challenge Federal Oversight 

Highlights of GAO-09-704, a report to and Enforcement Efforts

congressional requesters 

The Home Mortgage Disclosure Act (HMDA) requires certain lenders to 

collect and publicly report data on the race, national origin, and sex of 

mortgage loan borrowers. Enforcement agencies and depository institution 

regulators use HMDA data to identify outliers—lenders that may have violated 

fair lending laws—and focus their investigations and examinations 

accordingly. But, HMDA data also have limitations; they do not include 

information on the credit risks of mortgage borrowers, which may limit 

regulators’ and the public’s capacity to identify lenders most likely to be 

engaged in discriminatory practices without first conducting labor-intensive 

reviews. Another data limitation is that lenders are not required to report data 

on the race, ethnicity, and sex of nonmortgage loan borrowers—such as small 

businesses, which limits oversight of such lending. 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. Without additional 

data, agencies’ and regulators’ capacity to identify potential lending 

discrimination is limited. 

GAO identified the following limitations in the consistency and effectiveness 

of fair lending oversight that are largely attributable to the fragmented U.S. 

financial regulatory system: 

• Federal oversight of lenders that may represent heightened risks of fair 

lending law violations is limited. For example, the enforcement agencies 

are responsible for monitoring independent mortgage lenders’ compliance 

with the fair lending laws. Such lenders have been large originators of 

subprime mortgage loans in recent years and have more frequently been 

identified through analysis of HMDA data as outliers than depository 

institutions, such as banks. Depository institution regulators are more 

likely to assess the activities of outliers and, unlike enforcement agencies, 

they routinely assess the compliance of lenders that are not outliers. As a 

result, many fair lending violations at independent lenders may go 

undetected, and efforts to deter potential violations may be ineffective. 

• Although depository institution regulators’ fair lending oversight efforts 

may be more comprehensive, the division of responsibility among multiple 

agencies raises questions about the consistency and effectiveness of their 

efforts. For example, each regulator uses a different approach to analyze 

HMDA data to identify outliers and examination documentation varies. 

Moreover, since 2005, OTS, the Federal Reserve, and FDIC have referred 

more than 100 lenders to DOJ for further investigations of potential fair 

lending violations, as required by ECOA, while OCC made one referral and 

NCUA none. 

Enforcement agencies have settled relatively few (eight) fair lending cases 

since 2005. Agencies identified several enforcement challenges, including the 

complexity of fair lending cases, difficulties in recruiting and retaining staff, 

and the constraints of ECOA’s 2-year statute of limitations. 

The Fair Housing Act (FHA) and the 

Equal Credit Opportunity Act 

(ECOA)—the “fair lending laws”—

prohibit discrimination in lending. 

Responsibility for their oversight is 

shared among three enforcement 

agencies—the Department of Housing 

and Urban Development (HUD), 

Federal Trade Commission (FTC), and 

Department of Justice (DOJ)—and five 

depository institution regulators—the 

Federal Deposit Insurance Corporation 

(FDIC), Board of Governors of the 

Federal Reserve System (Federal 

Reserve), National Credit Union 

Administration (NCUA), Office of the 

Comptroller of the Currency (OCC), 

and Office of Thrift Supervision (OTS). 

This report examines (1) data used by 

agencies and the public to detect 

potential violations and options to 

enhance the data, (2) federal oversight 

of lenders that are identified as at 

heightened risk of violating the fair 

lending laws, and (3) recent cases 

involving fair lending laws and 

associated enforcement challenges. 

GAO analyzed fair lending laws, 

relevant research, and interviewed 

agency officials, lenders, and consumer 

groups. GAO also reviewed 152 

depository institution fair lending 

examination files. Depending upon file 

availability by regulator, GAO reviewed 

all relevant files or a random sample as 

appropriate. 

What GAO Recommends

Congress should consider options, 

such as requiring larger lenders to 

report additional data, to enhance the 

data available to detect potential fair 

lending violations. Further, as part of 

ongoing discussions on revising the 

regulatory structure, Congress should 

consider how to best ensure consistent 

and effective federal oversight of the 

fair lending laws. In comments, 

agencies and regulators generally 

agreed with the report’s analysis. 

View GAO-09-704 or key components.

For more information, contact Orice Williams 

Brown at (202) 512-8678 or 

williamso@gao.gov. 
Page i GAO-09-704 

Contents 

Letter 1

Background 6 

Data Available to Detect Potentially Heightened Risk for Fair 

Lending Violations Have Limitations, and Options to Enhance 

the Data Involve Trade-offs 14 

Lenders That May Pose Relatively Greater Risks of Violating Fair 

Lending Laws Generally Are Subject to Less Comprehensive 

Federal Oversight Due to the Fragmented Regulatory Structure 

and Other Factors 28 

Differences in the Depository Institution Regulators’ Fair Lending 

Oversight Programs Also Highlight Challenges Associated with a 

Fragmented Regulatory System 41 

Enforcement Agencies Have Filed and Settled a Limited Number of 

Fair Lending Cases in Recent Years; Certain Challenges May 

Affect Enforcement Efforts 53 

Conclusions 61 

Matters for Congressional Consideration 65 

Recommendation for Executive Action 65 

Agency Comments and Our Evaluation 65 

Appendix I Objectives, Scope, and Methodology 72 

Appendix II Federal Oversight Authority for FHA and ECOA 77 

Appendix III Comments from the Federal Trade Commission 82 

Appendix IV Comments from the Federal Deposit Insurance 

Corporation 84 

Appendix V Comments from the Board of Governors of the 

Federal Reserve System 86 

 Fair Lending 
Appendix VI Comments from the National Credit Union 

Administration 88 

Appendix VII Comments from the Office of the Comptroller of 

the Currency 90 

Appendix VIII Comments from the Office of Thrift Supervision 95 

Appendix IX GAO Contact and Staff Acknowledgments 96 

Tables 

Table 1: Federal Depository Institution Regulators of Federally 

Insured Depository Institutions 9 

Table 2: Number of Outliers on Federal Reserve Screening List 

Based on HMDA Year 2006 Data, by Type of Federal 

Agency That Oversees Them 15 

Table 3: Number of All Outliers Identified by Depository Institution 

Regulators, Based on HMDA Year 2006 Data 17 

Table 4: Annual Numbers of HMDA Filers Identified by the Federal 

Reserve Screens as a Percentage of Total HMDA-filing 

Lenders, by Lender Type, 2004-2007 29 

Table 5: Number and Percentage of Pattern or Practice Referrals to 

DOJ Related to Mortgage Pricing Disparities Identified by 

Selected depository institution Regulators in the Outlier 

Examinations GAO Reviewed, Based on HDMA Years 2005 

and 2006 Data 52 

Table 6: DOJ Settled Enforcement Cases Involving Fair Lending 

Violations, from 2005 through May 2009 55 

Table 7: Federal Agencies That Have Examination and 

Enforcement Authorities for Fair Lending Laws, by Type 

of Entity (Depository Institutions, Independent Lenders, 

Servicers) 78 

Page ii GAO-09-704 Fair Lending
Figures 

Figure 1: HMDA-Filing Institutions by Type, 2004-2007 13 

Figure 2: Fair Lending Referrals to DOJ, by Depository Institution 

Regulator, 2005–2008 50 

Figure 3: Percentage of Referrals to DOJ for Marital Status 

Discrimination in Violation of ECOA versus Other Fair 

Lending Referrals, 2005–2008 51 

Abbreviations 

APR annual percentage rate 

CRA Community Reinvestment Act 

DFP Division of Financial Practices 

DOJ Department of Justice 

DTI debt-to-income 

ECOA Equal Credit Opportunity Act 

FDIC Federal Deposit Insurance Corporation 

FHA Fair Housing Act 

FHEO Office of Fair Housing and Equal Opportunity 

FTC Federal Trade Commission 

HMDA Home Mortgage Disclosure Act of 1975 

HUD Department of Housing and Urban Development 

LTV loan-to-value 

MSA metropolitan statistical area 

NCUA National Credit Union Administration 

OCC Office of the Comptroller of the Currency 

OSI Office of Systemic Investigations 

OTS Office of Thrift Supervision 

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Page iii GAO-09-704 Fair Lending
Page 1 GAO-09-704 

 

United States Government Accountability Office

Washington, DC 20548 

 

July 15, 2009 

Congressional Requesters 

The Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA) 

(collectively, fair lending laws) prohibit discrimination in making credit 

decisions. 1

 Specifically, ECOA prohibits creditors from discriminating 

against credit applicants on the basis of race, color, religion, national 

origin, sex, marital status, age, because an applicant receives income from 

a public assistance program, or because an applicant has in good faith 

exercised any right under the Consumer Credit Protection Act.2

 FHA 

prohibits discrimination by direct providers of housing, as well as other 

entities whose discriminatory practices, among other things, make housing 

unavailable to persons because of race or color, religion, sex, national 

origin, familial status, or disability. Under one or both of the fair lending 

laws, a lender may not, because of a prohibited basis: 

• fail to provide information or services or provide different information or 

services regarding any aspect of the lending process, including credit 

availability, application procedures, or lending standards; 

• discourage or selectively encourage applicants with respect to inquiries 

about or applications for credit; 

• refuse to extend credit or use different standards in determining whether 

to extend credit; 

• vary the terms of credit offered, including the amount, interest rate, 

duration, or type of loan; 

• use different standards to evaluate collateral; 

• treat a borrower differently in servicing a loan or invoking default 

remedies; or 

1

Respectively, Pub. L. No. 90-321, title VII, as added Pub. L. No. 93-495, title V, 88 Stat. 1521 

(1974), codified at 15 U.S.C. §§ 1691–1691f; and Pub. L. No. 90-284, title VIII, 82 Stat. 81 

(1968), codified at 42 U.S.C. §§ 3601-3619. 

2

Pub. L. No. 90-321, 82 Stat. 146 (1968), codified at 15 U.S.C. §§ 1601-1667e, 1671-1693r; 18 

U.S.C. §§ 891-896. 

 Fair Lending 
 

• use different standards for pooling or packaging a loan in the secondary 

market or for purchasing loans. 

Eight federal agencies—the Department of Housing and Urban 

Development (HUD); the Federal Trade Commission (FTC); the 

Department of Justice (DOJ)—and the regulators of insured depository 

institutions—the Federal Deposit Insurance Corporation (FDIC), the 

Board of Governors of the Federal Reserve System (Federal Reserve), the 

National Credit Union Administration (NCUA), the Office of the 

Comptroller of the Currency (OCC), and the Office of Thrift Supervision 

(OTS)—principally share oversight and enforcement responsibility for the 

fair lending laws. The enforcement agencies, HUD, FTC, and DOJ, 

generally have jurisdiction over nondepository mortgage lenders, 

including independent mortgage lenders that are not affiliated with 

federally insured depository institutions or owned by federally regulated 

lenders.3

 The depository institution regulators oversee federally insured 

banks, thrifts, and credit unions and, as appropriate, certain subsidiaries, 

affiliates, and service providers of these institutions. While the 

enforcement agencies can pursue investigations, file complaints, and 

participate in litigation against lenders in administrative or federal district 

courts for potential fair lending violations under their independent 

investigative and enforcement authorities, depository institution 

regulators are required to refer lenders under their supervision to DOJ for 

further investigation whenever one has reason to believe a lender has 

engaged in a pattern or practice of discouraging or denying applications 

for credit in violations of ECOA.4

 Furthermore, the depository institution 

regulators must provide notice to HUD and the alleged injured parties 

whenever they have reason to believe that an FHA violation occurred that 

did not also constitute a pattern or practice violation of ECOA and thus 

did not trigger a referral to DOJ. The depository institution regulators also 

have authority to enforce the FHA and ECOA through administrative 

proceedings. 

Over the years, some members of Congress, researchers, consumer 

groups, and others have raised questions about lenders’ compliance with 

 

3

DOJ has enforcement authority over all lenders under both the FHA and ECOA. 

4

15 U.S.C. § 1691e(g). According to DOJ, the courts have found a “pattern or practice” when 

the evidence establishes that the discriminatory actions were the defendant’s regular 

practice, rather than an isolated instance. A “pattern or practice” also exists when the 

defendant has a policy of discriminating, even if the policy is not always followed. 

Page 2 GAO-09-704 Fair Lending
 

fair lending laws and the depository institution regulators’ and agencies’ 

enforcement of these laws. These concerns have been heightened in 

recent years because of the availability of mortgage pricing data published 

by the Federal Reserve, which many lenders are required to submit under 

the Home Mortgage Disclosure Act of 1975, as amended (HMDA).5

According to the Federal Reserve, researchers, and others, their analyses 

of HMDA data indicate that on average, African-American and Hispanic 

mortgage borrowers may pay substantially higher interest rates and fees 

than similarly situated non-Hispanic white borrowers. Since 2005, the 

Federal Reserve annually has used HMDA data to identify approximately 

200 lenders with statistically significant pricing disparities based on 

ethnicity or race and distributed this screening or outlier list to other 

enforcement agencies, depository institution regulators, and state 

regulators for their review and potential follow-up.6

 Many of these entities 

were independent lenders that specialized in subprime loans, which 

appear to have been disproportionately offered to minority borrowers. 

Critics argue that enforcement agencies and depository institution 

regulators have not adequately pursued potential fair lending violations; 

for example, in recent years few enforcement actions have been brought 

against lenders alleging discrimination. 

Federal enforcement agencies and depository institution regulators have 

stated that they have processes to ensure effective oversight and 

enforcement of the fair lending laws. In particular, enforcement agencies 

and depository institution regulators said that they use the lists of 

institutions that have statistically significant pricing disparities provided 

by the Federal Reserve and/or develop their own screening or outlier lists 

through independent analysis of HMDA data or consumer complaints and 

 

5

Pub. L. No. 94-200, title III, 89 Stat. 1125, codified at 12 U.S.C. §§ 2801–2810. HMDA 

requires lending institutions to collect and publicly disclose information about housing 

loans and applications for such loans, including the loan type and amount, property type, 

income level and borrower characteristics (such as ethnicity, race, and sex). All federally 

insured or regulated banks, credit unions, and savings associations with total assets 

exceeding $39 million, as of December 31, 2008, with a home or branch office in a 

metropolitan statistical area (MSA) that originated any secured home purchase loans or 

refinancing are required to file HMDA data. Regulation C, 12 C.F.R. §§ 203.3(e)(1), 203.4 

(2009); see also Home Mortgage Disclosure, 73 Fed. Reg. 78616 (Dec. 23, 2008) 

(establishing an adjustment from $37 million to $39 million). Further, most mortgage 

lending institutions located in a MSA must file HMDA data. 12 C.F.R. §§ 203.3(e)(2), 204.4. 

6

Not all depository institution regulators may use the term “outlier” to describe lenders that 

are identified as potentially having heightened risk for fair lending law violations through 

their annual analysis of HMDA data and other information. However, we use the term 

“outlier” to describe such lenders for purposes of consistency in this report. 

Page 3 GAO-09-704 Fair Lending
 

focus investigative and examination resources on those institutions.7

Federal agency and depository institution regulatory officials also stated 

that limitations in HMDA data, particularly the lack of underwriting 

information such as borrowers’ credit scores, explain why many 

investigations and examinations are a result of false positives and thus do 

not result in enforcement actions.8

 In addition, as discussed in this report, 

FTC officials said that HMDA data do not allow for assessing mortgage 

pricing discrimination at all lenders. However, federal officials also stated 

that they vigorously pursue cases where the inclusion of underwriting data 

does not explain differences in denials and mortgage interest rates 

between borrowers who fall into different protected groups based on 

national origin, race, or sex and initiate enforcement actions where 

appropriate.9

This report responds to your request that we provide an overview of 

federal oversight and enforcement of the fair lending laws and addresses a 

range of relevant issues. Specifically, this report (1) assesses the strengths 

and limitations of data sources that enforcement agencies and depository 

institution regulators use to screen for lenders that have potentially 

heightened risk for fair lending law violations and discusses options for 

enhancing the data, (2) assesses federal oversight of lenders that may 

represent relatively high risks of fair lending violations as evidenced by 

analysis of HMDA data and other information, (3) examines differences in 

depository institution regulators’ fair lending oversight programs, and 

(4) discusses enforcement agencies’ recent litigation involving potential 

fair lending law violations and challenges that federal officials have 

identified in fulfilling their enforcement responsibilities. 

To meet our objectives, we reviewed and analyzed fair lending 

examination and investigation guidance, policies, and procedures, 

 

7

For the purposes of this report, we refer to enforcement agencies’ (HUD, FTC, and DOJ) 

assessments of individual lender’s compliance with the fair lending laws (including analysis 

of HMDA data and other information, on-site interviews, and file reviews) as 

“investigations” and depository institution regulators’ (FDIC, Federal Reserve, NCUA, OCC, 

and OTS) assessments as “examinations.” 

8

We use the term “underwriting” in this report to describe data or information that lenders 

may use to make credit decisions, such as whether to approve or deny a loan application or 

the terms of approved loans, such as their interest rates or fees. These underwriting data or 

variables include borrower credit scores, debt-to-income (DTI) ratios, or loan-to-value 

(LTV) ratios. 

9

See 12 C.F.R. pt. 203, app. B. 

Page 4 GAO-09-704 Fair Lending
 

agencies’ Inspectors General reports, testimonies, agency documents, 

academic studies, and past GAO work, in particular our 1996 report on 

federal oversight of fair lending laws.10 In addition, we assessed agencies’ 

compliance with fair lending examination procedures by selecting a 

sample of 152 fair lending examination files and summaries derived from 

each depository institution regulator’s annual list of lenders at potentially 

heightened risk for fair lending violations (that is, outlier lists).11 For the 

Federal Reserve, FDIC, and OTS, we reviewed summary documentation of 

completed examinations for each lender based on their 2005 and 2006 

HMDA data outlier lists. For OCC and NCUA, we reviewed randomly 

selected samples of their outlier examination reports, largely due to the 

time that it took these agencies to provide requested documentation.12 We 

generally limited the scope of our examination file review to compliance 

(that is, if such examinations were initiated on schedule and if they 

contained key elements for which the depository institution regulators’ 

Interagency Fair Lending Examination Procedures call for, such as a 

review of HMDA and underwriting and pricing data, reviews of loan 

policies and files, and interviews with lending officials).13 Making 

judgments on how well the depository institution regulators conducted 

examinations (for example, if they selected a sufficient sample of loan files 

to review or if they used an appropriate examination methodology) was 

beyond the scope of this review. However, we did compare the depository 

institution regulators’ overall outlier examination findings and assessed 

the extent to which the interagency examination procedures allowed for 

assessments of all phases of the mortgage loan application process. We 

also reviewed agency referrals to DOJ since 2005, reviewed DOJ’s 

investigative activities and settlements, and consulted with all agencies on 

some of the challenges they encountered in enforcing fair lending laws. 

 

10See GAO, Fair Lending: Federal Oversight and Enforcement Improved but Some 

Challenges Remain GAO/GGD-96-145 (Washington, D.C.: Aug. 13, 1996). 

11Depository institution regulators may use the Federal Reserve’s annual HMDA screening 

list to target examinations or they may develop their own outlier lists through independent 

reviews of HMDA data and other sources, such as complaints. Our reviews were based on 

outlier lists that the depository institution regulators developed from 2005 and 2006 HMDA 

data. 

12Our review consisted of a random sample of 20 outlier examinations that OCC conducted 

based on 2005 HMDA data and seven based on 2006 HMDA data. We also reviewed a 

random sample of 10 of the 25 fair lending examinations that NCUA conducted in calendar 

year 2007. 

13Federal Financial Institutions Examination Council(FFIEC), “Interagency Fair Lending 

Procedures,” http://www.ffiec.gov/PDF/FairLend.pdf. 

Page 5 GAO-09-704 Fair Lending
 

Finally, we interviewed officials from each federal enforcement and 

depository institution regulator—including senior officials, policy analysts, 

economists, statisticians, attorneys, examiners, and compliance 

specialists—state financial regulatory entities, lenders, and researchers.14

We asked these officials to describe and comment on regulatory efforts to 

enforce fair lending laws, which included screening lenders for potentially 

heightened risk of violations, conducting examinations, and enforcing the 

laws through referrals, investigations and examinations, or other means. 

(See app. I for more information on our objectives, scope, and 

methodology). 

We conducted this performance audit from October 2008 to July 2009, in 

accordance with generally accepted government auditing standards. Those 

standards require that we plan and perform the audit to obtain sufficient, 

appropriate evidence to provide a reasonable basis for our findings and 

conclusions based on our audit objectives. We believe that the evidence 

obtained provides a reasonable basis for our findings and conclusions 

based on our audit objectives. 

During the late 1960s and 1970s, Congress enacted several laws that were 

intended to help ensure fair and equitable access to credit for both 

individuals and communities. These laws included FHA in 1968, ECOA in 

1974, and HMDA in 1975.15 ECOA and FHA constitute the federal 

antidiscrimination statutes applicable to lending practices and commonly 

are referred to as the “fair lending laws.” Although both statutes prohibit 

discrimination in lending, FHA antidiscrimination provisions also apply 

more generally to housing, such as prohibiting discrimination in the sale or 

rental of housing. Unlike ECOA and FHA, HMDA does not prohibit any 

specific activity of lenders, but it establishes data collection, reporting, 

and disclosure obligations for particular institutions, which are discussed 

below. The Federal Reserve has general rulemaking authority for ECOA 

and HMDA, and HUD has similar rulemaking authority for FHA. 

Background 

 

14We did not interview NCUA economists or attorneys, and NCUA does not have 

statisticians. 

15This also includes the Community Reinvestment Act (CRA) of 1977, Pub. L. No. 95-128, 

title VIII, 91 Stat. 1147. CRA seeks to affirmatively encourage institutions to help meet the 

credit needs of the entire community served by each institution, and CRA ratings take into 

account lending discrimination by those lenders. For example, see 12 C.F.R. §§ 25.28(c), 

228.28(c) (2009). This report focused solely on enforcement of ECOA and FHA. 

Page 6 GAO-09-704 Fair Lending
 

Responsibility for federal oversight and enforcement of the fair lending 

laws is principally shared among three enforcement agencies and five 

depository institution regulators (see app. II for more details). In general, 

with respect to the relevant fair lending law, HUD and DOJ have 

jurisdiction over all depository institutions and nondepository lenders, 

including “independent” mortgage lenders, such as mortgage finance 

companies, which are not affiliated with, or owned by, federally insured 

depository institutions such as banks, thrifts, or credit unions or owned by 

a federally regulated bank or savings and loan holding company.16 FTC has 

jurisdiction pursuant to ECOA over all nondepository lenders, including 

independent mortgage lenders, subsidiaries and affiliates of depository 

institutions, and nondepository subsidiaries of bank holding companies. 

Unlike HUD and DOJ, FTC does not have enforcement authority over 

federally regulated depository institutions.17

Federal Oversight and 

Enforcement of Fair 

Lending Laws Are Shared 

among Multiple Agencies 

and Depository Institution 

Regulators 

The following describes the fair lending enforcement responsibilities of 

HUD, FTC, and DOJ in more detail: 

• Under FHA, HUD investigates all complaints filed with it alleging 

violations of FHA and may initiate investigations and file its own 

complaints, referred to as Secretary-initiated complaints, against 

independent mortgage lenders, or any other lender, including depository 

institutions that HUD believes may have violated the act. FHA requires 

HUD to seek conciliation between the parties to any complaint. If 

conciliation discussions are unsuccessful, and HUD determines after an 

investigation that reasonable cause exists to believe that a discriminatory 

housing practice has occurred, or is about to occur, HUD must issue a 

Charge of Discrimination against those responsible for the violation and 

prosecute the claim before an administrative law judge. However, after a 

charge has been issued, any party may elect to litigate the case instead in 

federal district court, in which case DOJ assumes responsibility from HUD 

for pursuing litigation. A HUD administrative law judge or federal judge 

 

16See 42 U.S.C. §§ 3610, 3612, 3614; 15 U.S.C. § 1691e(g), (h). According to HUD, a 

memorandum of understanding between HUD and the federal depository institution 

regulators provides for intra-governmental cooperation in the investigation of fair housing 

complaints against depository institutions. DOJ indicated that DOJ, but not HUD, has 

authority to enforce ECOA as well as the FHA with respect to all lenders. 

1715 U.S.C. § 1691c(a)(c). 

Page 7 GAO-09-704 Fair Lending
 

may order lenders to change their policies, compensate borrowers 

affected by the violation, and take steps to prevent future violations, in 

addition to imposing civil penalties.18

• FTC also may conduct investigations and file ECOA complaints against 

nonbank mortgage lenders or brokers—including but not limited to 

nonbank subsidiaries of banks and bank holding companies—that may be 

violating ECOA. If FTC concludes that it has reason to believe ECOA is 

being violated, the agency may file a lawsuit against the lender in federal 

court to obtain an injunction and consumer redress. If FTC deems civil 

penalties are appropriate, the agency may refer the case to DOJ. 

Alternatively, FTC may bring an administrative proceeding against the 

lender before the agency’s administrative law judges to obtain an order 

similar in effect to an injunction. 

• DOJ, which has both ECOA and FHA authority, may initiate its own 

investigations of any creditor—whether a depository or nondepository 

lender—under its independent authority or based on referrals from other 

agencies as described below. DOJ may file pattern or practice and other 

fair lending complaints in federal courts. 

The types of remedies that may be obtained in fair lending litigation 

include monetary settlements for consumer redress or civil fines, 

agreements by lenders to change or revise policies, and the establishment 

of lender fair lending training programs, and other injunctive relief. 

The five depository institution regulators generally have fair lending 

oversight responsibilities for the insured depository institutions that they 

directly regulate, as well as certain subsidiaries and affiliates (see table 1). 

Along with the enforcement agencies, the Federal Reserve and OTS also 

have general authority over lenders that may be owned by federally 

regulated holding companies but are not federally insured depository 

institutions. Many federally regulated bank holding companies that have 

insured depository subsidiaries, such as national or state-chartered banks, 

also may have nonbank subsidiaries, such as mortgage finance companies. 

Under the Bank Holding Company Act of 1956, as amended, the Federal 

Reserve has jurisdiction over such bank holding companies and their 

 

18HUD also refers fair lending complaints filed by aggrieved persons to state and local 

government agencies that enforce fair housing laws that are substantially equivalent to 

FHA. See 42 U.S.C. § 3610(f). However, such complaints are then processed under the state 

or locality’s substantially equivalent law, not FHA. 

Page 8 GAO-09-704 Fair Lending
 

nonbank subsidiaries.19 OTS has jurisdiction over the subsidiaries of 

savings and loan-holding companies, which can include federally insured 

thrifts as well as noninsured lenders. 

Table 1: Federal Depository Institution Regulators of Federally Insured Depository 

Institutions 

Type of depository institution 

Federal depository institution 

regulator 

Commercial banks 

National banks OCC 

State banks – Federal Reserve System 

members 

Federal Reserve 

State banks – Federal Reserve System 

nonmembers 

FDIC 

Savings associations OTS 

Credit unions NCUA 

Source: GAO. 

Depository institution regulators conduct examinations of institutions they 

oversee to assess their fair lending compliance, including determining 

whether there is evidence that lenders have violated ECOA or the FHA. 

Under ECOA, depository institution regulators are required to refer 

lenders that may have violated the fair lending laws to DOJ if there is 

reason to believe that a lender has engaged in a pattern or practice of 

discouraging or denying applications for credit in violation of ECOA.20 The 

depository institution regulators are required to notify HUD of any 

instance where there is reason to believe that a FHA and ECOA violation 

has occurred which has not been referred to DOJ as a potential ECOA 

pattern and practice violation.21 Under the FHA, HUD must provide 

information to DOJ regarding any complaint in which there is reason to 

believe that a pattern or practice of violations occurred or that a group of 

 

19Ch. 240, 70 Stat. 133, codified at 12 U.S.C. 1841-1850. 

20A depository institution regulator also may refer an ECOA case to DOJ when it has reason 

to believe that one or more creditors has violated the nondiscrimination provisions of 

ECOA. 15 U.S.C. § 1691e(g). 

2115 U.S.C. § 1691e(k). FDIC also noted that, as a practical matter in mortgage lending, most 

ECOA violations also will constitute violations of FHA. DOJ noted that this is the case if 

they involve one or more factors prohibited by both statutes, such as race, color, national 

origin, sex or religion. Marital status is not a prohibited basis under FHA. 

Page 9 GAO-09-704 Fair Lending
 

persons has been denied rights under FHA and the matter raises an issue 

of general public importance.22

In addition, ECOA granted the depository institution regulators 

enforcement authority to seek compliance under section 8 of the Federal 

Deposit Insurance Act and the Federal Credit Union Act.23 Depository 

institution regulators have parallel jurisdiction over such matters, even 

when the matter is referred to the DOJ, because there is a reason to 

believe that a pattern or practice violation has occurred and DOJ does not 

defer for administrative enforcement.24 The agencies must work together 

to assure there is no duplication of their efforts. The Federal Reserve, 

OCC, FDIC, and OTS generally may take an administrative enforcement 

action against an insured depository institution or an institution-affiliated 

party that is violating, or has violated a law, rule, or regulation.25 NCUA 

may take administrative enforcement action against an insured credit 

union or its affiliated party that is violating or has violated a law, rule or 

 

2242 U.S.C. §§ 3610(e)(2) 3614(a). 

23Ch. 967, §§ 1,2, 64 Stat. 873 (1950) codified at 12 U.S.C. § 1818; ch. 750, 48 Stat. 1216 

(1934), codified at 12 U.S.C. §§ 1751 et. seq. 

24See 15 U.S.C. §§ 1691c(a) and 1691e(g). 

2512 U.S.C. § 1818(b). An institution-affiliated party is (1) any director, officer, employee, or 

controlling stockholder (other than a bank holding company) of, or agent for, an insured 

depository institution; (2) any other person who has filed or is required to file a change-incontrol notice with the appropriate federal banking agency under [12 U.S.C. § 1817(j)]; (3) 

any shareholder (other than a bank holding company), consultant, joint venture partner, 

and any other person as determined by the appropriate federal banking agency (by 

regulation or case-by-case) who participates in the conduct of the affairs of an insured 

depository institution; and (4) any independent contractor (including any attorney, 

appraiser, or accountant) who knowingly or recklessly participates in any violation of any 

law or regulation; any breach of fiduciary duty; or any unsafe or unsound practice, which 

caused or is likely to cause more than a minimal financial loss to, or a significant adverse 

effect on, the insured depository institution, which caused or is likely to cause more than a 

minimal financial loss to, or a significant adverse effect on, the insured depository 

institution. 12 U.S.C. § 1813(u). 

Page 10 GAO-09-704 Fair Lending
 

regulation.26 Depository institution regulators also have cease and desist 

authority, can order restitution for the victims of discrimination, and issue 

orders to change or revise lending policies or institute a compliance 

program or require external audits and compliance with these orders can 

be enforced in federal court.27 Moreover, they can impose civil money 

penalties for each day that a violation continues.28

HMDA Data Provide 

Information on the Race, 

Sex, and Other Personal 

Characteristics of 

Mortgage Loan Borrowers 

and Applicants 

HMDA, as amended, requires certain lenders to collect, disclose, and 

report data on the personal characteristics of mortgage borrowers and 

loan applicants (for example, their ethnicity, race, and sex), the type of 

loan or application (for example, if the loan is insured or guaranteed by a 

federal agency such as the Federal Housing Administration), and certain 

financial data such as the loan amount and borrowers’ incomes.29 HMDA’s 

purposes are to provide the public with loan data that can assist in 

identifying potential risks for discriminatory patterns and enforcing 

antidiscrimination laws, help the public determine if lending institutions 

are meeting the housing credit needs of their communities, and help public 

officials target community development investment. In 2002, the Federal 

Reserve, pursuant to its regulatory authority under HMDA, required 

financial institutions to collect certain mortgage loan pricing data for 

higher priced loans in response to the growth of subprime lending and to 

address concerns that minority and other targeted groups were being 

charged excessively high interest rates for mortgage loans. This 

 

2612 U.S.C. § 1786(e)(1). (“If, in the opinion of the Board, any insured credit union, credit 

union which has insured accounts, or any institution-affiliated party is engaging or has 

engaged, or the Board has reasonable cause to believe that the credit union or any 

institution-affiliated party is about to engage, in an unsafe or unsound practice in 

conducting the business of such credit union, or is violating or has violated, or the Board 

has reasonable cause to believe that the credit union or any institution-affiliated party is 

about to violate, a law, rule, or regulation, or any condition imposed in writing by the Board 

in connection with the granting of any application or other request by the credit union or 

any written agreement entered into with the Board, the Board may issue and serve upon 

the credit union or such party notice of charges in respect thereof.”) 

2712 U.S.C. § 1818. 

2812 U.S.C. § 1818(i)(2); 12 U.S.C. § 1786(k)(2) for NCUA. In addition, while DOJ has 2 years 

to file a civil action for an ECOA violation, depository institution regulators have 5 years to 

take enforcement action to impose civil money penalties for violations of the fair lending 

statutes. 

29Regulation C, 12 C.F.R § 203.2(e) (2009) addresses which financial institutions must 

submit HMDA data. 

Page 11 GAO-09-704 Fair Lending
 

requirement was effective on January 1, 2004.30 Specifically, lenders were 

required to collect and publicly disclose information about mortgages with 

annual percentage rates above certain designated thresholds. This 2004 

revision to HMDA also was intended to provide depository institution 

regulators and the public with more information about mortgage lending 

practices and the potentially heightened risk for discrimination. The data 

were first reported and publicly disclosed in 2005. 

HMDA’s data collection and reporting requirements generally apply to 

certain independent mortgage lenders and federally insured depository 

institutions as set forth in Regulation C. As shown in figure 1, many more 

depository institutions than independent mortgage lenders are required to 

collect and report HMDA data (nearly 80 percent are depository 

institutions, and 20 percent are independent lenders). Lenders subject to 

HMDA’s requirements must submit the data by March 1 for the previous 

calendar year. For example, lenders submitted calendar year 2004 data—

the first year in which lenders were required to collect and report 

mortgage pricing data—to the Federal Reserve by March 1, 2005. Through 

individual contracts with the other depository institution regulators and 

HUD, the Federal Reserve collects the HMDA data from all filers, performs 

limited data validity and quality reviews, checks with lenders as 

appropriate to clear up discrepancies, and publishes the data in September 

of each year. 

 

30According to the Federal Reserve, one of the purposes of Regulation C is to require 

reporting of price data for subprime loans. Originally, a “higher price” loan under 

Regulation C was defined as a loan with an annual percentage rate (APR) of 3 or more 

percentage points (5 or more percentage points for subordinate-lien loans) higher than the 

yield for a comparable term Department of the Treasury security as of a date within 

approximately 1 month before the date the interest rate for the loan was set. On October 

24, 2008, the Federal Reserve announced the adoption of a final rule amending Regulation 

C, effective October 1, 2009, that changes the definition of a “higher price” mortgage loan 

under Regulation C to correspond to the definition of a “higher price” loan under 

Regulation Z. Under the new rule, a “higher price” loan is one with an APR that is 1.5 or 

more percentage points (3.5 or more percentage points for subordinate-lien loans) higher 

than a rate published by the Federal Reserve Board (based on the Freddie Mac Primary 

Mortgage Market Survey average rate) as of a date within approximately 1 week before the 

date the interest rate for the loan was set. The new rule is intended to more effectively and 

consistently capture the subprime market and is not intended to lower the threshold and 

capture more loans overall. See Home Mortgage Disclosure, 73 Fed. Reg. 63329 (Oct. 24, 

2008) (to be codified at 12 C.F.R. pt. 203). 

Page 12 GAO-09-704 Fair Lending
 

Figure 1: HMDA-Filing Institutions by Type, 2004-2007 

Source: GAO analysis of Federal Reserve data.

0

2,000

4,000

6,000

8,000

10,000

3,946 3,946 3,904 3,944 3,900 3,900 3,910 3,910

1,464 1,347 1,328 1,124

396 576 676 628

2,030 2,047 2,036 2,048

1,017 974 946 929

6,993 6,925 6,882 6,858

8,853 8,848 8,886

8,610

1,860 1,923 2,004 1,752

2004 2005 2006 2007

Total

Savings institutions

Credit unions

Commercial banks

Subsidiary mortgage company 

Independent mortgage company 

Depositories

Mortgage companies

Insitutions

Note: All federally insured or regulated banks, credit unions, and savings associations with total 

assets exceeding $39 million (in 2009) with a home or branch office in an MSA and that originated, 

during the preceding calendar year, at least one home purchase loan or refinancing secured by a first 

lien on a one- to four-family dwelling are required to file HMDA data. 

The threshold for 2004 is $33 million; 2005 is $34 million; 2006 is $35 million; 2007 is 26 million; 2008 

is 38 million, and 2009 is $39 million. 

Page 13 GAO-09-704 Fair Lending
 

Federal enforcement agencies and depository institution regulators use 

analysis of HMDA data and other information to identify lenders that 

potentially are at heightened risk of having violated the fair lending laws 

and target their investigations and examinations accordingly. However, 

there are several critical limitations in available HMDA data and other data 

that limit federal fair lending oversight and enforcement efforts. First, 

HMDA data lack key underwriting data or information, such as borrowers’ 

credit scores or loan-to-value ratios, which may help explain why lenders 

may charge relatively higher interest rates or higher fees to some 

borrowers compared with others. Second, limited data are available on the 

premortgage loan application process to help determine if loan officers 

engage in discriminatory practices, such as steering minority applicants to 

high-cost loans, before a loan application is filed. Third, Regulation B, the 

regulation that implements the ECOA, generally prohibits lenders from 

collecting personal characteristic data, such as applicants’ race, ethnicity 

and sex, for nonmortgage loans, such as small business and credit card 

loans, which also impedes federal oversight efforts. Requiring lenders to 

collect and publicly report additional data could benefit federal oversight 

efforts as well as independent research into potential discrimination in 

lending, but also would impose additional costs, particularly on smaller 

institutions with limited recordkeeping systems. Several options, such as 

limiting additional data collection and reporting requirements to larger 

lenders, could help mitigate such costs while better ensuring that 

enforcement agencies and depository institution regulators have critical 

data necessary to help carry out their fair lending responsibilities. 

Data Available to 

Detect Potentially 

Heightened Risk for 

Fair Lending 

Violations Have 

Limitations, and 

Options to Enhance 

the Data Involve 

Trade-offs 

Federal Enforcement 

Agencies and Depository 

Institution Regulators Use 

HMDA Data to Detect 

Lenders at Potentially 

Heightened Risk of Having 

Violated the Fair Lending 

Laws 

Since 2005, when HMDA mortgage pricing data became available, the 

Federal Reserve annually has screened the data to identify lenders with 

statistically significant pricing disparities, based on ethnicity or race, and 

voluntarily has shared the screening results with other federal and state 

agencies.31 First, the Federal Reserve systematically checks the data for 

errors (such as values that are outside the allowable ranges) or omissions, 

which may include contacting individual institutions for verification 

purposes. Second, using statistical analysis, the Federal Reserve matches 

loans made to minorities with loans made to non-Hispanic whites for each 

HMDA reporting lender, based on the limited information available in 

 

31The Federal Reserve begins this process in March when HMDA data is filed for the 

preceding calendar year and the lists are generally shared with the other depository 

institution regulators by September. 

Page 14 GAO-09-704 Fair Lending
 

HMDA (such as property type, loan purpose, loan amount, location, date, 

and borrower income). Third, the Federal Reserve calculates disparities by 

race and ethnicity for rate spreads (among those loans for which rate 

spreads were reported) and the proportion of loans that are higher priced 

(the incidence of higher priced lending). Finally, it identifies those lenders 

with statistically significant disparities in either the amount of rate spread 

or the incidence of higher priced lending and develops a list it shares with 

the other agencies.32

As shown in table 2, which breaks out the Federal Reserve screening list 

for 2006 HMDA data, independent lenders that are under the jurisdiction 

of enforcement agencies accounted for almost half of lenders on the list, 

although they account for only about 20 percent of all HMDA data 

reporters. Federally insured and regulated depository institutions such as 

banks, thrifts, and credit unions, which comprise nearly 80 percent of all 

HMDA data reporters, accounted for the other half of the outlier list. 

Table 2: Number of Outliers on Federal Reserve Screening List Based on HMDA 

Year 2006 Data, by Type of Federal Agency That Oversees Them 

Type of federal 

agency 

Number of 

HMDA outliers

Percentage of 

total outlier list 

Number of 

regulated 

institutions that are 

HMDA filers 

Enforcement agencies 128 49 2,004

Depository institution 

regulators 132 51 6,882

Total 260 100 8,886

Source: GAO. 

Note: All federally insured or regulated banks, credit unions, and savings associations with total 

assets exceeding $39 million (in 2009) with a home or branch office in an MSA and that originated, 

during the preceding calendar year, at least one home purchase loan or refinancing secured by a first 

lien on a one- to four-family dwelling are required to file HMDA data. 

Federal enforcement agencies generally use the Federal Reserve’s annual 

screening list, but also conduct independent analyses of HMDA data and 

other information to develop their own list of outliers, according to agency 

officials. For example, all of the enforcement agencies said that they 

incorporate the Federal Reserve’s annual screening list into their own 

 

32Currently, the rate spread is the difference between the annual percentage rate on the 

loan and the yield on Department of the Treasury securities with a comparable maturity. 

Page 15 GAO-09-704 Fair Lending
 

ongoing screening process to identify targets for fair lending 

investigations. In addition, HUD and FTC officials said they also use other 

information to identify outliers, including consumer complaint data. 

Like enforcement agencies, depository institution regulators generally use 

the Federal Reserve screening list, independent analysis of HMDA data, 

and other information sources to identify potential outliers and other risk 

factors. The approaches that the depository institution regulators use may 

vary significantly. For example, OCC and OTS consider a range of 

potential risk factors in developing its annual outlier list including, the 

Federal Reserve’s annual pricing outlier list, independent analysis of 

mortgage pricing disparities, approval and denial rate disparities, and 

indications of potential redlining and marketing issues, among others.33

Other depository regulators, such as the FDIC and the Federal Reserve 

generally focus on independent analysis of HMDA data and other 

information to develop outlier lists that are based on statistically 

significant pricing disparities, although they also may assess other risk 

factors, including approval and denial decisions and redlining, in assessing 

fair lending compliance at other lenders under their jurisdiction. FDIC and 

the Federal Reserve use this analysis to plan and scope their routine fair 

lending compliance examinations.34 As shown in table 3, OCC, due to the 

range of risks that it assesses, identified the largest number of outliers on 

the basis of its analysis of 2006 HMDA data. We discuss the agencies’ 

differing approaches in more detail and the potential implications of such 

differences later in this report. 

 

33Redlining is the practice by which lenders may not make loans in areas that have large 

minority populations. 

34As described in this report, depository institution regulators conduct routine fair lending 

and other consumer compliance examinations in addition to the targeted examinations 

associated with their outlier programs. 

Page 16 GAO-09-704 Fair Lending
 

Table 3: Number of All Outliers Identified by Depository Institution Regulators, 

Based on HMDA Year 2006 Data 

Depository 

institution 

regulator 

Number of outliers 

identified by depository 

institution regulators based 

on HMDA year 2006 data 

Number of 

HMDA filers

Percentage of 

outliers to 

HMDA filers

OCC 113 1,169 10

FDIC 47 2,854 2

OTS 26 588 4

Federal Reserve 47 680 7

NCUA 24 2,048 1

Total 257 7,339 4

Sources: GAO analysis of data from FDIC, Federal Reserve, NCUA, OCC, and OTS. 

Notes: All federally insured or regulated banks, credit unions, and savings associations with total 

assets exceeding $39 million (in 2009) with a home or branch office in an MSA and that originated, 

during the preceding calendar year, at least one home purchase loan or refinancing secured by a first 

lien on a one- to four-family dwelling are required to file HMDA data. 

The number of filers is as of 2007 for the Federal Reserve and NCUA and as of 2008 for FDIC, OCC, 

and OTS. 

Without HMDA data, enforcement agencies’ and depository institution 

regulators’ ability to identify outliers and target their investigations and 

examinations would be limited. According to the depository institution 

regulators, analysis of HMDA data allows them to focus examination 

resources on lenders that may have potentially heightened risk of violating 

fair lending laws. In the absence of HMDA data, enforcement agencies and 

depository institution regulators would have to cull through loan files or 

request electronic data to assess a lender’s relative risk of having violated 

the fair lending laws, which could be a complex and time-consuming 

process. 

Page 17 GAO-09-704 Fair Lending
 

Although the development of outlier lists on the basis of HMDA data may 

allow enforcement agencies and depository institution regulators to 

prioritize fair lending law investigations and examinations, the lack of key 

information necessary to gauge a borrower’s credit risk, such as 

underwriting variables, limits the data’s effectiveness. Agency and 

depository institution regulatory officials have told us that the lack of key 

mortgage loan underwriting variables, such as borrowers’ credit scores, 

borrowers’ debt-to-income, or the loan-to-value ratios of the mortgages, is 

a critical limitation of HMDA data.35 Underwriting variables are important 

because they may help explain mortgage lending disparities among what 

otherwise appear to be similarly situated loan applicants and borrowers of 

different ethnicity, race, or sex and may help to uncover additional 

disparities that may not be evident without the underwriting variables. The 

lack of underwriting data may result in enforcement agencies and 

depository institution regulators initiating investigations or examinations 

of lenders that may charge relatively higher interest rates to certain 

borrowers due to business necessities, such as risk-based pricing that 

reflects borrower’s creditworthiness. 

Lack of Key Underwriting 

Information Can Limit 

Regulatory Screening and 

Independent Research on 

Discrimination in 

Mortgage Lending; 

Collecting That 

Information Entails 

Additional Costs, Which 

May Be Outweighed by the 

Benefits under Certain 

Options 

FTC officials also said that the information HMDA data has provided on 

potential mortgage pricing disparities limits its usefulness for the agency’s 

enforcement activities. In particular, FTC officials said that reported 

HMDA data are geared toward assessing mortgage pricing disparities 

among subprime lenders rather than lenders that may offer prime, 

conventional mortgages or government-guaranteed (or –insured) 

mortgages. The FTC officials said that lenders that originate such 

mortgages generally do so at levels below the thresholds established in 

HMDA data reporting requirements.36 Thus, the FTC officials said that 

Federal Reserve’s annual outlier list is disproportionately represented by 

independent and other lenders that have specialized in subprime mortgage 

loans and that the agency’s capacity to assess the potential for 

 

35The credit score indicates the applicants’ past credit history and potential default risk, the 

DTI indicates the potential financial burden of a mortgage on a borrower, and the LTV 

indicates the amount of borrower equity in a property. 

36A loan’s rate spread—the difference between the annual percentage rate on a loan and the 

rate on the Department of the Treasury securities of comparable maturity—determines 

whether pricing data are required for HMDA reporting. Only loans with spreads above 

designated thresholds set by Regulation C must be reported. For example, for first-lien 

loans, the threshold is 3 percentage points above the Department of the Treasury security 

of comparable maturity. 12 C.F.R. §203.4(a)(12). The Federal Reserve chose the thresholds 

in the belief that they would exclude the vast majority of prime-rate loans and include the 

vast majority of subprime-rate loans. See 67 Fed. Reg. 7222, 7229 (Feb. 15, 2002). 

Page 18 GAO-09-704 Fair Lending
 

discrimination in the prime and government-guaranteed and -insured 

mortgage markets is limited. 

To compensate for the lack of key underwriting information included in 

HMDA data, officials from enforcement agencies and depository 

institution regulators said that they typically request additional data once 

an outlier investigation or examination has been initiated. Some officials 

said that while it generally is easier for larger lenders to provide the data 

on a timely basis because most of them store it electronically, smaller 

lenders with paper-based loan documentation may face greater challenges 

in doing so or may not maintain requested data. When the underwriting 

data are received, enforcement agency and depository institution 

regulatory officials said that they use them to determine if statistically 

significant pricing and denial disparities between mortgage loan applicants 

and borrowers of different ethnicity, race, or sex still exist. Officials we 

contacted generally agreed that the annual screening process would be 

more efficient if they had access to additional underwriting data at the 

time they screened the HMDA data to identify potential outliers. To try to 

address the timing issue, in 2009, OCC began a pilot program to obtain this 

information earlier in the screening process. Specifically, OCC has 

requested that six large national banks separately provide certain specified 

underwriting information to the agency at the same time they report 

HMDA data. 

Agencies, Regulators, and 

Researchers Typically 

Supplement HMDA Data with 

Underwriting Information to 

Help Assess Potentially Risk 

for Fair Lending Law Violations 

The lack of key underwriting information in HMDA data also limits 

independent research, advocacy, and private plaintiff case development 

regarding potential discrimination in mortgage lending.37 Because HMDA 

data are publicly available, researchers, community groups, and others use 

them to assess the potential risk for discrimination in the mortgage 

lending industry and at particular lenders. However, researchers, 

community groups, and others have stated that the absence of sufficient 

underwriting data makes determining if lenders had a reasonable basis for 

mortgage pricing and other disparities—as identified through analysis of 

HMDA data alone—difficult. As a result, researchers have obtained 

aggregated mortgage underwriting data from other sources and matched 

them with HMDA data to assess potential risk for discrimination in 

mortgage lending. While this approach may help identify the potential risk 

for discrimination, the underwriting data obtained may not be as accurate 

 

37See GAO, Fair Lending: Race and Gender Data Are Limited for Nonmortgage Lending, 

GAO-08-698 (Washington, D.C.: June 27, 2008). 

Page 19 GAO-09-704 Fair Lending
 

as if reported directly by the lenders as part of HMDA. Additionally, FDIC 

noted that although the data from other sources may reflect commonly 

accepted standards for underwriting, they may or may not reflect a 

particular lender’s actual policy.38

Requiring lenders to collect and publicly report key underwriting data as 

part of their annual HMDA data submissions would benefit regulatory and 

independent research efforts to identify discrimination in mortgage 

lending.39 With underwriting data included in HMDA data, enforcement 

agencies and depository institution regulators may be better able to 

identify lenders that may have disparities in mortgage lending, enabling 

them to better target investigations and examinations toward the lenders 

most at risk of having violated the fair lending laws. Moreover, this could 

help minimize burdens on lenders that do not represent significant risks 

but are flagged as outliers without the additional data. Similarly, such data 

might help researchers and others better assess the risk for potential risk 

for discrimination and independently assess the enforcement of fair 

lending laws and enhance transparency. For example, researchers, 

advocacy groups, and potential plaintiffs could use independent analysis 

of the data to more efficiently monitor discrimination by particular lenders 

and in the mortgage lending industry generally, which could help inform 

Congress and the public about compliance with the fair lending laws. 

Additional Costs to Lenders 

from Making Underwriting 

Data Available to Federal 

Agencies and Researchers 

Could Be Offset to Some 

Degree 

Although expanding HMDA data to include certain underwriting data 

could facilitate regulatory and independent research efforts to assess the 

potential risk for mortgage discrimination, it would result in additional 

costs to lenders. As we have reported previously, quantifying such costs in 

a meaningful way can be difficult for a variety of reasons, such as 

challenges associated with obtaining reliable data from potentially 

thousands of lenders that have different cost accounting systems and 

underwriting policies.40 According to representatives from a banking trade 

group and a large lender, the additional costs likely would include 

 

38FDIC also indicated that when conducting pricing analyses, they aim to understand and 

analyze the pricing factors actually used by the particular lender being reviewed. 

39Under HMDA, the Federal Reserve has broad authority to carry out the purposes of the 

act, including requiring lenders to collect and report data as deemed necessary. Our work 

did not involve a review of the Federal Reserve’s basis for not requiring lenders to report 

certain underwriting data. Congress also has the option of amending HMDA, as it has in the 

past to require additional data collection and reporting. 

40GAO-08-698. 

Page 20 GAO-09-704 Fair Lending
 

expenses associated with (1) establishing information systems or upgrades 

to collect the data in the proper format, (2) training costs for staff who 

would be responsible for collecting and reporting the data, and (3) legal 

and auditing costs to help ensure that the data were accurate and in 

compliance with established standards. The representative from the large 

lender said that costs also would be associated with electronically storing 

and securing additional types of sensitive data that eventually would be 

made public. Additionally, the official said thousands of employees, who 

currently look at underwriting, but are not associated with reporting 

HMDA data, would have to receive fair lending compliance training. 

Additionally, the official said ensuring compliance with additional public 

reporting requirements would require additional legal support to certify 

the accuracy of the additional data. Finally, the costs may be relatively 

higher for smaller institutions because they may be less likely than larger 

lenders to collect and store underwriting and pricing data electronically or 

may not currently retain any pricing data. 

While certain key underwriting data, such as borrower credit scores, DTI 

ratios, and LTV ratios, generally would benefit regulatory screening efforts 

and independent research, advocacy, and private enforcement, they may 

not be sufficient to resolve questions about potential heightened risk for 

discrimination by individual lenders or in the industry generally. As part of 

fair lending investigations and examinations, enforcement agencies and 

depository institution regulators may request a range of additional 

underwriting data from lenders, such as detailed product information, 

mortgage-rate lock dates, overages, additional fees paid, and counteroffer 

information to help assess the basis for mortgage rate disparities identified 

through initial analysis of HMDA data.41 However, according to 

representatives from a banking trade group and a large lender, requiring 

them to collect and publicly report such additional underwriting data as 

part of their annual HMDA data submissions likely would involve 

additional training, software, compliance, and other associated costs. In 

addition, according to FTC, overage data may be closely guarded 

proprietary information, which lenders likely would object to reporting 

 

41Overages occur when lenders allow loan originators to exercise discretion when 

determining the fees and interest rates charged to borrowers over and above the risk-based 

price of the loan. This overage is not related to the default risk of a particular borrower. 

Therefore, two borrowers with similar underwriting characteristics may pay different 

prices for the same loan product due to the added discretionary price. According to FTC, 

although many lenders collect overage data to determine loan officer compensation, not all 

lenders maintain this information so that it can be readily provided in response to requests 

from enforcement agencies and depository institution regulators. 

Page 21 GAO-09-704 Fair Lending
 

publicly on the grounds that they would represent disclosures to their 

competitors. 

Several options could reduce the potential costs associated with requiring 

lenders to collect and report certain underwriting variables as part of their 

HMDA data submissions. For example, these options include 

• Large lender requirement—requiring only the largest lenders to provide 

expanded reporting. According to officials, many of these lenders already 

collect and store such information electronically. According to published 

reports, the top 25 mortgage originators accounted for 92 percent of total 

mortgage loan volume in 2008. Thus, such a requirement would focus on 

lenders that constitute the vast majority of mortgage lending and minimize 

costs on smaller lenders, which may not record underwriting in electronic 

form as most larger lenders reportedly do;42

• Regulatory (nonpublic) reporting of expanded data—requiring all 

HMDA filers to routinely report underwriting data only to the 

depository institution regulators in conjunction with HMDA data (as 

OCC is requiring six large lenders in its pilot study). In so doing, lenders 

may facilitate depository institution regulators’ efforts to identify potential 

outliers while minimizing concerns about potential public reporting and 

compliance costs; and 

• Nonpublic reporting limited to large lenders—requiring only the largest

lenders to report expanded data to the depository institution regulators in 

conjunction with their HMDA data filings. 

While all of these options would help mitigate additional costs to some 

degree compared with a general requirement that lenders collect and 

report publicly underwriting data, each would result in limited or no 

additional information available to researchers and the public—one of the 

purposes of the act. In addition, according to DOJ, it is not clear whether 

the enforcement agencies would have access to the expanded data under 

the second or third options described above. Nevertheless, any of these 

options could help enhance depository institution regulators’ ability to 

oversee and enforce fair lending laws. Without additional routinely 

provided underwriting data, agencies and depository institution regulators 

 

42Inside Mortgage Finance Publications, The 2009 Mortgage Market Statistical Annual 

(Bethesda, Md.: 2009). 

Page 22 GAO-09-704 Fair Lending
 

will continue to expend limited resources collecting such information on a 

per institution basis as they initiate investigations and examinations. 

Lack of Data during the 

Preapplication Phase of 

Mortgage Lending May 

Result in a Gap in Fair 

Lending Oversight, and 

Addressing This Gap Has 

Been Challenging 

Another data limitation that might affect federal efforts to enforce the fair 

lending laws is the lack of information about the preapplication process 

for mortgage loans. HMDA data only capture information after a mortgage 

loan application has been filed and a loan approved or denied. However, 

fair lending laws apply to the entire loan process. The preapplication 

process involves lenders’ treatment of potential borrowers before an 

application is filed, which could affect whether the potential borrower 

applies for a loan and the type of loan.43 In a 1996 report on federal 

enforcement of fair lending laws, we reported that discrimination could 

occur in the treatment of customers before they actually applied for a 

mortgage loan.44 This type of discrimination, which also would be a 

violation under ECOA, could include spending less time with minority 

customers when explaining the application process, giving them different 

information on the variety of products available, or quoting different rates. 

Subsequent studies by researchers and fair housing organizations have 

continued to raise concerns about the potential risk for discrimination in 

mortgage lending during the preapplication phase.45 The methodology 

used in these studies often included a technique known as matched pair 

testing. In matched pair testing, individuals or couples of different 

ethnicity, race, or sex pose as mortgage loan applicants, visit lenders at 

different times, and meet with loan officers. The testers, or mystery 

shoppers, usually present comparable financial backgrounds in terms o

assets, income, debt, and credit history, and are asked to request 

information about similar loan products. For example, in a 2006 study th

utilized testers who posed as low-income, first-time home buyers in 

approximately 250 matched pair tests, researchers found evidence of 

adverse treatment during the preapplication phase of African-Americans 

f 

at 

 

43Some information is collected concerning preapproval requests made by loan applicants. 

See Regulation C, 12 C.F.R. pt. 203, app. A (2009). 

44See GAO/GGD-96-145. 

45Stephen Ross, et. al. “Mortgage Lending in Chicago and Los Angeles: A Paired Testing 

Study of the Preapplication Process,” Journal of Urban Economics 63, no. 3 (Aug. 3, 2006). 

Margery Austin Turner and Felicity Skidmore, eds., The Urban Institute, “Mortgage Lending 

Discrimination: A Review of Existing Evidence” (Washington, D.C.: June 1999). 

Page 23 GAO-09-704 Fair Lending
 

and Hispanics in the Chicago metropolitan area.46 Specifically, the study

found that African-American and Hispanic testers were less likel

their white counterparts to be given detailed information about re

or additional loan products and received less coaching and follow-u

communication. However, the authors of the study found that in Los 

Angeles the treatment of white, African-American, and Hispanic testers 

generally was similar. 

y than 

quested 

p 

 

Agency officials we contacted said that the use of testers may have certain 

advantages in terms of identifying potential risks for discrimination by 

loan officers and other lending officials, but it also has a number of 

challenges and limitations. For example, officials from FTC, NCUA, and 

OTS said that testers require specialized skills and training, which results 

in additional costs. In the early 1990s, FTC officials said that they used 

testers as a part of their fair lending oversight activities and found the 

effort not only to be costly but also inconclusive because matching 

similarly situated borrowers and training the testers was difficult. OCC 

indicated that it conducted a pilot testing program from 1994 through 1995 

and found that indications of differing treatment were weak and involved 

primarily unverifiable subjective perceptions, such as how friendly the 

loan officer was to the tester.47 FTC officials said that current 

technological advances have made the use of testers even more difficult 

because loan officers can check a potential loan applicant’s credit scores 

during the initial meeting. Therefore, these officials said that loan officers 

may suspect testers are not who they claim to be, thereby raising 

questions about potential fraud that could affect the loan officer’s 

interactions with the testers and make any results unreliable. FTC officials 

also noted that it also was difficult to script identical scenarios because 

testers often would ask questions, react, and respond differently, which 

can make test results unreliable. DOJ officials said that they only 

occasionally used testers in the context of fair lending enforcement due to 

the difficulties described above and the complexities involved in analyzing 

lender treatment of testers during the mortgage preapplication process. 

However, FDIC officials said they were in the early stages of analyzing the 

costs of using testers and considering whether it would be beneficial to 

use them in conjunction with their fair lending reviews. 

46Ross, et al. 

47The results of OCC’s pilot testing program were summarized in Advisory Letter 96-3 (Apr. 

18, 1996). 

Page 24 GAO-09-704 Fair Lending
 

While the agencies and depository institution regulators’ generally do not 

use testers to assess the potential risk for discrimination during the 

preapplication phase, the alternative strategies that are used have 

limitations. In general, officials said that they encourage lenders to 

voluntarily test for fair lending compliance, which may include the use of 

testers. Officials said that they would review any available analysis when 

conducting fair lending examinations. However, according to Federal 

Reserve and OCC officials, this information provided by the use of inhouse testers may be protected by the ECOA self-testing privilege, which 

limits their ability to use it for examination purposes.48 Federal Reserve 

officials also noted that few lenders conduct such testing. Depository 

institution regulators also said that they review customer complaint data; 

compare the number of applications filed by mortgage loan applicants of 

different ethnicity, race, or sex and investigate any potential disparities; 

and review HMDA and additional data to help determine the extent to 

which minority mortgage loan applicants may have been steered into 

relatively high-cost loans although they might have qualified for lessexpensive alternatives. However, these alternative sources share the same 

limitations as the use of testers, including the information may provide 

only an inferential basis for determining if discrimination occurred during 

the preapplication process and may not be reliable. The depository 

institution regulators have yet to identify robust data or means of 

assessing potential discrimination during this critical phase of the 

mortgage lending process. In a recent report on the financial regulatory 

system, the Department of the Treasury suggested that surveys of 

borrowers and loan applicants may be an alternative means of assessing 

compliance with consumer protection laws, such as the fair lending laws.49

Without adequate data from the preapplication phase such as through the 

use of testers, surveys, or alternative means, any fair lending oversight and 

enforcement will be incomplete because it will include only information 

on the borrowers that apply for credit and not the larger universe of 

potential borrowers who sought it. 

 

48See 15 U.S.C. § 1691c-1, which provides that the results of a self-test conducted by a 

lender of a credit transaction to determine the lender’s compliance with ECOA, when 

corrective action is taken for any possible violation identified in the self-test is privileged 

and may not be obtained or used in a court action, examination, or investigation related to 

the lender’s compliance with ECOA. See also 42 U.S.C. § 3614-1 (FHA self-testing privilege). 

49See Department of the Treasury, Financial Regulatory Reform: A New Foundation: 

Rebuilding Financial Supervision and Regulation (June 2009). 

Page 25 GAO-09-704 Fair Lending
 

A final data limitation is that depository institution regulators generally do 

not have access to personal characteristic data (for example, race, 

ethnicity, and sex) for nonmortgage loans, such as business, credit card, 

and automobile loans. In a 2008 report, we reported that Federal Reserve 

Regulation B generally prohibits lenders from requesting and collecting 

such personal characteristic data from applicants for nonmortgage loans.50

The Federal Reserve concluded in 2003 that lifting Regulation B’s general 

prohibition and permitting voluntary collection of data on personal 

characteristic data for nonmortgage loan applicants, without any 

limitations or standards, could create some risk that the information 

would be used for discriminatory purposes. The Federal Reserve also 

argued that amending Regulation B and permitting lenders to collect such 

data on a voluntary basis would result in inconsistent and noncomparable 

data. In the absence of personal characteristic data for nonmortgage loans, 

we found that agencies tended to focus their oversight activities more on 

mortgage lending rather than on areas such as automobile, credit card, and 

business lending that are also subject to fair lending laws.51

Lack of Personal 

Characteristic Data for 

Nonmortgage Lending 

Limits Effectiveness of 

Efforts to Detect Potential 

Risk for Fair Lending Law 

Violations 

While the interagency procedures that depository institution regulators 

use to conduct fair lending examinations provide for assessing the 

potential risk for discrimination in nonmortgage lending, our 2008 report 

concluded that such procedures had a high potential for error and were 

time-consuming and costly. Under the interagency procedures, examiners 

may make use of established “surrogates” to deduce nonmortgage loan 

applicants’ race, ethnicity, or sex. For example, after consulting with their 

agency’s supervisory staff, the procedures allow examiners to assume that 

an applicant is Hispanic based on the last name, female based on the first 

name, or likely to be an African-American based on the census tract of the 

address. However, there is the potential for error in the use of such 

surrogates (for example, certain first names are gender neutral, and not all 

residents of particular census tract may be African-American). 

Furthermore, using such surrogates may require examiners to cull through 

individual nonmortgage loan files. In contrast, HMDA data allow 

enforcement agencies and depository institution regulators to identify 

potential outliers through statistical analysis. 

 

50See GAO-08-698. 

51Regulation B also establishes procedures that lenders are to follow in providing notice to 

loan applicants that their applications for credit have been denied. See 12 C.F.R. § 202.9 

(2009). 

Page 26 GAO-09-704 Fair Lending
 

As we reported, requiring lenders to collect personal characteristic data 

for nonmortgage loans to facilitate the regulatory supervision and 

independent research into the potential risk for discrimination would 

involve additional costs for lenders.52 These potential costs included 

information system integration, employee training, and compliance costs. 

A requirement that lenders collect and publicly report such personal 

characteristic data likely would need to be accompanied by a requirement 

that they provide underwriting data to better inform assessments of their 

lending practices. However, because certain types of nonmortgage 

lending, such as small business lending, generally are more complicated 

than mortgage lending, the amount of underwriting data that would need 

to be reported to allow for informed assessments likely would be 

comparatively higher as would the associated reporting costs. Similar to 

the options for expanding HMDA data, several options could facilitate 

depository institution regulators’ efforts to assess the potential risk for 

discrimination in nonmortgage lending while mitigating potential lender 

costs. In particular, lenders could be required to collect such data for 

certain types of loans, such as small business loans, and make the data 

available to depository institution regulators rather than publicly report it. 

 

52A Federal Reserve official said that it has the authority under ECOA to require lenders to 

collect personal characteristic data for nonmortgage loans but may not have the authority 

to require the public reporting of such information. 

Page 27 GAO-09-704 Fair Lending
 

Lenders that may represent heightened risks of fair lending violations are 

subject to relatively less comprehensive federal review of their activities 

than other lenders. Specifically, the Federal Reserve’s annual analysis of 

HMDA pricing data and other information suggest that independent 

lenders and nonbank subsidiaries of holding companies are more likely 

than depository institutions to engage in mortgage pricing discrimination. 

While depository institutions may represent relatively less risk of fair 

lending violations, they generally are subject to a comprehensive oversight 

program. Specifically, depository institution regulators conduct oversight 

examinations of most depository institutions that are identified as outliers 

(more than an estimated 400 such examinations were initiated and largely 

completed based on the 2005 and 2006 HMDA data analysis) and have 

established varying policies to conduct routine fair lending compliance 

oversight of many other depository institutions as well. In contrast, 

enforcement agencies, which have jurisdiction over independent lenders 

have conducted relatively few investigations of such lenders that have 

been identified as outliers over the past several years (for example, HUD 

and FTC have initiated 22 such investigations since 2005). HUD and FTC 

also generally do not conduct fair lending investigations of independent 

lenders that are not viewed as outliers. While the Federal Reserve can 

conduct outlier examinations of nonbank subsidiaries as it does for statechartered depository institutions under its jurisdiction, it lacks clear 

authority to conduct routine consumer compliance, including fair lending, 

examinations of such nonbank lenders as it does for state member banks. 

To some degree, these differences reflect differences between the 

missions of enforcement agencies and depository institution regulators, as 

well as resource considerations. They also illustrate critical deficiencies in 

the fragmented U.S. financial regulatory structure, which is divided among 

multiple federal and state agencies.53 In particular, the current regulatory 

structure does not ensure that independent lenders and nonbank 

subsidiaries receive the same level of oversight as other financial 

institutions. As we have stated previously, congressional action to reform 

the financial regulatory system is needed and could, among a range of 

benefits, help to ensure more comprehensive and consistent fair lending 

oversight. 

Lenders That May 

Pose Relatively 

Greater Risks of 

Violating Fair Lending 

Laws Generally Are 

Subject to Less 

Comprehensive 

Federal Oversight 

Due to the 

Fragmented 

Regulatory Structure 

and Other Factors 

 

53The U.S. Supreme Court recently upheld the states’ right to enforce state fair-lending laws 

against National Banks, which are under the supervision of the OCC. Cuomo v. Clearing 

House Ass’n, L.L.C., 557 U.S.___, No. 08-453, 2009 WL 1835148 (June 29, 2009). 

Page 28 GAO-09-704 Fair Lending
 

Federal Reserve’s Annual 

HMDA Analysis and Other 

Information Suggest That 

Independent Mortgage 

Lenders and Nonbank 

Subsidiaries of Holding 

Companies Pose Relatively 

Heightened Risks of 

Potential Fair Lending Law 

Violations 

Based on the Federal Reserve’s annual screening lists, independent 

mortgage lenders represent relatively heightened risks of fair lending law 

violations than federally insured depository institutions (see table 4). On 

the basis of 2004–2007 HMDA data, the Federal Reserve annually identified 

on average 116 independent mortgage lenders through its pricing screens, 

which represent about 6 percent of all independent mortgage lenders that 

file HMDA data. In contrast, the Federal Reserve identified on average 118 

depository institutions as outliers during the same period, which 

represented less than 2 percent of depository institutions that file HMDA 

data. 

Table 4: Annual Numbers of HMDA Filers Identified by the Federal Reserve Screens as a Percentage of Total HMDA-filing 

Lenders, by Lender Type, 2004-2007 

2004 2005 2006 2007 

Independent mortgage lenders (HUD, FTC, and DOJ) 

Number of HMDA-filing lenders 1,860 1,923 2,004 1,752 

Number of filers identified by Federal Reserve screens (outliers) 104 138 128 94 

Percentage of lenders identified as outliers 5.6 7.2 6.4 5.4 

Depository lenders (FDIC, Federal Reserve, NCUA, OCC, and OTS) 

Number of HMDA-filing lenders 6,993 6,925 6,882 6,858 

Number of filers identified by Federal Reserve screens (outliers) 90 130 132 121

Percentage of lenders identified as outliers 1.3 1.9 1.9 1.8 

Source: Federal Reserve Bulletin. 

Notes: All federally insured or regulated banks, credit unions, and savings associations with total 

assets exceeding $39 million (in 2009) with a home or branch office in an MSA and that originated, 

during the preceding calendar year, at least one home purchase loan or refinancing secured by a first 

lien on a one- to four-family dwelling are required to file HMDA data. 

The number of lenders represents only those institutions that were required to file HMDA reports. The 

number of lenders identified through the Federal Reserve screens is not totaled for 2004–2007, as 

some lenders may appear on multiple lists and summing outliers would involve double counting. In 

addition, the Federal Reserve sends the same list of independent mortgage lenders to HUD, FTC, 

and DOJ because they are the agencies with jurisdiction over these lenders. 

Independent mortgage lenders and nonbank subsidiaries of holding 

companies have been a source of significant concern and controversy for 

fair lending advocates in recent years. As we reported in 2007, 14 of the 

top 25 originators of subprime and Alt-A mortgages were independent 

mortgage lenders, and they accounted for 44 percent of such 

Page 29 GAO-09-704 Fair Lending
 

originations.54 Similarly, we found that 7 of the 25 largest originators of 

subprime and Alt-A mortgages in 2007 (accounting for 37 percent of 

originations) were nonbank subsidiaries of bank and savings and loan

holding companies. The remaining four originators were depository 

institution lenders. We also reported that many such high-cost, and 

potentially heightened-risk mortgages, appear to have been made to 

borrowers with limited or poor credit histories and subsequently resulted

in significant foreclosure rates for such borrowers. In a 2007 report, we 

found that the market share of subprime lending had grown dramatically

among minority and other borrowers and at the expense of the marke

mortgage loans insured by the Federal Housing Administration.

t for 

epository institution regulators oversee fair lending compliance through 

r 

 of a 

iolators 

eneral 

 

55

D

targeted examinations of institutions that are identified as outliers through

screening HMDA data or routine examinations of the institutions under 

compliance or safety and soundness examination programs. A key 

objective of the depository institution regulators’ fair lending outlie

examinations, which generally are to take place within 12–18 months

lender being placed on such a list, is to determine if initial indications of 

heightened fair lending risk warrant further review and potential 

administrative or enforcement action, which can serve to punish v

and deter violations by other lenders. To assess lender compliance, each 

of the depository institution regulators is to follow the Interagency Fair 

Lending Examination Procedures, which were established jointly by the

depository institution regulators in 1999.56 While the interagency fair 

lending procedures are intended to be flexible to meet the specific 

requirements of each depository institution regulator, they contain g

Fair Lending

Depository Institution 

g 

s 

Regulators Conduct 

Targeted Fair Lendin

Examinations of Most 

Institutions Identified a

Outliers as Well as Other 

Lenders through the 

Routine Examination

Process 

54GAO-08-78R. Alt-A mortgages generally serve borrowers whose credit histories are close 

to prime, but the loans often have one or more higher-risk features such as limited 

documentation of income or assets. 

55See GAO, Federal Housing Administration: Decline in the Agency’s Market Share Was 

Associated with Product and Process Developments of Other Market Participants, 

GAO-07-645 (Washington, D.C.: June 29, 2007). 

56The Interagency Fair Lending Examination Procedures are currently being updated. 

Page 30 GAO-09-704 
 

procedures to be included in examinations, according to officials.57

Specifically, under the guidelines, examiners are to request information 

from each lender about its underwriting and pricing policies and 

procedures, the types of loan products offered, and the degree of loan 

officer discretion in making underwriting and pricing decisions. The 

depository institution regulators also assess the accuracy of the lender’s 

HMDA data and request loan underwriting and pricing data. The 

depository institution regulators also interview lending officials to ensure 

they properly understand the policies and procedures and discuss any 

remaining discrepancies that have been identified between mortgage 

applicants and borrowers of different ethnicity, race, or sex. The 

examiners also generally review lender files to assess potential 

discrepancies, particularly when disparities in the data persist after 

accounting for underwriting variables. Finally, examiners may review the 

lender’s marketing efforts to check for fair lending violations and assess 

the lender’s fair lending compliance monitoring procedures and training 

programs to ensure that efforts are sufficient for ensuring compliance with 

fair lending laws. 

Our reviews of completed fair lending outlier examinations indicated 

general agency compliance with established policies and procedures. 

Based on our file review, we estimate that the depository institution 

regulators initiated and largely completed more than 400 examinations of 

lenders that were identified as outliers on the basis of their analysis of 

2005 and 2006 HMDA data. The combined outlier lists for each HMDA data 

 

57The examination procedures generally include guidelines to set the scope and intensity of 

an examination by identifying all potential focal points or risk factors that appear 

worthwhile to examine. Activities include understanding credit operations and evaluating 

the potential for discriminatory conduct, and examination procedures, which assess the 

institution’s fair lending performance by applying the appropriate procedures that follow 

each of the examination focal points already selected during scoping. The appropriate 

procedures include (1) documenting overt evidence of disparate treatment, such as written 

policy, oral statements, or unwritten practice; (2) analyzing transactional underwriting for 

residential, consumer, and commercial loans to test for disparities in loan approvals and 

denials; (3) analyzing potential disparities in terms and conditions, such as rates, fees, 

maturity variations, LTVs, and collateral requirements to test for pricing disparities; (4) 

analyzing the potential for steering, redlining, and discriminatory marketing practices; 

(5) analyzing the lender’s credit scoring model, if used; (6) and analyzing the potential for 

disparate impact, which is the potential that a seemingly neutral business or lending policy 

has a disproportionate and adverse effect on targeted groups. 

Page 31 GAO-09-704 Fair Lending
 

year contained more than 200 lenders.58 Furthermore, our analysis of 

examination files generally identified documentation that showed that 

depository institution regulators followed key procedures in the 

interagency fair lending guidance, including reviewing underwriting 

policies, incorporating underwriting data into analysis, and conducting 

interviews with the lending institution officials. While we identified 

documentation of these key elements, our review did not include an 

analysis of the depository institution regulators’ effectiveness in 

identifying potentially heightened risks for fair lending law violations. 

However, our review identified certain differences and, in some cases, 

limitations in the depository institution regulators’ fair lending 

examination programs, which are discussed in the next section. 

Depository institution regulators also have established varying policies to 

help ensure that many lenders not identified through HMDA screening 

routinely undergo compliance examinations, which may include fair 

lending components. Such routine examinations may be critical because 

HMDA data analysis may not detect all potentially heightened risks for 

violations, and many smaller lenders are not required to file HMDA data. 

For example, FDIC, Federal Reserve, and OTS officials said they have 

policies to conduct on-site examinations of lenders for consumer 

compliance, including fair lending examinations, generally every 12–36 

months, primarily depending on the size of the lender and the lender’s 

previous examination results. Moreover, FDIC, Federal Reserve, and OTS 

officials said they conduct a fair lending examination in conjunction with 

every scheduled compliance examination. OCC selects a sample of all 

lenders—including those that are not required to file HMDA data—for 

targeted fair lending examinations. OCC officials said its examiners then 

conduct a more in-depth fair lending examination on these randomly 

selected institutions, which averages about 30 institutions per year. NCUA 

generally conducts fair lending examinations on a risk basis, as described 

later in this report, and generally does not conduct routine fair lending 

examinations of credit unions that are not viewed as representing 

potentially heightened risks. 

 

58This estimation of more than 400 outlier examinations is based on the fact that FDIC, 

OTS, and the Federal Reserve generally were able to provide the requested documentation 

for all institutions identified on their 2005 and 2006 outlier lists. As previously mentioned, 

we reviewed a sample of examinations from OCC and NCUA. Both OCC and NCUA 

generally were able to provide documentation of examinations for institutions selected in 

our sample; however, we faced certain challenges in assessing OCC’s documentation, 

which are explained in the following section. 

Page 32 GAO-09-704 Fair Lending
 

While depository institution regulators may identify potentially heightened 

risks for fair lending violations through their outlier and routine 

examinations, ECOA requires that they refer all cases for which they have 

a reason to believe that a pattern or practice of discrimination has 

occurred to DOJ for further investigation and potential enforcement. 

Moreover, depository institution regulators must provide notice to HUD 

whenever they have a reason to believe that a FHA and ECOA violation 

has occurred and the matter has not been referred to DOJ as a potential 

pattern or practice violation of ECOA.59 Therefore, depository institution 

regulators generally do not have to devote the time and resources 

necessary to determine whether the federal government should pursue 

litigation against depository institutions and, if so, conduct such litigation 

as this is the responsibility of the enforcement agencies. However, 

depository institution regulators may pursue other actions against lenders 

for fair lending violations through their administrative authorities 

including monetary penalties, cease and desist orders to remedy the 

institution’s systems, policies and procedures, restitution to obtain 

reimbursement and remedies for harmed consumers and order additional 

ameliorative measures including creating community or financial literacy 

programs to assist consumers. 

Limited Mission Focus and 

Resource Levels May Help 

Explain Breadth of Depository 

Institution Regulators Fair 

Lending Oversight Programs 

Depository institution regulators also may have large examination staffs 

and other personnel to carry out fair lending oversight. At the depository 

institution regulators, fair lending oversight generally is housed in offices 

that are responsible for oversight of a variety of consumer compliance 

laws and regulations, and the CRA, in addition to the fair lending laws. 

While ensuring compliance with these laws is challenging as there may be 

thousands of depository institutions under the jurisdiction of each 

depository institution regulator, regulators typically have hundreds of 

examiners to carry out these responsibilities. Moreover, the Federal 

Reserve, FDIC, OCC, and OTS also employ economists and statisticians to 

assist in fair lending oversight. NCUA officials said that the agency does 

not employ statisticians. However, all of the depository institution 

regulators have attorneys who are involved in supporting fair lending 

oversight and other consumer law compliance activities. 

 

59The depository institution regulator also must inform the loan applicant of its notice to 

HUD and of the remedies available under FHA. In addition, pursuant to a memorandum of 

understanding between HUD and the depository institution regulators, the regulators 

provide HUD a copy of any complaint they receive that appears to allege a violation of FHA 

against an institution within their respective jurisdictions. 

Page 33 GAO-09-704 Fair Lending
 

While independent lenders and nonbank subsidiaries of holding 

companies may represent higher fair lending risks than depository 

institutions, federal reviews of their activities are limited. According to 

HUD and FTC officials, since 2005, the agencies have initiated a combined 

22 investigations of independent mortgage lenders for potentially 

heightened risks for fair lending violations.60 FTC opened more than half, 

13, of these investigations in 2009, and these investigations currently are in 

the initial stages. DOJ has also opened several such investigations, as well 

as conducting investigations of nonbank subsidiaries of bank holding 

companies and savings and loan holding companies based on referrals 

from the depository regulators. Therefore, the enforcement agencies have 

not conducted investigations, in many cases, where the Federal Reserve’s 

initial analysis of HMDA data suggests statistically significant mortgage 

pricing disparities between minority and nonminority borrowers. As 

discussed previously, the Federal Reserve has identified on average 116 

independent lenders annually for mortgage pricing disparities based on its 

analysis of HMDA data since 2005. While DOJ, HUD and FTC may 

independently analyze HMDA data to identify lenders that they view as 

representing the highest risks, and targeting their investigations 

accordingly, as discussed previously, in the absence of underwriting data 

the agencies cannot be assured that other lenders with statistically 

significant differences in mortgage pricing for minority and nonminority 

borrowers are in compliance with the fair lending laws. HUD and FTC also 

generally do not initiate investigations of independent lenders that are not 

viewed as outliers. According to FTC officials, such investigations are not 

initiated largely due to resource limitations, which are discussed below. 

Therefore, unlike most depository institution regulators, enforcement 

agencies do not assess the fair lending compliance of independent lenders 

through routine oversight. 

Federal Reviews of 

Independent Lenders and 

Nonbank Subsidiaries of 

Holding Companies Are 

Limited 

Once DOJ, HUD or FTC identify a particular lender as potentially having 

violated fair lending laws, their initial investigative efforts generally 

resemble those of depository institution regulators’ outlier examinations. 

For example, DOJ, HUD and FTC officials said they request that such 

lenders provide loan underwriting policies and procedures, information on 

the types of loan products offered, and information on the extent to which 

 

60For HUD, this number includes six investigations opened since 2005. HUD also initiated a 

fair lending investigation of a regulated depository institution, but this is not included in the 

group of 22 because the case did not involve an independent mortgage lender. For FTC, 

this number includes 16 investigations, 3 of which were closed, settled, or had a complaint 

filed since December 2008, and 13 of which were opened in 2009. 

Page 34 GAO-09-704 Fair Lending
 

loan officers have discretion over loan approvals and denials or the pricing 

terms (interest rates or fees) at which an approved loan will be offered.61

According to agency officials, if loan officers have substantial discretion 

under lender policies, the risk of discriminatory lending decisions is 

higher.62 DOJ, HUD and FTC officials also may request raw HMDA data 

from lenders and test their accuracy and request loan underwriting or 

overage data. With this information, DOJ, HUD and FTC officials said they 

conduct additional statistical analysis to help determine if initial 

disparities based on ethnicity, race, or sex can be explained by 

underwriting information. DOJ, HUD and FTC officials also may determine 

if the lender internally monitors fair lending compliance and interview 

representatives of the lending institution.63 Finally, DOJ, HUD and FTC 

may review loan files. In such reviews, investigators generally try to 

identify, frequently through statistical analysis, similarly situated 

applicants and borrowers of different ethnicity, race, or sex to determine if 

there was any discrimination in the lending process. On the basis of their 

investigations, HUD DOJ, and FTC determine if sufficient evidence exists 

to file complaints against the lenders, subject to such investigations, and 

pursue such litigation where deemed appropriate. 

Enforcement agencies also have established efforts to coordinate their 

activities and prioritize investigations of independent lenders and other 

institutions, as necessary. For example, enforcement agency officials said 

that they meet periodically to discuss investigations and have shared 

information derived from investigations. According to DOJ, the agency, 

FTC and HUD also have a working group that meets on a bimonthly basis 

to discuss HMDA pricing investigations on nonbank lenders and to discuss 

 

61As discussed later, many lenders may allow their loan originators discretion in setting the 

price of a mortgage, which has been the basis of nearly all DOJ, HUD, and FTC fair lending 

enforcement actions relating to the pricing of mortgages. 

62According to FTC, there are two ways to separate the discretionary price of a mortgage 

from the risk-based price of a mortgage: (1) by obtaining underwriting data and then using 

statistical or analytic techniques to compare the total price of the loan (such as the annual 

percentage rate data reported under HMDA) across borrowers with similar underwriting 

characteristics or (2) by directly evaluating the discretionary price of the loan—a data 

point that, as discussed later, agency officials report that many but not all lenders maintain. 

63See prepared statement of FTC, Home Mortgage Disclosure Act Data and FTC Lending 

Enforcement, before the House Committee on Financial Services Subcommittee on 

Oversight and Investigations (Washington, D.C.: Jul. 25, 2007). See also, prepared statement 

of DOJ, Rooting Out Discrimination in Mortgage Lending: Using HMDA as a Tool for 

Fair Lending Enforcement, before the House Committee on Financial Services, 

Subcommittee on Oversight and Investigations, (Washington, D.C.: Jul. 25, 2007). 

Page 35 GAO-09-704 Fair Lending
 

issues common to the three enforcement agencies in their shared 

oversight of nonbank lenders. 

The differences in the enforcement agencies’ capacity to pursue potential 

risks for violating the fair lending laws, relative to the depository 

institution regulators, results in part from resource considerations. For 

example, in a 2004 report, we assessed federal and state efforts to combat 

predatory lending (practices including deception, fraud, or manipulation 

that a mortgage broker or lender may use to make a loan with terms that 

are disadvantageous to the borrower), which can have negative effects 

similar to fair lending violations.64 We questioned the extent to which FTC, 

as a federal enforcer of consumer protection laws for nonbank 

subsidiaries, had the capacity to do so. We stated that FTC’s mission and 

resource allocations were focused on conducting investigations in 

response to consumer complaints and other information rather than on 

routine monitoring and examination responsibilities. 

Resource Considerations May 

Limit Enforcement Agencies 

Fair Lending Oversight 

Activities 

Our current work also indicates that resource considerations may affect 

the relative capacity of enforcement agencies to conduct fair lending 

oversight. For example, at HUD, responsibility for conducting such 

investigations lies with the Fair Lending Division in the Office of Systemic 

Investigations (OSI) in its Office of Fair Housing and Equal Opportunity 

that was established in 2007. OSI currently has eight staff—including four 

equal opportunity specialists and two economists. At FTC and DOJ, the 

units responsible for fair lending oversight each have fewer than 50 staff, 

and have a range of additional consumer protection law responsibilities. 

FTC’s Division of Financial Practices (DFP) has 39 staff, including 27 line 

attorneys, and is responsible for fair lending enforcement as well as the 

many other consumer protection laws in the financial services arena, such 

as the Fair Debt Collection Practices Act and Section 5 of the FTC Act, 

which generally prohibits unfair or deceptive acts or practices.65 In 

addition, economists and research analysts from FTC’s Bureau of 

Economics assist in DFP investigations, particularly with data analysis. At 

DOJ, the unit responsible for fair lending investigations, the Housing and 

Civil Enforcement Section, includes 38 staff attorneys with a range of 

 

64GAO, Consumer Protection: Federal and State Agencies Face Challenges in Combating 

Predatory Lending, GAO-04-280 (Washington, D.C., Jan. 30, 2004). 

65Pub. L. No. 90-321, title VIII, as added Pub. L. No. 95-109, 91 Stat. 874 (1977), codified at 

15 U.S.C. §§ 1692-1692p; Pub. L. No. 63-203, ch. 311, 38 Stat. 717(1914), codified at 15 U.S.C. 

§§ 41-58. 

Page 36 GAO-09-704 Fair Lending
 

enforcement responsibilities, including enforcing laws against 

discrimination in rental housing, insurance, land use, and zoning, as well 

as two economists and one mathematical statistician. 

In the President’s proposed budget for fiscal year 2010, he requested 

additional resources for fair lending oversight. For example, HUD’s 

proposed budget includes $4 million for additional staff to address abusive 

and fraudulent mortgage practices and increase enforcement of mortgage 

and home purchase settlement requirements. This budget request would 

increase staffing for HUD’s Office of Fair Housing and Equal Opportunity 

to expand fair lending efforts and for the Office of General Counsel to 

handle increased fair lending and mortgage fraud enforcement among 

other initiatives. Further, the budget request includes an additional $1.3 

million to fund increases for DOJ’s Housing and Civil Enforcement 

Section’s fair housing and fair lending enforcement, including five 

additional attorney positions. In its fiscal year 2010 budget request, FTC 

requested nine additional full-time equivalent staff for financial services 

consumer protection law enforcement, which officials noted include fair 

lending. 

While the nonbank subsidiaries of bank holding companies also may pose 

heightened risks of fair lending violations, the Federal Reserve has 

interpreted its authority under the Bank Holding Company Act, as 

amended by the Gramm-Leach Bliley Act, as limiting its examination 

authority of such entities compared with the examination authority that it 

and other depository institution regulators conduct oversight of 

depository institutions.66 The Federal Reserve interprets its authority as 

The Federal Reserve’s 

Oversight Authority for the 

Nonbank Subsidiaries of Bank 

Holding Companies is Limited 

 

66Ch. 240, 70 Stat. 133, as amended by Pub.L. No. 106-102 Stat.1338 (1999), codified at 12 

U.S.C. §§ 1841–1850. Under 12 U.S.C. § 1844(c)(2)(A)(i)-(ii), the Federal Reserve may 

examine bank holding companies and subsidiaries (including nonbank subsidiaries) to 

determine the nature of their operations, their financial condition, risks that may pose a 

threat to the safety and soundness of a depository institution subsidiary and the systems of 

monitoring and controlling such risks. In addition, the Federal Reserve may examine a 

bank holding company or subsidiary (including a nonbank subsidiary) to monitor 

compliance with any federal law that the Federal Reserve has specific jurisdiction to 

enforce against the bank holding company or subsidiary and those laws governing 

transactions and relationships between any depository institution subsidiary and its 

affiliates. See 12 U.S.C. § 1844(c)(2)(A)(iii). ECOA provides the Federal Reserve with 

specific enforcement authority against bank holding companies and their nonbank 

subsidiaries. See 15 U.S.C. § 1691c(b). However, FHA does not have a similar enforcement 

provision. The Federal Reserve interprets the language in section 1844 about monitoring 

compliance with federal law as providing it with limited examination authority of nonbank 

subsidiaries because it generally must have specific authority to enforce a consumer 

protection law in order to examine a nonbank subsidiary for compliance with the law. 

Page 37 GAO-09-704 Fair Lending
 

permitting it to conduct consumer compliance oversight of nonbank 

subsidiaries when there is evidence of potentially heightened risks for 

violations, such as through annual analysis of HMDA data or other sources 

of information such as previous examinations or consumer complaints. 

However, pursuant to a 1998 policy, Federal Reserve examiners are 

prohibited from conducting routine consumer compliance examinations of 

nonbank subsidiaries. According to FTC, while the agency also has 

authority over nonbank subsidiaries, its capacity to oversee them is 

limited due to resource limitations as discussed earlier. Due to the risks 

associated with nonbank subsidiaries, in 2004, we suggested that Congress 

consider (1) providing the Federal Reserve with the authority to routinely 

monitor and, as necessary, examine nonbank subsidiaries of bank holding 

companies to ensure compliance with federal consumer protection laws 

and (2) giving the Federal Reserve specific authority to initiate 

enforcement actions under those laws against these nonbank 

subsidiaries.67

While Congress has not yet acted on our 2004 suggestion, Federal Reserve 

officials said that they have implemented a variety of steps within their 

authority to strengthen consumer compliance supervision, including fair 

lending supervision of nonbank subsidiaries since our 2004 report. In 

particular, they said the Federal Reserve created a unit in 2006 dedicated 

to consumer compliance issues associated with large, complex banking 

organizations, including their nonbank subsidiaries. In addition, Federal 

Reserve officials said examiners are to conduct consumer compliance risk 

assessments of nonbank subsidiaries in addition to their supervisory 

responsibilities for bank holding companies. Based on these risk 

assessments, the officials said examiners may conduct a targeted 

examination on a case-by-case basis. Furthermore, when a nonbank 

subsidiary has been identified as a potential outlier, Federal Reserve 

officials said similar to oversight practices for state member banks, they 

assess the entity for risk of pricing discrimination and may conduct 

additional statistical pricing reviews through the use of HMDA data and 

other information to better understand its potential risks. During such 

reviews, Federal Reserve officials said that examiners closely review the 

lender’s policies and procedures and with the approval of the Director of 

Consumer Compliance also may conduct loan file reviews if there is 

potential evidence of a fair lending violation. Federal Reserve officials said 

 

67GAO-04-280. 

Page 38 GAO-09-704 Fair Lending
 

that they have referred one nonbank subsidiary for pricing discrimination 

to DOJ in recent years. 

We also note that in 2007 the Federal Reserve began a pilot program with 

OTS, FTC, and state banking agencies to monitor the activities of nonbank 

subsidiaries of bank and savings and loan holding companies. OTS has 

jurisdiction over savings and loan holding companies and any of their 

nonbank subsidiaries.68 During the pilot program, agency officials said that 

they conducted coordinated consumer compliance reviews of several 

nonbank subsidiaries and related entities, such as mortgage brokers that 

may be regulated at the state level, to assess their compliance with various 

federal and state consumer protection laws, including fair lending laws. 

According to the Federal Reserve, OTS, and FTC officials, they recently 

completed their reviews of the pilot study and are evaluating how the 

results might be used to better ensure consumer compliance, including fair 

lending oversight, of nonbank subsidiaries. 

While the Federal Reserve’s process for reviewing nonbank subsidiaries 

identified as potentially posing fair lending risks and the pilot study are 

important steps, its lack of clear authority to conduct routine 

examinations of nonbank subsidiaries for compliance with all consumer 

protection laws appears to be significant. Given the limitations in HMDA 

data described in this report, agency screening programs may have limited 

success in detecting fair lending violations. According to a Federal 

Reserve official, many potential violations of the fair lending laws and 

subsequent referrals of state-chartered banks are identified through 

routine examinations rather than the outlier examination process. Without 

clear authority to conduct similar routine examinations of nonbank 

subsidiaries for their fair lending compliance, the Federal Reserve may not 

be in a position to identify as many potential risks for fair lending 

 

68OTS conducts routine risk-focused examinations on each consolidated holding company 

structure. 12 U.S.C. § 1467a(b)(4) states in pertinent part that “[e]ach savings and loan 

holding company and each subsidiary thereof (other than a bank) shall be subject to such 

examinations as the Director [of OTS] may prescribe.” This appears to be broad 

examination authority as compared with the Federal Reserve’s limited authority to 

examine bank holding company subsidiaries. According to OTS, the level of review of a 

nonthrift subsidiary is determined on a case-by-case basis depending on a variety of 

factors, including the type of activities, the size or materiality of the subsidiary in relation 

to the consolidated structure, the role of functional depository institution regulators, and 

financial performance. OTS does not routinely conduct stand-alone examinations of 

nonthrift subsidiaries as it does of thrift institutions, which are examined every 12–18 

months. 

Page 39 GAO-09-704 Fair Lending
 

violations at such entities as it does through the routine examinations of 

state member banks. 

Limitations in Fair Lending 

Oversight of Independent 

Lenders and Nonbank 

Subsidiaries Also Reflect 

the Fragmented 

Regulatory Structure 

The relatively limited fair lending oversight of independent lenders and 

nonbank subsidiaries reflect the fragmented and outdated U.S. financial 

regulatory system.69 As described in our previous work, the U.S. financial 

regulatory structure, which is divided among multiple federal and state 

agencies, evolved over 150 years largely in response to crises, rather than 

through deliberative legislative decision-making processes. The resulting 

fragmented financial regulatory system has resulted in significant gaps in 

federal oversight of financial institutions that represent significant risks. In 

particular and consistent with our discussion about fair lending oversight, 

federal depository institution regulators lacked clear and sufficient 

authority to oversee independent and nonbank lenders. Congress and the 

administration currently are considering a range of proposals to revise the 

current fragmented financial regulatory system. 

In our January 2009 report, we stated that reforms urgently were needed 

and identified a framework for crafting and evaluating regulatory reform 

proposals that consisted of characteristics that should be reflected in any 

new regulatory system.70 These characteristics include 

• clearly defined and relevant regulatory goals— to ensure that depository 

institution regulators effectively can carry out their missions and be held 

accountable; 

• a systemwide focus—for identifying, monitoring, and managing risks to 

the financial system regardless of the source of the risk; 

• consistent consumer and investor protection—to ensure that market 

participants receive consistent, useful information, as well as legal 

protections; and 

 

69GAO, Financial Regulation: A Framework for Crafting and Assessing Proposals to 

Modernize the Outdated U.S. Financial Regulatory System, GAO-09-216 (Washington, 

D.C.: Jan. 8, 2009) and GAO, Large Bank Mergers: Fair Lending Review Could be 

Enhanced with Better Coordination, GAO/GGD-00-16 (Washington, D.C.: Nov. 3, 1999). 

70GAO-09-216. 

Page 40 GAO-09-704 Fair Lending
 

• consistent financial oversight—so that similar institutions, products, risks, 

and services are subject to consistent regulation, oversight, and 

enforcement. 

Any regulatory reform efforts, consistent with these characteristics, 

should include an evaluation of ways in which to ensure that all lenders, 

including independent lenders and nonbank subsidiaries, will be subject to 

similar regulatory and oversight treatment for safety and soundness and 

consumer protection, including fair lending laws. In the absence of such 

reforms, oversight and enforcement of fair lending laws will continue to be 

inconsistent. 

Although depository institution regulators’ initial activities to assess 

evidence of potentially heightened risks for fair lending violations 

generally have been more comprehensive than those of enforcement 

agencies, their oversight programs also face challenges that are in part 

linked to the fragmented regulatory structure. While depository institution 

regulators have taken several steps to coordinate their fair lending 

oversight activities where appropriate, the effects of these efforts have 

been unclear. Each depository institution regulator uses a different 

approach to screen HMDA data and other information to identify outliers, 

and the management of their outlier examination programs and the 

documentation of such examinations varied. For example, FDIC, Federal 

Reserve, and OTS described centralized approaches to managing their 

outlier programs while NCUA’s and OCC’s management approaches were 

more decentralized. In contrast to other depository institution regulators, 

OCC’s outlier examination documentation standards and practices were 

limited, although the agency recently has taken steps to improve such 

documentation. Finally, depository institutions under the jurisdiction of 

FDIC, Federal Reserve, and OTS were far more likely to be subject to 

referrals to DOJ for potentially being at heightened risk for fair lending 

violations than those under the jurisdiction of NCUA and OCC. These 

differing approaches raise questions about the consistency and 

effectiveness of the depository institution regulators’ collective fair 

lending oversight efforts, which are likely to persist so long as the 

fragmented regulatory structure remains in place. 

Differences in the 

Depository Institution 

Regulators’ Fair 

Lending Oversight 

Programs Also 

Highlight Challenges 

Associated with a 

Fragmented 

Regulatory System 

Page 41 GAO-09-704 Fair Lending
 

Given the current fragmented structure of the federal regulatory system, 

we have stated that collaboration among agencies that share common 

responsibilities is essential to ensuring consistent and effective 

supervisory practices.71 Such collaboration can take place through various 

means including developing clear and common outcomes for relevant 

programs, establishing common policies and procedures, and developing 

mechanisms to monitor and evaluate collaborative efforts. In keeping with 

the need for effective collaboration, depository institution regulators as 

well as enforcement agencies have taken several steps to establish 

common policies and procedures and share information about their fair 

lending oversight programs. These steps include the following: 

Depository Institution 

Regulators Have 

Coordinated Fair Lending 

Examination Procedures 

and Used an Interagency 

Task Force and Other 

Forums to Discuss 

Oversight Programs 

• Since 1994, depository institution regulators and enforcement agency 

officials have participated in an Interagency Fair Lending Task Force. The 

task force was established to develop a coordinated approach to address 

discrimination in lending and adopted a policy statement in 1994 on how 

federal regulatory and enforcement agencies were to conduct oversight 

and enforce the fair lending laws. Federal officials said that the task force, 

which currently meets on a bimonthly basis, continues to allow depository 

institution regulators and enforcement agencies to exchange information 

on a range of common issues, informally discuss fair lending policy, and 

confer about current trends or challenges in fair lending oversight and 

enforcement. For example, officials said that depository institution 

regulators and enforcement agencies may discuss how they generally 

approach fair lending issues, such as outlier screening processes. 

According to depository institution regulators, because the task force is 

viewed as an informal information-sharing body, it has not produced any 

reports on federal fair lending oversight and no meeting minutes are kept. 

Moreover, officials said that economists from the depository institution 

regulators contact each other separately from the task force to discuss 

issues including their screening processes for high-risk lenders and 

emerging risks. According to FDIC, attorneys from different agencies also 

contact each other about specific legal issues and share relevant research. 

DOJ officials indicated that they regularly discuss with attorneys from the 

depository institution regulators, HUD and FTC specific legal issues. 

• As discussed previously, in 1999, the depository institution regulators 

jointly developed interagency fair lending procedures. According to 

 

71GAO, Financial Market Regulation: Agencies Engaged in Consolidated Supervision 

Can Strengthen Performance Measurement and Collaboration, GAO-07-154 (Washington, 

D.C.: Mar. 15, 2007). 

Page 42 GAO-09-704 Fair Lending
 

depository institution regulatory officials, they are in the process of 

revising and updating the procedures through the Federal Financial 

Institutions Examination Council Consumer Compliance Task Force.72

They expect the updated examination guidelines to be finalized and 

adopted in 2009 with potential enhancements to pricing, applicant 

steering, mortgage broker, and redlining sections of the guidance. 

Differences in Depository 

Institution Regulators’ Fair 

Lending Oversight 

Programs include 

Screening Approaches, 

Examination Management 

and Documentation, and 

Referral Practices 

While depository institution regulators have taken a number of actions to 

collaborate on their fair lending oversight efforts, challenges remain in 

ensuring consistent application of oversight and treatment of lenders. In 

the Department of the Treasury’s recent report on the financial regulatory 

structure, it stated that the fragmented regulatory structure for fair lending 

oversight and other consumer protection laws creates several critical 

challenges.73 In particular, the report stated that the fragmented structure 

makes coordination of supervisory policies difficult and slows responses 

to emerging consumer protection threats. In our work, we also identified 

key differences in the depository institution regulators’ fair lending 

oversight approaches, which indicate that the division of responsibility 

among multiple depository institution regulators results in inconsistent 

oversight processes as described below: 

While the Federal Reserve annually reviews HMDA data to identify lenders 

at potentially heightened risk for fair lending violations related to 

mortgage pricing disparities, each depository institution regulator uses its 

own approach to identify potential outliers. Specifically, 

• FDIC and Federal Reserve examination officials generally develop their 

own outlier lists on the basis of statistically significant pricing disparities. 

FDIC and the Federal Reserve’s approaches differ from one another and 

from the Federal Reserve’s annual mortgage pricing outlier list that is 

distributed to all agencies. FDIC officials said that the agency’s approach 

to developing its pricing outlier list is geared toward the smaller statechartered banks that primarily are under its jurisdiction. Federal Reserve 

officials said they supplement the annual mortgage pricing outlier list for 

lenders under their jurisdiction with additional information. For example, 

Approaches to Screening 

HMDA Data and Other 

Information to Identify Fair 

Lending Outliers Varied among 

the Depository Institution 

Regulators 

 

72The council is an interagency body charged with promoting uniformity in examination 

procedures and processes in the supervision of financial institutions. See 12 U.S.C. §§ 3301 

to 3311. 

73See Department of the Treasury, Financial Regulatory Reform: A New Foundation: 

Rebuilding Financial Supervision and Regulation (June 2009). 

Page 43 GAO-09-704 Fair Lending
 

the officials said this information includes assessments of the discretion 

and financial incentives that loan officers have to make mortgage pricing 

decisions, the lenders’ business models, and past supervisory findings. As 

we discussed earlier, both FDIC and the Federal Reserve noted that they 

also screen HMDA data and other information to assess other risk factors, 

such as redlining. However, such screening is done in conjunction with 

their routine examination processes rather than their outlier examination 

processes. 

• In contrast, OCC and OTS generally consider a broader range of potential 

risk factors beyond pricing disparities in developing their annual outlier 

lists. According to OCC officials, in addition to the Federal Reserve’s 

outlier list and OCC’s independent analysis of mortgage pricing disparities, 

it also conducts screening relating to approval and denial decisions, terms 

and conditions, redlining and marketing. Similarly, OTS officials said they 

use other risk factors, such as mortgage loan approval and denial 

decisions, redlining and steering, beyond mortgage pricing disparities, in 

developing their outlier lists. 

• NCUA does not currently conduct independent assessments of HMDA data 

as it does not have any statisticians to do so, according to an agency 

official. Instead, NCUA officials said that the agency prioritizes fair lending 

examinations based on several factors, which include the Federal 

Reserve’s annual pricing screening list, complaint data, safety and 

soundness examination findings, discussion with regional officials, and 

budget factors. Over the past several years, NCUA has conducted 

approximately 25 fair lending examinations each year, and these 

examinations are generally divided equally among its five regional offices. 

NCUA’s Inspector General reported in 2008 that analytical efforts for 

identifying discrimination in lending were limited, but the agency was 

developing analyses to screen for potential discriminatory lending 

patterns, which were expected to be operational in 2009.74

There may be a basis for depository institution regulators to develop fair 

lending outlier screening processes that are suited towards the specific 

types of lenders under their jurisdiction. Nevertheless, the use of six 

different approaches among the five depository institution regulators (the 

Federal Reserve’s annual analysis plus the unique approach at each 

regulator) to assess the same basic data source raises questions about 

 

74See National Credit Union Administration, Office of the Inspector General, Home 

Mortgage Disclosure Act Data Analysis Review, OIG-08-09 (Washington, D.C.: Nov. 7, 

2008). 

Page 44 GAO-09-704 Fair Lending
 

duplication of effort and the inefficient use of limited oversight resources. 

In this regard, we note that OCC’s independent analysis of HMDA data in 

2007 identified twice as many national banks and other lenders under its 

jurisdiction with mortgage pricing disparities as the Federal Reserve did in 

its mortgage pricing analysis of lenders under OCC’s jurisdiction. With a 

continued division of fair lending oversight responsibility among multiple 

depository institution regulators, opportunities to develop a coordinated 

approach to defining and identifying outliers and better prioritize oversight 

resources may not be realized. 

The depository institution regulators differed in the extent to which they 

centrally manage examination processes, documentation, and reporting. 

FDIC, the Federal Reserve, and OTS officials described a more centralized 

(headquarters-driven) approach to ensuring that outlier examinations are 

initiated and necessary activities carried out. Headquarters officials from 

these agencies described approaches they used to ensure that fair lending 

examiners and other staff in regional and district offices conduct outlier 

examinations, document examination findings and recommendations, and 

follow up on recommendations. In addition to running the HMDA data 

outlier screening programs, FDIC, the Federal Reserve and OTS officials 

said that they held ongoing meetings with headquarters and district staff to 

discuss outlier examinations and their findings. FDIC officials said that the 

agency has developed a process for conducting reviews of completed 

outlier and routine examinations to assess if the agency is consistently 

complying with the interagency fair lending examination procedures. 

Officials from FDIC, the Federal Reserve, and OTS also said that 

headquarters staffs were involved in conducting legal and other analyses 

needed to determine if a referral should be made to DOJ for a potential 

pattern or practice violation. 

Management of the Fair 

Lending Examination 

Processes and Documentation 

Quality Varied 

FDIC, OTS, and the Federal Reserve have developed fair lending 

examination documentation and reporting standards and practices 

designed to facilitate the centralized management of their outlier 

programs. Such examination documentation and reporting standards 

generally are consistent with federal internal control policies that require 

that agencies ensure that relevant, reliable, and timely information be 

Page 45 GAO-09-704 Fair Lending
 

readily available for management decision-making and external reporting 

purposes.75 For example, 

• FDIC staff generally prepare summary memorandums that describe 

critical aspects of outlier examinations. These memorandums discuss 

when examinations were initiated and conducted; the initial focal point 

(such as mortgage interest rate disparities in conventional loans between 

African-American and non-Hispanic white borrowers) identified through 

HMDA data analysis; the methodologies used to assess if additional 

evidence of potential lending discrimination existed for each focal 

point(s); and any findings or recommendations. According to an FDIC 

headquarters official, FDIC headquarters manage the outlier reviews in 

collaboration with regional and field office staff. In addition to the outlier 

reviews, summary documents are reviewed on an ongoing basis to monitor 

the nationwide implementation of the fair lending examination program 

and allow the agency to assess the extent to which lenders are 

implementing examination recommendations. Additionally, in 2007, FDIC 

required that examiners complete a standardized fair lending scope and 

summary memorandum to help ensure implementation of a consistent 

approach to documenting fair lending reviews. 

• OTS also generally requires its examiners to prepare similar summary 

documentation of outlier examinations, which agency officials said are 

used to help manage the nationwide implementation of their outlier 

examination programs. 

• The Federal Reserve has developed management reports, which track 

major findings of outlier examinations and potentially heightened risks for 

violations of the fair lending laws and referrals to DOJ, to ensure that fair 

lending laws are consistently enforced and examiners receive appropriate 

legal and statistical guidance.76 Federal Reserve officials said that the 

Reserve Banks generally maintain documentation of the outlier 

examinations in paper or electronic form; however, electronic versions of 

examination reports generally are available at the headquarters level. 

 

75In November 1999, we issued an overall framework for establishing and maintaining 

internal control in the federal government, and identifying and addressing major 

performance and management challenges and areas at greatest risk of fraud, waste, abuse, 

and mismanagement. See GAO, Standards for Internal Control in the Federal 

Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999). 

76The Federal Reserve System consists of the Board of Governors and 12 districts, each 

with a Federal Reserve Bank that is responsible for day-to-day examination activities of 

banks and bank holding companies. 

Page 46 GAO-09-704 Fair Lending
 

While NCUA and OCC officials also indicated that headquarters staff 

performed critical functions, such as HMDA data screening or developing 

policies for conducting fair lending examinations, they generally described 

more decentralized approaches to managing their outlier examination 

programs. For example, OCC officials said that the agency’s supervisory 

offices are responsible for ensuring that examinations are initiated on 

time, key findings are documented, and recommendations are 

implemented.77 Among other responsibilities, OCC headquarters staff 

provide overall policy and supervisory direction, develop appropriate 

responses to emerging fair lending issues, and provide ongoing assistance 

to field examiners as needed, and assist in determining whether referrals 

or notifications to other agencies are necessary or appropriate. OCC also 

conducts quality assurance reviews, which included an audit of fair 

lending examinations at large banks, which was completed in 2007. NCUA 

officials said that headquarters staff are involved in managing the selection 

of the approximately 25 fair lending examinations that are conducted each 

year, but regional staff play a significant role in selecting credit unions for 

examination on a risk basis. NCUA officials said that they do not routinely 

monitor regional compliance with the interagency fair lending 

examination procedures as this is largely the responsibility of regional 

officials. However, NCUA’s staff at their central office would randomly 

review a select number of the fair lending examinations that are sent from 

the regional offices to ensure compliance with established procedures. 

NCUA’s examination files generally included a single summary document 

that described scope, key findings, and recommendations made, if any, 

which facilitated our review. 

However, due to OCC’s approach to documenting outlier examinations, we 

faced certain challenges in assessing the agency’s compliance with its 

examination schedules and procedures for the period we reviewed. For 

example, OCC was unable to verify when outlier examinations were 

 

77Starting with the screening lists for the 2006 HMDA data, mid-size community bank 

examiners have been advised that they should complete fair lending examinations within 

approximately 1 year of receiving the screening lists from headquarters, although OCC 

acknowledges that some examinations presenting complex issues may not be completed 

within this time frame. For large banks, the screening lists are incorporated into ongoing 

fair lending supervision activities. Because of the continuous nature of supervisory 

activities for large banks, examinations may be completed even before the screening lists 

are issued by headquarters staff. In some instances involving highly complex 

examinations, the examination may take more than a year to complete. 

Page 47 GAO-09-704 Fair Lending
 

started for most of their large banks.78 OCC officials told us that part of the 

reason for this was because OCC conducts continuous supervision of large 

banks, and the database for large banks does not contain a field for 

examination start and end dates. Also, the documentation of outlier 

examination methodologies and findings and recommendations was not 

readily available or necessarily summarized in memorandums for 

management’s review. Rather, a variety of examination materials 

contained critical items and retrieving such documentation from relevant 

information systems was time consuming. In 8 of the 27 OCC outlier 

examinations we reviewed, the documentation did not identify 

examination activities undertaken to assess lenders’ fair lending 

compliance as being part of the outlier examination program. 

In 2007, an OCC internal evaluation of its large bank fair lending program 

found that key aspects of the agency’s risk-assessment process, such as its 

methodology, data analysis, and meetings with bank management were 

not well documented. However, the report also found that OCC fair 

lending examinations of large banks generally followed key interagency 

examination procedures and that adequate documentation supported the 

conclusions reached. The evaluation recommended that OCC develop a 

common methodology to assess fair lending risk and better documentation 

standards, which the agency is in the process of implemeting. In May 2009, 

OCC officials told us that they recently had taken steps to improve the 

ability to retrieve data from their documentation system. For example, for 

their database for midsize and community banks, OCC added a keyword 

search function to identify key information, such as the HMDA outlier year 

on which the examination was based. However, it is too soon to tell what 

effects these changes will have on OCC’s fair lending examination 

documentation standards and practices. Unless these changes begin to 

address documentation limitations that we and OCC’s internal evaluation 

identified, OCC management’s capacity to monitor the implementation, 

consistency and reporting of the agency’s fair lending examination 

program will be limited. 

There are significant differences in the practices that the depository 

institution regulators employ to make referrals to DOJ and in the number 

of referrals they made. In response to a previous GAO recommendation, 

Depository Institution 

Regulators Referral Practices 

Vary 

 

78OCC took approximately 10 weeks to provide us examination start dates for its midsize 

and community banks before they implemented the keyword search function for its 

database at the time of our request. 

Page 48 GAO-09-704 Fair Lending
 

DOJ provided guidance to the federal depository institution regulators on 

pattern or practice referrals in 1996.79 The DOJ memorandum identified 

criteria for determining if an ECOA violation identified in a depository 

institution regulatory referral is appropriate for DOJ’s further investigation 

for potential legal action or returned to the referring agency for 

administrative resolution. These criteria include the potential for harm to 

members of a protected class, the likelihood that the practice will 

continue, if the practice identified was a technical violation, if the harmed 

members can be fully compensated without court action, and the potential 

impact of federal court action, including the payment of damages to deter 

other lenders engaged in similar practices. Moreover, DOJ officials told us 

that they encourage depository institution regulators to consult with them 

on potential referrals. 

While DOJ has issued long-standing guidance on referrals, depository 

institution regulatory officials indicated that different approaches may be 

used to determine if initial indications of potential risks for fair lending 

violations identified through HMDA screening warranted further 

investigation or referral to DOJ. For example, OCC and OTS officials said 

that they considered a range of data and information and conducted 

analyses before making a referral to DOJ. According to agency officials, 

this information might include statistical analysis of HMDA and loan 

underwriting data, reviews of policies and procedures, and on-site loan file 

reviews. OCC and OTS officials said that staff routinely conduct such file 

reviews as one of several approaches to assessing a lender’s fair lending 

compliance and likely would not refer a case without conducting such 

reviews. In contrast, while FDIC and the Federal Reserve may also 

conduct file reviews to extract data and/or confirm an institution’s 

electronic data, officials said that statistical analyses of HMDA and 

underwriting and pricing data could and have served as the primary basis 

for concluding that lenders may have engaged in a pattern or practice 

violation of ECOA and as the basis for making referrals to DOJ. NCUA 

generally relies on on-site examinations and loan file reviews to reach 

conclusions about lender compliance with the fair lending laws and, as 

mentioned earlier, does not conduct independent statistical reviews of 

credit unions’ HMDA data. OCC officials said referrals for potential fair 

lending violations are not insignificant matters, either for the lender or 

DOJ, and they have established processes to ensure that any such referrals 

are warranted. 

 

79GAO/GGD-96-145. 

Page 49 GAO-09-704 Fair Lending
 

As shown in figure 2, the number of referrals varied by depository 

institution regulator. FDIC accounted for 91 of the 118 referrals (77 

percent) that depository institution regulators made to DOJ from 2005 

through 2008. In contrast, OCC made one referral during this period and 

NCUA none. OCC officials said that since 2005 their examiners have 

identified technical violations of the fair lending laws and weaknesses in 

controls that warranted attention of bank management, but that the 

identification of potential pattern or practice violations was “infrequent.” 

NCUA officials said their examiners had reported technical violations but 

had not identified any pattern or practice violations, and thus made no 

referrals to DOJ. 

Figure 2: Fair Lending Referrals to DOJ, by Depository Institution Regulator, 2005–

2008

Source: GAO analysis of DOJ data.

FDIC

Referrals by agency

Number of regulated entities (as of date)

NCUA OCC OTS

Federal

Reserve

All

regulators

2005

2006

2007

2008

Total

35

29

15

12

91

5,068 (12/31/08) 878 (12/31/07)

2

5

9

3

19

7,809 (12/31/08)

0

0

0

0

0

1,641 (3/31/09)

0

0

0

1

1

1,308 (6/30/08)

 0

0

3

4

7

37

34

27

20

118

Note: The numbers of referrals in the table include not only those based on outlier examinations but 

also those based on deficiencies that depository institution regulators identified through routine 

consumer compliance examinations during calendar years 2005–2008. 

From 2005 to 2008, we found that about half of the referrals that the 

depository institution regulators made resulted from marital status-related 

violations of ECOA—such violations can include lender policies that 

require spousal guarantees on loan applications. FDIC accounted for 

about 82 percent of such referrals (see fig. 3). DOJ officials said they 

generally returned such referrals to the depository institution regulators 

Page 50 GAO-09-704 Fair Lending
 

for administrative or other resolution.80 The one institution that OCC 

referred to DOJ in 2008 involved a marital status violation, which DOJ 

subsequently returned to OCC for administrative resolution. resolution. 

Figure 3: Percentage of Referrals to DOJ for Marital Status Discrimination in 

Violation of ECOA versus Other Fair Lending Referrals, 2005–2008

0

20

40

60

80

100

2005 2006 2007 2008

Percentage

Year (Total referrals)

All other referrals (57; 48.3%)

Marital status discrimination referrals (61; 51.7%)

FDIC portion of marital discrimination referrals (50; 82.0%)

Source: GAO analysis of DOJ data.

(37) (34) (27) (20)

43.2%

(16)

56.8%

(21)

90.5%

(19)

FDIC

only

85.7%

(12)

FDIC

only

73.3%

(11)

FDIC

only

72.7%

(8)

FDIC

only

58.8%

(20)

41.2%

(14)

44.4%

(12)

55.6%

(15)

45.0%

(9)

55.0%

(11)

Total referrals: 118

Note: Referrals to DOJ for marital discrimination in violation of ECOA includes all referrals that relate 

to marital status concerns, such as spousal guarantee, and all violations pertaining to marital status. 

While marital status referrals accounted for a significant percentage of all 

referrals, FDIC, OTS, and the Federal Reserve, through outlier and routine 

examinations, have identified potential pattern or practice violations in 

 

80FDIC noted that DOJ does not opine on a matter when a matter is deferred to the 

depository institution regulator for administrative enforcement. Specifically, DOJ does not 

make its own determination of whether there was discrimination or whether there was a 

pattern or practice warranting the referral. The deferral of a matter is simply an agreement 

that the depository institution regulator is in a better position to resolve the violation 

through administrative measures. 

Page 51 GAO-09-704 Fair Lending
 

other key areas (see table 5). Specifically, in the 110 outlier examinations 

that we reviewed that were conducted by these three depository 

institution regulators, the regulators identified potential pattern or 

practice violations based on statistically significant pricing disparities in 

11 cases, or 10 percent of the examinations, and referred the cases to 

DOJ.81 DOJ indicated that several of these referrals had been returned to 

the depository institution regulators for administrative enforcement, while 

the remaining referrals are still in DOJ’s investigative process. 

Table 5: Number and Percentage of Pattern or Practice Referrals to DOJ Related to Mortgage Pricing Disparities Identified by 

Selected depository institution Regulators in the Outlier Examinations GAO Reviewed, Based on HDMA Years 2005 and 2006 

Data 

Number of outlier 

examinations 

reviewed 

Number of examinations reviewed 

in which potential pattern or 

practice violations related to 

mortgage pricing were identified 

and referred to DOJa

Percentage of reviewed 

examinations in which potential 

pattern or practice violation 

related to mortgage pricing were 

identified and referred to DOJ

FDIC 38 4 11 

Federal Reserve 32 3b 9

OTS 40 4c10

Total 110 11 10

Source: GAO. 

Note: The numbers in this table are based on HMDA year, not calendar year. 

a

The number of pattern or practice referrals related to mortgage pricing disparities in this table is 

solely based on the number of fair lending outlier examinations and associated documentation that 

GAO reviewed. These numbers reflect referrals that GAO identified as of June 2009. The actual 

number of referrals to DOJ may be higher since some fair lending examinations are ongoing and may 

result in more referrals. 

b

DOJ considered two of the Federal Reserve referrals as one because the two referrals were sent to 

DOJ in one referral document. 

c

In addition, OTS referred one lender to HUD, and not to DOJ because a pattern or practice of 

discriminatory lending could not be established. As the institution’s lending practices violated OTS 

nondiscrimination regulations and FHA as well as ECOA, OTS referred the institution to HUD. 

While it is difficult to fully assess the reasons for the differences in 

referrals and outlier examination findings across the depository institution 

regulators without additional analysis, they raise important questions 

 

81In our review of fair lending outlier examination files, we also identified cases in which 

depository institution regulators referred institutions to DOJ on the basis of other factors 

not related to mortgage pricing disparities, such as steering or policies of discrimination in 

automobile lending. 

Page 52 GAO-09-704 Fair Lending
 

about the consistency of fair lending oversight. In particular, depository 

institutions under the jurisdiction of OTS, FDIC, and the Federal Reserve 

appear to be far more likely to be the subject of fair lending referrals to 

DOJ and potential investigations and litigation than those under the 

jurisdiction of OCC and NCUA. Under the fragmented regulatory structure, 

differences across the depository institution regulators in terms of their 

determination of what constitutes an appropriate referral as well as fair 

lending examination findings are likely to persist. 

Enforcement agency litigation involving the fair lending laws has been 

limited in comparison with the number of lenders identified through 

analyses of HMDA data and other information. For example, since 2005, 

DOJ and FTC have reached settlements in eight cases involving alleged 

fair lending violations while HUD has not yet reached any settlements. 

Among other factors, resource considerations may account for the limited 

amount of litigation involving potential fair lending violations. Federal 

officials also identified other challenges to fair lending oversight and 

enforcement, including a complex and time-consuming investigative 

process, difficulties in recruiting legal and economic staff with fair lending 

expertise, and ECOA’s 2-year statute of limitations for civil actions 

initiated by DOJ under its own authority or on the basis of referrals from 

depository institution regulators. 

Enforcement 

Agencies Have Filed 

and Settled a Limited 

Number of Fair 

Lending Cases in 

Recent Years; Certain 

Challenges May Affect 

Enforcement Efforts 

Overview of HUD and FTC 

Fair Lending Law 

Enforcement Activities 

According to HUD officials, the department has filed two Secretaryinitiated complaints against lenders alleging discrimination in their lending 

practices. The officials said that HUD is currently considering whether, 

pursuant to FHA, to issue Charges of Discrimination in administrative 

court in these two matters. If HUD decides to issue such charges in 

administrative court, any party may elect to litigate the case instead in 

federal district court, in which case DOJ assumes responsibility from HUD 

for pursuing litigation. 

Since 2005, FTC under its statutory authority has filed complaints against 

two mortgage lenders in federal district court for potential discriminatory 

practices and has settled one of these complaints while the other one is 

Page 53 GAO-09-704 Fair Lending
 

pending.82 FTC’s settlement dated December 17, 2008, with Gateway 

Funding Diversified Mortgage Services, L.P. (Gateway) and related entities 

provides an example of potential fair lending law violations and insights 

into federal enforcement activities. FTC filed a complaint against Gateway 

on the basis of an alleged ECOA pricing violation that originated in prime, 

subprime, and government loans such as FHA-insured mortgage loans. 

According to FTC, Gateway’s policy and practice of allowing loan officers 

to charge discretionary overages that included higher interest rates and 

higher up-front charges resulted in African-Americans and Hispanics being 

charged higher prices because of their race or ethnicity. FTC alleged that 

the price disparities were substantial, statistically significant, and could 

not be explained by factors related to underwriting risk or credit 

characteristics of the mortgage applicants. Under the terms of the 

settlement, Gateway agreed to pay $2.9 million in equitable monetary relief 

for consumer redress ($2.7 million of which was suspended due to the 

company’s inability to pay); establish a fair lending monitoring program 

specifically designed to detect and remedy fair lending issues; and 

establish, implement, operate, and maintain a fair lending training program 

for employees.83

The limited litigation involving potential fair lending violations reflects the 

limited number of investigations these agencies have initiated since 2005. 

From 2005 through 2009, HUD and FTC, as discussed previously, initiated 

22 investigations of independent lenders at potentially heightened risk for 

fair lending law violations. Resource constraints may affect their capacity 

to file and settle fair lending related complaints. For example, FTC 

officials said that most of their staff who work on fair lending issues were 

dedicated to pursing the litigation associated with the three investigations 

that the agency opened from 2005 through 2008.84As two of these three 

investigations have now been settled or concluded, additional staff 

 

82FTC Press Release, “Mortgage Lender Agrees to Settle FTC Charges That It Charged 

African-Americans and Hispanics Higher Prices for Loans” (December 16, 2008). 

http://www.ftc.gov/opa/2008/12/gateway.shtm. FTC Press Release, “FTC Alleges That 

Mortgage Lender Charged Hispanics Higher Prices for Loans” (May 11, 2009). 

http://www.ftc.gov/opa/2009/05/gem.shtm. 

83FTC v. Gateway Funding Diversified Mortgage Services, L.P., No. 08-5805 (E.D. Pa., 

2008). The defendants in this case did not admit liability for any of the matters alleged in 

the complaint. 

84As discussed previously, FTC reached a settlement in one of these investigations and filed 

a suit in federal court against another lender in May 2009. According to FTC, it concluded 

an investigation against another lender due to its deteriorated financial condition. 

Page 54 GAO-09-704 Fair Lending
 

resources are available to pursue evidence of potential violations at other 

lenders under the agency’s jurisdiction. 

Overview of DOJ Fair 

Lending Enforcement 

Activities 

Since 2005, DOJ has filed complaints and settled complaints in seven cases 

involving potential violations of the fair lending laws (see table 6). These 

cases involved allegations of racial and national origin discrimination, 

sexual harassment against female borrowers, and discrimination based on 

marital status in the areas of loan pricing and underwriting, and redlining. 

One of these settlements—United States. v. First Lowndes Bank, Inc—

involved an allegation that a lender had engaged in mortgage pricing 

discrimination, which has been the basis of several depository institution 

regulators’ referrals in recent years.85

Table 6: DOJ Settled Enforcement Cases Involving Fair Lending Violations, from 2005 through May 2009 

Year 

settled Name of case Basis of complaint 

Source of 

case Outcome 

2008 United States v. First 

Lowndes Bank, Inc., 

No. 2:08-cv-798-WKWCSC (M.D. Al., 2008). 

(residential lending) 

Race and pricing: The complaint alleged 

that the bank engaged in a pattern or 

practice of discriminating against AfricanAmerican customers by charging them 

higher interest rates on manufactured 

housing loans than similarly situated white 

customers, in violation of FHA and ECOA. 

Referral from 

FDIC based 

on 2004 

HMDA pricing 

data 

Settlement reached. The defendant 

agreed to pay up to $185,000, plus 

interest, to compensate African-American 

borrowers who may have been charged 

higher interest rates. 

The bank denied the allegations in the 

settlement documents and there was no 

factual finding or adjudication for any 

matter alleged. 

2008 United States v. 

Nationwide Nevada, 

LLC, No. 2:08-cv01309 (D. Nev., 2008). 

(automobile lending) 

Redlining: The complaint alleged that 

Nationwide Nevada and its general 

partner NAC Management, Inc., engaged 

in a pattern or practice of discrimination by 

refusing to purchase contracts from 

automobile dealers when they believed 

that the applicant or co-applicant lived on 

an Indian reservation, in violation of 

ECOA. 

Independent 

authority 

Settlement reached. The defendant 

agreed to pay $170,000 plus interest to 

compensate loan applicants who may 

have suffered as a result of the 

defendants alleged failure to comply with 

the ECOA. 

The defendants denied that they 

engaged in any discrimination and 

specifically denied that they violated 

ECOA or Regulation B. 

 

85No. 2:08-cv-798-WKW-CSC (M.D. Al., 2008). 

Page 55 GAO-09-704 Fair Lending
 

Year 

settled Name of case Basis of complaint 

Source of 

case Outcome 

2007 United States v. First 

Nat’l Bank of Pontotoc, 

No. 3:06cv061-M-D 

(N.D. Miss., 2007) 

(residential and 

consumer lending)a

Sexual harassment: The lawsuit alleged 

that a former bank vice president engaged 

in a pattern or practice of sexual 

harassment against female borrowers and 

applicants for credit in violation (consumer 

or residential lending) of FHA and ECOA. 

Independent 

authority 

Settlement reached. The defendants 

agreed to pay $250,000 to 15 identified 

victims, and $50,000 to the United States 

as a civil penalty. The defendants also 

agreed to pay up to $50,000 to any 

additional victims. Bank employees are 

required to receive training on the 

prohibition of sexual harassment under 

federal fair lending laws. The agreement 

also requires the bank to implement both 

a sexual harassment policy and a 

procedure by which an individual may file 

a sexual harassment complaint against 

any employee or agent of the First 

National Bank of Pontotoc. 

Defendants denied that they violated 

FHA or ECOA. 

2007 United States v. 

Pacifico Ford, Inc., 

(E.D. Pa. 2007) 

(automobile lending) 

Race and pricing: Alleges that the car 

dealership violated ECOA by engaging in 

a pattern or practice of discriminating 

against African-American customers by 

charging them higher dealer markups on 

car loan interest rates than similarly 

situated non-African-American customers. 

Independent 

authority/ 

initiated 

jointly with 

Pennsylvania 

Attorney 

General 

Settlement reached. Defendant agreed to 

pay up to $363,166, plus interest, to 

African-American customers who were 

charged higher interest rates. In addition, 

the dealership will implement changes in 

the way it sets markups, including 

guidelines to ensure that the dealership 

follows the same procedures for setting 

markups for all customers, and that only 

good faith, competitive factors consistent 

with ECOA influence that process. The 

dealership also will provide enhanced 

equal credit opportunity training to 

officers and employees who set rates for 

automobile loans. 

Defendants denied violating the ECOA or 

engaging in any discriminatory practices 

against African-Americans or any other 

consumers. 

Page 56 GAO-09-704 Fair Lending
 

Year 

settled Name of case Basis of complaint 

Source of 

case Outcome 

2007 United States v. 

Springfield Ford, Inc., 

(E.D. Pa. 2007) 

(automobile lending) 

Race and pricing: Complaint alleges that 

the car dealership violated ECOA by 

engaging in a pattern or practice of 

discriminating against African-American 

customers by charging them higher dealer 

markups on car loan interest rates than 

similarly situated non-African-American 

customers 

Independent 

authority/ 

initiated 

jointly with 

Pennsylvania 

Attorney 

General 

Settlement reached. Defendant agreed to 

pay up to $94,564, plus interest, to 

African American customers who were 

charged higher interest rates. In addition, 

the dealership will implement changes in 

the way it sets markups, including 

guidelines to ensure that the dealership 

follows the same procedures for setting 

markups for all customers, and that only 

good faith, competitive factors consistent 

with ECOA influence that process. The 

dealership also will provide enhanced 

equal credit opportunity training to 

officers and employees who set rates for 

automobile loans. 

Defendants denied violating the ECOA or 

engaging in any discriminatory practices 

against African-Americans or any other 

consumers. 

2007 United States v. 

Compass Bank, No. 

07-H-0102-S (N.D. Al., 

2007) 

(automobile lending) 

Marital status: Complaint alleges that 

Compass Bank violated ECOA by 

engaging in a pattern or practice of 

discrimination on the basis of marital 

status in thousands of automobile loans 

that it made through hundreds of different 

car dealerships in the South and 

Southwest between May 2001 and May 

2003. 

Referral from 

the Federal 

Reserve 

Settlement reached. Defendant agreed to 

pay up to $75 million to persons who 

may have suffered as a result of the 

alleged violations. The consent order 

also requires the bank to ensure that its 

underwriting guidelines and procedures 

do not discriminate on the basis of 

marital status and to implement fair 

lending training programs for its 

employees. 

The defendant denied the allegations. 

2006 United States v. 

Centier Bank, No. 

2:06-CV-344 (N.D. Ind. 

2006) 

(business and 

residential lending) 

Redlining: Complaint alleges that Centier 

Bank violated FHA and ECOA by 

unlawfully avoiding and refusing to provide 

its business and residential lending 

products and services to predominately 

African-American and Hispanic 

neighborhoods while making services 

available to white areas. 

Independent 

authority 

Settlement reached. Defendant agreed to 

open two new full-service branch offices 

in majority-minority census tracts; 

expand an existing supermarket office in 

a majority Hispanic census tract into a 

full-service branch; invest $3.5 million in 

a special financing program for residents 

and small businesses in the minority 

communities of the Gary, Indiana, area; 

invest at least $500,000 for consumer 

education and credit counseling 

programs; and spend at least $375,000 

to advertise its products in media 

targeted to minority communities. 

The bank denied it engaged in 

discrimination or that it violated FHA or 

ECOA. 

Source: GAO summary of DOJ data. 

Page 57 GAO-09-704 Fair Lending
 

Note: This list includes only cases that were settled by DOJ from January 2005 through May 2009. It 

does not include cases referred by depository institution regulators during their reviews based on 

2005 and 2006 HMDA data that remain open or were returned to the depository institution regulators 

for administrative action. 

a

See also In the Matter of William W. Anderson, Jr., OCC No. AA-EC-09-22 (2009). 

According to DOJ officials, the enforcement actions for mortgage lending 

result both from investigations that were initiated under the department’s 

independent authority and from referrals from depository institution 

regulators. As shown in table 6, five of the seven fair lending cases settled 

were initiated under DOJ’s independent investigative authority; one was 

based on a referral from FDIC, and one from the Federal Reserve. 

However, DOJ officials said that there are investigations based on other 

referrals from depository institution regulators that are ongoing, including 

one case in pre-suit negotiations based on a referral from the Federal 

Reserve and another case that arose from a FDIC referral. 

Officials Cited Several 

Challenges in Conducting 

Fair Lending Investigations 

and Initiating Enforcement 

Actions 

According to officials from federal enforcement agencies, investigations 

involving allegations of fair lending violations can be complex and timeconsuming. For example, DOJ officials said that if the department decided 

to pursue an investigation based on a referral from a depository institution 

regulator, such an investigation may be broader than the information 

contained in a typical referral. DOJ officials said that referrals typically 

were based on a single examination, which may cover a limited period 

(such as potential discrimination based on an analysis of HMDA data for a 

particular year). They also pointed out that the standard for referral to 

DOJ for the depository institution regulators is “reason to believe” that a 

discriminatory practice is occurring.86 DOJ officials said that to determine 

if a referred pattern or practice of discrimination warrants federal court 

litigation, they may request additional HMDA and underwriting data for 

additional years and analyze them. Furthermore, they said that lenders 

often hire law firms that specialize in fair lending to assist the lender in its 

response to the department’s investigation. DOJ officials said that these 

firms may conduct their own analysis of the HMDA and underwriting and 

pricing data and, as part of the investigation process, offer their views 

about why any apparent disparities may be explained. Depending on the 

circumstances, this process can be lengthy. According to a 2008 report by 

 

86As previously stated, ECOA requires these agencies to refer matters to DOJ when there is 

“reason to believe that 1 or more creditors has engaged in a pattern or practice of 

discouraging or denying applications for credit in violation of ECOA” 15 U.S.C. § 1691e(g). 

Page 58 GAO-09-704 Fair Lending
 

FDIC’s Inspector General, fair lending referrals that are not sent back to 

the referring agency for further review may be at DOJ for years before 

they are resolved.87 Additionally, HUD officials said that their initial 

investigations into evidence of potential fair lending violations may detect 

additional evidence of discrimination that also must be collected and 

reviewed. 

According to officials from an enforcement agency and available research, 

another challenge that complicates fair lending investigations involves 

lending discrimination based on disparate impact, which we also raised as 

an enforcement challenge in our 1996 report.88 As discussed in the 

Interagency Policy Statement on Discrimination in Lending, issued in 1994, 

fair lending violations may include allegations of disparate treatment or 

disparate impact.89 It is illegal for a lender to treat borrowers from 

protected classes differently, such as intentionally charging 

disproportionately higher interest rates based on race, sex, or national 

origin that are not related to creditworthiness or other legitimate 

considerations. It also is illegal for a lender to maintain a facially neutral 

policy or practice that has a disproportionately adverse effect on members 

of a protected group for which there is no business necessity that could 

not be met by a less discriminatory alternative. For example, a lender 

might have a blanket prohibition on originating loans below a certain 

dollar threshold because smaller loans might be more appealing to 

borrowers with limited financial resources and therefore represent higher 

default risks. While such a policy might help protect a lender against credit 

losses, it also could affect minority borrowers disproportionately. 

Furthermore, alternatives other than a blanket prohibition might mitigate 

potential losses, such as reviewing applicant credit data. It may be difficult 

for enforcement agencies or depository institution regulators to evaluate 

lender claims that they have a business necessity for particular policies 

and identify viable alternatives that would not have a disparate impact on 

targeted groups. However, an official from the Federal Reserve told us that 

 

87Federal Deposit Insurance Corporation, Office of the Inspector General, , Enforcement 

Actions for Compliance Violations at FDIC-Supervised Institutions (Washington, D.C.: 

December 2008). 

88GAO/GGD-96-145. See Stephen Ross and John Yinger, “Uncovering Discrimination: A 

Comparison of the Methods Used by Scholars and Civil Rights Enforcement Officials,” 

American Law and Economics Review 8, no. 3 (Fall 2006). 

89Policy Statement on Discrimination in Lending, 59 Fed. Reg. 18,266, 18,268 (Apr. 15, 

1994). 

Page 59 GAO-09-704 Fair Lending
 

the potential for disparate impact can be assessed through its examination 

and other oversight processes. The official said the Federal Reserve has 

evaluated lenders’ policies to assess the potential disparate impact and has 

referred at least one lender to DOJ based on the disparate impact theory. 

DOJ and FTC officials also said that recruiting and retaining staff with 

specialized expertise in fair lending laws can be challenging. Both DOJ and 

FTC officials said that recruiting attorneys with expertise in fair lending 

investigations and litigation was difficult, and employees who develop 

such expertise may leave for other positions, including at other federal 

depository institution regulators or quasi-governmental agencies that offer 

higher compensation. Additionally, DOJ and FTC officials said that 

recruiting and retaining economists who have expertise in analyzing 

HMDA data and underwriting data to detect potential disparities in 

mortgage lending can be difficult. FTC officials said that due to the recent 

departure of economists to depository institution regulators, the agency 

increasingly relies on outside vendors to provide such economic and 

statistical expertise. 

Finally, some federal enforcement agency and depository institution 

regulators cited ECOA’s statute of limitations as potentially challenging for 

enforcement activities. Currently, ECOA’s statute of limitations for 

referrals to DOJ from the depository institution regulators and for actions 

brought on DOJ’s own authority requires that no legal actions in federal 

court be initiated more than 2 years after the alleged violation occurred.90

According to federal officials, the ECOA statute of limitations may limit 

their activities because HMDA data generally are not available for a year or 

more after a potential lending violation has occurred. Consequently, 

federal agencies and regulators may have less than a year to schedule an 

investigation or examination, collect and review additional HMDA and 

underwriting and pricing data, and pursue other approaches to determine 

if a referral to DOJ would be warranted. According to OTS officials, an 

extension of the statue of limitations beyond its current 2-year period 

would provide valuable additional time to conduct the detailed analyses 

that is necessary in fair lending cases. Accordingly, FDIC has 

recommended that Congress extend ECOA’s statute of limitations to 5 

ECOA’s Statute of Limitations 

May Limit Enforcement 

Activities 

 

90According to FTC, its investigations and enforcement actions are not subject to a statue 

of limitations when enforcing ECOA for equitable injunctive and monetary relief. When 

seeking civil penalties for ECOA violations, FTC is subject to a 5-year statute of limitations 

for those penalties. 28 U.S.C. § 2462. 

Page 60 GAO-09-704 Fair Lending
 

years. DOJ officials noted that they would not be averse to the statute of 

limitations being extended. 

While federal officials said that there are options to manage the challenges 

associated with the ECOA statutes of limitations, these options have 

limitations. For example, some enforcement officials said that ECOA 

violations may also be investigated under FHA, which has longer statutes 

of limitations. Specifically, under FHA, DOJ may bring an FHA action 

based on a pattern or practice or for general public importance within 5 

years for civil penalties and within 3 years for damages; there is no 

limitation period for injunctive relief. However, not all ECOA violations 

necessarily constitute FHA violations as well. Enforcement agency 

officials also said that in some cases they may be able to obtain tolling 

agreements as a means to manage the ECOA and FHA statutes of 

limitations. Tolling agreements are written agreements between 

enforcement agencies, or private litigants, and potential respondents, such 

as lenders subject to investigations or examinations for potential fair 

lending violations, in which the respondent agrees to extend the relevant 

statute of limitations so that investigations and examinations may 

continue. Enforcement agency officials said that lenders often agree to 

tolling agreements and work with the agencies to explain potential fair 

lending law violations, such as disparities in mortgage pricing. The 

officials said that the lenders have an incentive to agree to tolling 

agreements because the enforcement agencies otherwise may file wideranging complaints against them on the basis of available information 

shortly before the relevant statute of limitations expires. However, 

enforcement officials said it is not always possible to obtain lenders’ 

consent to enter into tolling agreements, and our review of fair lending 

examination files confirmed this assessment. We found several instances 

in which depository institution regulators had difficulty obtaining tolling 

agreements. Because federal enforcement efforts to manage ECOA’s 2-

year statute of limitations may not always be successful, the agencies’ 

capacity to thoroughly investigate potential fair lending violations and take 

appropriate corrective action in certain cases may be compromised. 

Federal enforcement agencies and depository institution regulators face 

challenges in consistently, efficiently, and effectively overseeing and 

enforcing fair lending laws due in part to data limitations and the 

fragmented U.S. financial regulatory structure. HMDA data, while useful in 

screening for potentially heightened risks of fair lending violations in 

mortgage lending, are limited because they currently lack the underwriting 

data needed to perform a robust analysis. While requiring lenders to 

Conclusions 

Page 61 GAO-09-704 Fair Lending
 

collect and report such data would impose additional costs on them, 

particularly for smaller institutions, the lack of this information 

compromises the depository institution regulators’ ability to effectively 

and efficiently oversee and enforce fair lending laws. Such data also could 

facilitate independent research into the potential risk for discrimination in 

mortgage lending as well as better inform Congress and the public about 

this critical issue. A variety of options could mitigate costs associated with 

additional HMDA reporting, including limiting the reporting to larger 

lenders or restricting its use for regulatory purposes. While these 

alternatives would limit or restrict additional publicly available 

information on the potential risk for mortgage discrimination compared to 

a general data collection and reporting requirement, these are tradeoffs 

that merit consideration because additional data would facilitate the 

consistent, efficient, and effective oversight and enforcement of fair 

lending laws. 

The limited data available about potentially heightened risks for 

discrimination during the preapplication process also affects federal 

oversight of the fair lending laws for mortgage lending. Currently, 

enforcement agencies and depository institution regulators lack a direct 

and reliable source of data to help determine if lending officials may have 

engaged in discriminatory practices in their initial interactions with 

mortgage loan applicants. While researchers and consumer groups have 

conducted studies using testers that suggest that discrimination does take 

place during the preapplication process and federal officials generally 

agree that testers offer certain benefits, federal officials also have raised 

several concerns about their use. For example, they have questioned the 

costs of using testers and the reliability of data obtained in using them. 

Nevertheless, the lack of a reliable means to assess the potential risk for 

discrimination during the preapplication phase compromises depository 

institution regulators’ capacity to ensure lender compliance with the fair 

lending law in all phases of the mortgage lending process. In this regard, 

FDIC’s possible incorporation of testers into its examination process, 

depository institution regulators’ ongoing efforts to update the interagency 

fair lending examination guidance, or the Interagency Task Force on Fair 

Lending may offer opportunities to identify improved means of assessing 

discrimination in the preapplication phase. Moreover, the potential use of 

consumer surveys as suggested by the Department of the Treasury in its 

recent report on regulatory restructuring may represent another approach 

to assessing the potential risk for discrimination during the preapplication 

phase. 

Page 62 GAO-09-704 Fair Lending
 

Data limitations may have even more significant impacts on depository 

institution regulators’ and enforcement agencies’ capacity to assess fair 

lending risk in nonmortgage lending (such as small business, credit card, 

and automobile lending). Because Federal Reserve Regulation B generally 

prohibits lenders from collecting personal characteristic data for 

nonmortgage loans, agencies generally cannot target lenders for 

investigations or examinations as they can for mortgage loans. 

Consequently, federal agencies have limited tools to investigate potentially 

heightened risks of violations in types of lending that affect most U.S. 

consumers. While depository institution regulators and enforcement 

agencies have tried to develop ways to provide oversight in this area, the 

existing data limitations have affected the focus of oversight and 

enforcement efforts. While requiring lenders to collect and report personal 

characteristic data for nonmortgage loans as well as associated 

underwriting data as may be appropriate raises important cost and 

complexity concerns, the absence of such data represents a critical 

limitation in federal fair lending oversight efforts. 

There also are a number of larger challenges to fair lending oversight and 

enforcement stemming from the fragmented U.S. regulatory structure and 

other factors such as mission focus and resource constraints. Specifically, 

• Independent lenders, which were the predominant originators of subprime 

and other questionable mortgages that often were made to minority 

borrowers in recent years, generally are subject to less comprehensive 

oversight than federally insured depository institutions and represent 

significant fair lending risks. In particular, enforcement agencies do not 

conduct investigations of many independent lenders that are identified as 

outliers through the Federal Reserve’s annual analysis of HMDA data to 

determine if these disparities represent fair lending law violations. The 

potential exists that additional instances of discrimination against 

borrowers could be taking place at such firms without being detected. 

Such limited oversight could undermine enforcement agencies’ efforts to 

deter violations. While depository institution regulators’ outlier 

examinations differ in important respects from enforcement agency 

investigations, depository institution regulators generally conduct 

examinations of all lenders identified as outliers to assess the potential 

risk for discrimination, which likely contributes to efforts at deterrence. 

Moreover, enforcement agencies, unlike most depository institution 

regulators, generally do not initiate fair lending investigations of 

independent lenders on a routine basis that are not viewed as outliers, 

which represents an important gap in fair lending oversight. 

Page 63 GAO-09-704 Fair Lending
 

• The Federal Reserve lacks clear authority to assess fair lending 

compliance by nonbank subsidiaries of bank holding companies, which 

also have originated large numbers of subprime mortgages, in the same 

way that it oversees the activities of state-chartered depository institutions 

under its jurisdiction. The lack of clear authority to conduct routine 

consumer compliance examinations of nonbank subsidiaries is important 

because the Federal Reserve identifies many potential fair lending 

violations at state-chartered banks through such routine examinations. 

Without similar authority for nonbank subsidiaries, the Federal Reserve’s 

capacity to identify potential risks for fair lending violations is limited. 

• Despite the joint interagency fair lending examination guidance and 

various coordination efforts, we also found that having multiple 

depository institution regulators resulted in variations in screening 

techniques, the management of the outlier examination process, 

examination documentation standards, and the number of referrals and 

types of examination findings. While differences in these areas may not be 

unexpected given the varied types of lenders under each depository 

institution regulator’s jurisdiction, these differences raise questions about 

the consistency and effectiveness of regulatory oversight. 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. Our current work did not fully evaluate the reasons 

and effects of identified differences and additional work in this area could 

help provide additional clarity. 

Finally, federal depository institution regulators and enforcement agencies 

also face some challenges associated with the 2-year statute of limitations 

under ECOA applicable to federal district court actions brought by DOJ. 

Because it takes about 6 months for the Federal Reserve to reconcile and 

review HMDA data, depository institution regulators and enforcement 

agencies typically review the HMDA data almost one year after the 

underlying loan decisions occurred, and may have a limited opportunity to 

conduct thorough examinations and investigations in some cases. While 

strategies may be available to manage the ECOA 2-year statute of 

limitations, such as obtaining tolling agreements, they are not always 

effective. Therefore, ECOA’s statute of limitations may work against the 

act’s general objective, which is to penalize and deter lending 

discrimination. 

Page 64 GAO-09-704 Fair Lending
 

To facilitate the capacity of federal enforcement agencies and depository 

institution regulators as well as independent researchers to identify 

lenders that may be engaged in discriminatory practices in violation of the 

fair lending laws, Congress should consider the merits of additional data 

collection and reporting options. 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. 

To help ensure that all potential risks for fair lending violations are 

thoroughly investigated and sufficient time is available to do so, Congress 

should consider extending the statute of limitations on ECOA violations. 

As Congress debates the reform of the financial regulatory system, it also 

should take steps to help ensure that consumers are adequately protected, 

that laws such as the fair lending laws are comprehensive and consistently 

applied, and that oversight is efficient and effective. Any new structure 

should address gaps and inconsistencies in the oversight of independent 

mortgage brokers and nonbank subsidiaries, as well as address the 

potentially inconsistent oversight provided by depository institution 

regulators. 

To help strengthen fair lending oversight and enforcement, we recommend 

that DOJ, FDIC, Federal Reserve, FTC, HUD, NCUA, OCC, and OTS work 

collaboratively to identify approaches to better assess the potential risk 

for discrimination during the preapplication phase of mortgage lending. 

For example, the agencies and depository institution regulators could 

further consider the use of testers, perhaps on a pilot basis, as well as 

surveys of mortgage loan borrowers and applicants or alternative means to 

better assess the potential risk for discrimination during this critical phase 

of the mortgage lending process. 

We provided a draft of this report to the heads of HUD, FTC, DOJ, FDIC, 

the Federal Reserve, NCUA, OCC, and OTS. We received written 

comments from FTC, FDIC, NCUA, the Federal Reserve, OCC, and OTS, 

which are summarized below and reprinted in appendixes III through VIII. 

HUD provided its comments in an e-mail which is summarized below. 

DOJ did not provide written comments. All of the agencies and regulators, 

including DOJ, also provided technical comments, which we incorporated 

into the report where appropriate. We also provided excerpts of the draft 

report to two researchers whose studies we cited to help ensure the 

Matters for 

Congressional 

Consideration 

Recommendation for 

Executive Action 

Agency Comments 

and Our Evaluation 

Page 65 GAO-09-704 Fair Lending
 

accuracy of our analysis. One of the researchers responded and said that 

the draft report accurately described his research, while the other did not 

respond. 

In the written comments provided by FDIC, the Federal Reserve, NCUA, 

OCC, and OTS, they agreed with our recommendation to work 

collaboratively regarding the potential use of testers or other means to 

better assess the risk of discriminatory practices during the premortgage 

loan application process, and generally described their fair lending 

oversight programs and, in some cases, planned enhancements to these 

programs. In particular, the Federal Reserve stated that it would be 

pleased to provide technical assistance to Congress regarding potential 

enhancements to HMDA data to better identify lenders at heightened risk 

of potential fair lending violations and described its existing approaches to 

fair lending oversight, including for the nonbank subsidiaries of bank 

holding companies. Further, the Federal Reserve stated that it is 

developing a framework for increased risk-based supervision for these 

entities. While such enhancements could strengthen the Federal Reserve’s 

oversight of nonbank subsidiaries, the lack of clear authority for it to 

conduct routine examinations continues to be an important limitation in 

fair lending oversight and enforcement. 

OCC also described its fair lending oversight program and planned 

revisions. First, OCC stated that it planned to enhance its procedures by 

formalizing headquarters involvement in the oversight process. For 

example, senior OCC headquarters officials will receive reports on at least 

a quarterly basis on scheduled, pending, and completed fair lending 

examinations to facilitate oversight of the examination process. Second, 

OCC plans to strengthen its fair lending examination documentation 

through, for example, changes in its centralized data systems so that the 

systems contain, in standardized form: relevant examination dates, the risk 

factors that were identified through the screening and other processes for 

each lender, the focal points of the examination, the reasons for any 

differences between the focal points and the areas identified through the 

risk screening processes, and the key findings of the examinations. OCC 

also noted that it (1) plans to expand its “HMDA-plus” pilot program to 

collect underwriting data from large banks at an earlier stage to facilitate 

screening efforts, (2) views working with other regulators to enhance the 

effectiveness and consistency of screening efforts as appropriate, and (3) 

will undertake work with other regulators and DOJ to address variations 

in referral practices. 

Page 66 GAO-09-704 Fair Lending
 

NCUA’s Chairman generally concurred with the draft report’s analysis and 

recommendations and offered additional information. First, the Chairman 

stated that additional study is needed to assess the depository institution 

regulators’ varying referral practices, but that such study should be 

conducted before drawing any conclusions about the effectiveness of 

NCUA’s fair lending oversight. The Chairman stated that NCUA has not 

made any referrals to DOJ because the agency did not identify any 

potential violations during the period covered by the report. Further, the 

Chairman stated NCUA uses the same examination procedures as the 

other depository institution regulators and offered reasons as to why 

violations may not exist at credit unions. For example, the Chairman said 

that credit unions have a specified mission of meeting the credit and 

savings needs of their members, especially persons of modest means (who 

typically are the target of discriminatory actions). We have not evaluated 

the Chairman’s analysis as to why fair lending violations may not exist at 

credit unions, but note that there is a potential for discrimination in any 

credit decision and that all federal agencies and regulators have a 

responsibility to identify and punish such violations as well as deter 

similar activity. The Chairman also (1) concurred that additional data 

collection under HMDA could enhance efforts to detect lenders at 

heightened risk of violations, but believes that such requirements should 

pertain to all lenders rather than a subset; (2) agreed that ECOA’s statute 

of limitations should be extended; and (3) concurred with the 

recommendation that NCUA work collaboratively with other regulators 

and agencies to better assess the potential for discrimination during the 

preapplication phase of mortgage lending. 

In an e-mail, HUD said that improved communication and cooperation 

among the federal agencies responsible for overseeing federal fair lending 

laws could improve federal compliance and enforcement efforts. HUD 

also concurred with the draft report’s analysis that expanding the range of 

data reported, by mortgage lenders pursuant to HMDA would significantly 

expand the department’s ability to identify new cases of potential lending 

discrimination. In particular, HUD stated that requiring lenders to report 

underwriting data, such as borrowers’ credit scores, would allow the 

department to more accurately assess lenders’ compliance with the Fair 

Housing Act. However, HUD urged careful consideration be paid to any 

proposal to limit the range of lenders subject to new reporting 

requirements under HMDA. HUD stated that, in its experience, smaller 

lenders, no less than larger lenders, may exhibit disparities in lending that 

warrant investigation for compliance with federal law. In addition, HUD 

stated that many smaller lenders may already collect and maintain for 

Page 67 GAO-09-704 Fair Lending
 

other business purposes the same data, which may be sought through 

expanded HMDA reporting requirements. 

FTC’s Director, Bureau of Consumer Protection, stated that the draft 

report appropriately drew attention to limitations in HMDA data as a 

means to identify lenders at heightened risk of fair lending violations. The 

Director also highlighted two conclusions in the draft report and noted 

that limitations of the data warranted collecting additional data before any 

conclusions about discrimination could be drawn. First, the Director 

stated that the report concluded that independent lenders have a 

heightened risk of potential violations compared to depository institutions. 

The Director said that many lenders make very few or no high-priced loans 

and thus cannot be evaluated by an analysis of HMDA pricing data 

whereas independent lenders disproportionately make such loans. 

Therefore, the Director said it is not possible to draw conclusions as to 

which types of lenders are more likely to have committed violations solely 

on the basis of HMDA data or the outlier lists and that such a conclusion 

about independent lenders is especially tenuous. The Director also stated 

that the report recommends that additional underwriting data be collected 

to supplement current mortgage data but does not address the importance 

of discretionary pricing data. The Director stated that lender discretion in 

granting or pricing credit represents a significant fair lending risk, and that 

the agency collects such information, in addition to underwriting 

information, as part of its investigations. In sum, the Director stated that 

while HMDA data is useful, additional data must be collected from lenders 

before any conclusions about discrimination can meaningfully be drawn. 

We have revised the draft to more fully reflect the Director’s views 

regarding limitations in HMDA data and its capacity to identify lenders at 

heightened risk of fair lending violations and draw conclusions about 

potential discrimination in mortgage lending. However, HMDA data may 

have limitations with respect to identifying mortgage pricing disparities as 

the Director noted. We do not concur that statements in the draft report 

suggesting that independent lenders may represent relatively heightened 

risks of fair lending violations are especially tenuous. As stated in the 

draft report, subprime loans and similar high cost mortgages, which are 

largely originated by independent lenders and nonbank subsidiaries of 

holding companies, appear to have been made to borrowers with limited 

or poor credit histories and subsequently resulted in significant 

foreclosure rates for such borrowers. Further, our 2007 report noted that 

subprime lending grew rapidly in areas with higher concentrations of 

minorities. While the scope or our work did not involve an analysis of the 

feasibility and costs of incorporating discretionary pricing data into HMDA 

Page 68 GAO-09-704 Fair Lending
 

data collection and reporting requirements, we acknowledge that the lack 

of such information may challenge oversight and enforcement efforts. 

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from report 

date. At that time, we will send copies of this report to other interested 

congressional committees, and to the Chairman, Board of Governors of 

the Federal Reserve System; Chairman, Federal Deposit Insurance 

Corporation; Comptroller of the Currency, Office of the Comptroller of the 

Currency; Acting Director, Office of Thrift Supervision; Inspector General, 

the National Credit Union Administration; the Chairman of the Federal 

Trade Commission; the Secretary of the Department of Housing and Urban 

Development; the Attorney General; and other interested parties. In 

addition, the report will be available at no charge on the GAO Web site at 

http://www.gao.gov. 

If you or your staff have any questions regarding this report, please 

contact me at (202) 512-8678 or williamso@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on the 

last page of this report. GAO staff who made major contributions to this 

Orice Williams Brown 

report are listed in appendix IX. 

Director, Financial Markets and 

 Community Investment 

Page 69 GAO-09-704 Fair Lending
 

List of Congressional Requesters 

The Honorable Barney Frank 

Chairman 

Committee on Financial Services 

House of Representatives 

The Honorable Melvin L. Watt 

Chairman 

Subcommittee on Domestic Monetary Policy and Technology 

Committee on Financial Services 

House of Representatives 

The Honorable Luis V. Gutierrez 

Chairman 

Subcommittee on Financial Institutions and Consumer Credit 

Committee on Financial Services 

House of Representatives 

The Honorable Maxine Waters 

Chairwoman 

Subcommittee on Housing and Community Opportunity 

Committee on Financial Services 

House of Representatives 

The Honorable Gregory W. Meeks 

Chairman 

Subcommittee on International Monetary Policy and Trade 

Committee on Financial Services 

House of Representatives 

The Honorable Dennis Moore 

Chairman 

Subcommittee on Oversight and Investigations 

Committee on Financial Services 

House of Representatives 

The Honorable Joe Baca 

The Honorable Michael E. Capuano 

The Honorable André Carson 

The Honorable Emanuel Cleaver 

The Honorable Keith Ellison 

The Honorable Al Green 

The Honorable Rubén Hinojosa 

The Honorable Paul W. Hodes 

Page 70 GAO-09-704 Fair Lending
 

The Honorable Carolyn B. Maloney 

The Honorable Carolyn McCarthy 

The Honorable Gwen Moore 

House of Representatives 

Page 71 GAO-09-704 Fair Lending
Appendix I: Objectives, Scope, and 

Methodology 

Page 72 GAO-09-704 

Appendix I: Objectives, Scope, and 

Methodology 

The objectives of our report were to (1) assess the strengths and 

limitations of data sources that enforcement agencies and depository 

institution regulators use to screen for lenders that have potentially 

heightened risk for fair lending law violations and discusses options for 

enhancing the data; (2) assess federal oversight of lenders that may 

represent relatively high risks of fair lending violations as evidenced by 

analysis of Home Mortgage Disclosure Act (HMDA) data and other 

information; (3) examine differences in depository institution regulators’ 

fair lending oversight programs; and (4) discuss enforcement agencies’ 

recent litigation involving potential fair lending law violations and 

challenges that federal officials have identified in fulfilling their 

enforcement responsibilities. 

To address the first objective for assessing the strengths and limitations of 

data to screen for lenders that appear to be at a heightened risk for 

potentially violating fair lending laws, we reviewed and analyzed fair 

lending examination and investigation guidance, policies, and procedures, 

and other agency documents. We gathered information on how 

enforcement agencies—the Department of Housing and Urban 

Development (HUD), the Federal Trade Commission (FTC), and the 

Department of Justice (DOJ)—and depository institution regulators—the 

Board of Governors of the Federal Reserve System (Federal Reserve), the 

Office of the Comptroller of the Currency (OCC), the Federal Deposit 

Insurance Corporation (FDIC), the National Credit Union Administration 

(NCUA), and the Office of Thrift Supervision (OTS)—use data sources 

such as HMDA data to screen for high-risk lenders. HMDA requires many 

mortgage lenders to collect and report data on mortgage applicants and 

borrowers. In 2004, HMDA was amended to require lenders to report 

certain mortgage loan pricing data. To assess the strengths and limitations 

of these data, we reviewed academic research, studies from consumer 

advocacy groups, Inspectors General reports, Congressional testimonies, 

and prior GAO work on the strengths and limitations of HMDA data and 

the limited availability of data for nonmortgage lending. We also reviewed 

available information on current initiatives to gather enhanced HMDA data 

(adding underwriting information such as loan-to-value ratios and credit 

scores) earlier in the screening and examination process, such as OCC’s 

pilot project. In addition, we interviewed officials from the enforcement 

agencies and depository institution regulators listed above—including 

senior officials, examiners, policy analysts, economists, statisticians, 

attorneys, and compliance specialists—to discuss how they use various 

data sources to screen for high-risk lenders, gather their perspectives on 

the strengths and limitations of available data sources, and obtain 

information on the costs of reporting HMDA data. We did not interview 

 Fair Lending 
Appendix I: Objectives, Scope, and 

Methodology 

NCUA economists or attorneys and NCUA does not have statisticians. We 

did interview senior officials, examiners, policy analysts and compliance 

specialists. We also discussed current initiatives to address screening 

during the preapplication phase of lending, and the potential benefits and 

limitations of using testers during this phase. We evaluated the depository 

institution regulators’ examination guidance and approaches for the 

preapplication phase. We interviewed researchers, lenders, 

representatives from community and fair housing groups, and independent 

software vendors to gather perspectives on the strengths and limitations of 

HMDA data in the fair lending screening process and the benefits and 

costs of requiring the collection of additional or enhanced HMDA data. 

To address the second objective, we reviewed and analyzed enforcement 

agency and depository institution regulator documents. More specifically, 

we reviewed and analyzed internal fair lending examination and 

investigation guidance, policies, and procedures; federal statutes and 

information provided by the agencies on their authority, mission and 

jurisdiction; the Federal Reserve’s annual HMDA outlier lists; information 

on staffing resources; documentation on the number of fair lending 

enforcement actions initiated and settled; and other agency documents to 

compare and contrast the agencies’ and depository institution regulators’ 

authority and efforts to oversee the fair lending laws, including 

enforcement and investigative practices. We also obtained information on 

depository institution regulators’ outlier examination programs from 

internal agency documents and our file review of examinations of outlier 

institutions, as discussed below. Furthermore, we interviewed key agency 

officials from the eight enforcement agencies and depository institution 

regulators that oversee the fair lending laws to gather information on their 

regulatory and enforcement activities and compare their approaches. To 

gather information on state coordination of fair lending oversight with 

federal agencies, as well as to compare and contrast fair lending 

examination policies and practices, we also interviewed state banking 

regulatory officials and community groups. 

We also evaluated certain aspects of depository institution regulators’ 

compliance with fair lending outlier examination schedules and 

procedures. Specifically, we conducted a systematic review of 152 fair 

lending examination summary files derived from each depository 

institution regulator’s annual list of institutions identified to be at higher 

risk for fair lending violations (that is, their outlier lists). We examined 

outlier lists based on 2005 and 2006 HMDA data because they fully 

incorporated pricing data (first introduced in 2004 HMDA data), and 

because the examinations based on these lists had a higher likelihood of 

Page 73 GAO-09-704 Fair Lending
Appendix I: Objectives, Scope, and 

Methodology 

being completed. We systematically collected information and evaluated 

each examination’s compliance with key agency regulations and 

interagency and internal fair lending guidance. For instance, we reviewed 

the files to determine if outlier examinations had been initiated in a timely 

fashion; if examination scoping, focal points, and findings had been 

documented; and if recommendations were made to correct any 

deficiencies. We limited our focus to assessing regulatory compliance with 

applicable laws, regulations, and internal guidance and did not make 

judgments on how well agencies conducted the examinations. For three of 

the depository institution regulators—the Federal Reserve, FDIC, and 

OTS—we reviewed summary documentation (such as reports of 

examination, scope and methodology memorandums, exit and closing 

memorandums, and referral documentation to DOJ) of completed 

examinations for every institution on their 2005 and 2006 HMDA data 

outlier lists when relevant. This amounted to 32 examinations for the 

Federal Reserve, 38 for FDIC, and 40 for OTS. Because NCUA (1) does not 

have a centralized process for identifying outliers, (2) was unable to 

respond to our document request in a timely manner, and (3) had a 

relatively low number of credit unions identified as outliers by the Federal 

Reserve, we randomly selected and reviewed summary documentation for 

a sample of 10 examinations conducted in 2007 to capture examinations 

that analyzed loans made in 2005 and 2006 (out of 25 examinations). 

We also reviewed a random sample of national banks due to limitations in 

OCC’s fair lending examination documentation and the need to conduct 

our analysis in a timely manner. We randomly selected a simple sample of 

27 examinations of institutions from a population of 231 institution 

examinations derived from OCC’s annual outlier lists for 2005 and 2006 

HMDA data. Because OCC also randomly selects a sample of banks (both 

HMDA and non-HMDA filing) to receive comprehensive fair lending 

examinations, we also reviewed examination files from 2005 for five of 

these institutions (out of a population of 31). Thus, our sample totaled 32 

lender examinations and we requested that OCC provide all fair lending 

oversight materials for each of these lenders from 2005 through 2008 so 

that we could discern the extent to which OCC was complying with 

regulations and guidance for its outlier examination program. We 

collected the same information for these examinations as from the other 

depository institution regulators. 

In addition, we reviewed guidance, policies, procedures, relevant statutes, 

and other documents from the Federal Reserve to assess the extent of fair 

lending oversight conducted for nonbank subsidiaries of bank holding 

companies. We also reviewed past GAO reports on the history of oversight 

Page 74 GAO-09-704 Fair Lending
Appendix I: Objectives, Scope, and 

Methodology 

of nonbank subsidiaries of bank and thrift holding companies. We 

interviewed agency officials and consumer advocacy groups to gather 

their perspectives on the extent of current oversight for nonbank 

subsidiaries of bank holding companies. We also spoke with agency 

officials to gather information on a current interagency pilot program 

between the Federal Reserve, OTS, FTC, and the Conference of State Bank 

Supervisors to monitor the activities of nonbank subsidiaries of holding 

companies. 

For the third objective, in addition to reviewing our analysis of depository 

institution regulators’ compliance with fair lending examination policies as 

described above, we (1) conducted further comparisons of their outlier 

examination screening processes, (2) reviewed documentation and reports 

related to their management of the outlier examination process and 

documentation and reporting of examination findings; and (3) reviewed 

documentation related to their referral practices and outlier examination 

findings. We also reviewed relevant federal internal control standards for 

documentation and reporting and compared them to the depository 

institution regulators’ practices as appropriate. We also discussed these 

issues with senior officials from the depository institution regulators and 

state financial regulatory officials from New York, Washington, and 

Massachusetts.1

 In addition, we discussed their efforts to coordinate fair 

lending oversight programs through the development of interagency 

examination guidance and participation in meetings of the Interagency 

Task Force on Fair Lending and related forums. 

To address the fourth objective, we reviewed agencies’ internal policies, 

procedures, and guidance as well as federal statutory requirements that 

depository institution regulators use when making referrals or 

notifications to HUD or DOJ for potential violations of the Equal Credit 

Opportunity Act (ECOA) and the Fair Housing Act. We also analyzed 

information on enforcement agencies’ and depository institution 

regulators’ staff resources and any time constraints they might face related 

to ECOA’s 2-year statute of limitations for making referrals to DOJ for 

follow-up investigations and potential enforcement actions. To obtain 

information on the enforcement activities of federal agencies, we 

conducted an analysis of the number of fair lending investigations 

 

1

We chose these three states based on a recommendation from officials of the Conference 

of State Bank Supervisors, who noted that the three are among the more active states as 

relates to fair lending supervision and enforcement activities. 

Page 75 GAO-09-704 Fair Lending
Appendix I: Objectives, Scope, and 

Methodology 

initiated, complaints filed, and settlements reached by each enforcement 

agency. We also interviewed officials from each depository institution 

regulator and enforcement agency to gather information on investigative 

practices that enforcement agencies use when deciding whether to pursue 

a fair lending investigation or complaint against an institution and possible 

challenges that enforcement agencies and depository institution regulators 

face in enforcing the fair lending laws, specifically ECOA’s 2-year statute 

of limitations. 

For all the objectives, we interviewed representatives from financial 

institutions and several consumer advocacy groups and trade associations 

such as the Center for Responsible Lending, the National Community 

Reinvestment Coalition, and the National Fair Housing Alliance, 

Leadership Conference on Civil Rights, a large commercial bank, and 

Consumer Bankers’ Association. We obtained their perspectives on 

regulatory efforts to enforce fair lending laws, which include screening 

lenders for potential violations, conducting examinations, and enforcing 

the laws through referrals, investigations, or other means, and any 

collaborative activities between depository institution regulators and state 

entities. 

We conducted this performance audit from September 2008 to July 2009 in 

Washington, D.C., in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives. 

Page 76 GAO-09-704 Fair Lending
Appendix II: Federal Oversight Authority for Appendix II: Federal Oversight Authority for FHA and ECOA 

FHA and ECOA 

The table below lists the federal regulatory and enforcement agencies that examine 

and enforce compliance with the fair lending laws Fair Housing Act (FHA),1

 and 

Equal Credit Opportunity Act (ECOA)2

 at depository institutions and their affiliate

and subsidiaries, independent lenders, servicers, holding companies, and 

nonfunctionally regulated subsidiaries of their holding companies. See the table notes 

for statutory cites and brief explanations of the statutory authorities. 

s 

the 

 

1

Under 42 U.S.C. § 3608(a), HUD has authority and responsibility for administering FHA. All executive 

departments and agencies must administer their programs and activities relating to housing and urban 

development to affirmatively further the purposes of FHA and to cooperate with HUD, including the 

agencies having regulatory or supervisory authority over financial institutions. 42 U.S.C. § 3608(d). HUD 

has authority to issue rules to carry out FHA under 42 U.S.C. § 3601 note. Furthermore, the financial 

regulatory agencies must provide notice to HUD and the alleged injured party when they have reason to 

believe that an FHA and ECOA violation has occurred but such violation has not been referred to DOJ. 15 

U.S.C. § 1691e(k). 

HUD has administrative enforcement authority under FHA. 42 U.S.C. §§ 3610-3612. Complaints of FHA 

violations may be filed with HUD, or HUD may file a complaint on its own initiative, which HUD 

investigates and upon determining that reasonable cause exists to believe that a discriminatory housing 

practice has occurred, or is about to occur, HUD must file a Charge of Discrimination on behalf of the 

aggrieved person. 42 U.S.C. § 3610. If the aggrieved person or the respondent elects to have the case 

decided in a civil court action, DOJ is charged with bringing the case in federal court. If no party elects to 

go to federal court, under 42 U.S.C. § 3612, HUD must provide an opportunity for a hearing before an 

administrative law judge and issue a final decision. Relief may include actual damages suffered by the 

aggrieved person and injunctive or other equitable relief, as well as a civil penalty in an amount up to 

$65,000, depending on the circumstances. 42 U.S.C. § 3612(g)(3); 24 C.F.R. § 180.671. 

In addition to election cases under 42 U.S.C. § 3612, DOJ also has enforcement authority under FHA to 

bring civil actions in U.S. district court for cases involving a pattern or practice of discrimination or the 

denial of rights to a group of persons. See 42 U.S.C. § 3614. Relief may include preventive relief, 

injunction, restraining order, or other relief as is necessary to assure the full enjoyment of the rights 

granted by the FHA, and other relief as the court deems appropriate, including actual and punitive 

damages to the aggrieved persons; and civil penalties of up to $55,000 for a first violation; and up to 

$110,000 for any subsequent violation. 42 U.S.C. § 3614(d); 28 C.F.R. § 85.3(b)(3). 

2

The Federal Reserve has authority to issue regulations to carry out the purposes of ECOA. 15 U.S.C. § 

1691b; 12 C.F.R. § 202.1(a). Except for certain entities (see note iv below), FTC has enforcement 

authority for ECOA and a violation of ECOA is deemed to be a violation of a requirement imposed under 

the Federal Trade Commission Act. 15 U.S.C. § 1691c(c). Moreover, DOJ has authority under 15 U.S.C. § 

1691e(h) to bring civil action in any appropriate U.S. district court against any lender for such relief as 

may be appropriate, including actual and punitive damages and injunctive relief. Cases must be referred 

to DOJ whenever the supervising agency has a reason to believe that a creditor engaged in a pattern or 

practice of denying or discouraging applications for credit in violation of ECOA. 15 U.S.C. § 1691e(g). 

Page 77 GAO-09-704 Fair Lending 
Appendix II: Federal Oversight Authority for 

FHA and ECOA 

Table 7: Federal Agencies That Have Examination and Enforcement Authorities for Fair Lending Laws, by Type of Entity 

(Depository Institutions, Independent Lenders, Servicers) 

Type of Entity Examination Authority 

FHA 

Enforcement Authoritya

ECOA 

Enforcement Authorityb

Bank holding companies Board of Governors of the Federal 

Reserve System (Federal 

Reserve)c

 

Federal Reserve,d 

Department of Housing 

and Urban Development 

(HUD), Department of 

Justice (DOJ) 

Federal Reserve,d

 DOJ 

Nonfunctionally regulated subsidiaries 

of bank holding companies 

Federal ReservecFederal Reserve,d HUD, 

DOJ 

Federal Reserve,d DOJ, 

Federal Trade 

Commission (FTC) 

National banks Office of the Comptroller of the 

Currency (OCC)e

OCC,a

 HUD, DOJ OCC,b DOJ 

Operating subsidiaries of national 

banks 

OCCeOCC,a HUD, DOJ OCC,b FTC, DOJ 

Affiliates of national banks (not 

regulated by another functional 

regulator) 

OCCfOCC,a HUD, DOJ OCC,b FTC, DOJ 

State banks, members of the federal 

reserve system 

Federal ReservegFederal Reserve,a HUD, 

DOJ 

Federal Reserve,b DOJ 

Subsidiaries of state banks that are 

members of the Federal Reserve 

System 

Federal ReservegFederal Reserve,a HUD, 

DOJ 

Federal Reserve,b FTC, 

DOJ 

Affiliates of state banks that are 

members of the Federal Reserve 

System (not regulated by another 

functional regulator) 

Federal Reserveh Federal Reserve,a HUD, 

DOJ 

Federal Reserve,b FTC, 

DOJ 

State banks, not a member of the 

Federal Reserve System 

Federal Deposit Insurance 

Corporation (FDIC)i

FDIC,a

 HUD, DOJ FDIC,b DOJ 

Subsidiaries of state banks, not a 

member of the Federal Reserve 

System 

FDICiFDIC,a HUD, DOJ FDIC,b FTC, DOJ 

Affiliates of state banks, not a member 

of the Federal Reserve System (not 

regulated by another functional 

regulator) 

FDICjFDIC,a HUD, DOJ FDIC,b FTC, DOJ 

Savings and loan holding companies Office of Thrift Supervision (OTS)kOTS,l HUD, DOJ OTS,l DOJ 

Subsidiaries of savings and loan 

holding companies 

OTSkOTS,l HUD, DOJ OTS,l FTC, DOJ 

Savings associations OTSmOTS,a HUD, DOJ OTS,b DOJ 

Subsidiaries of savings associations OTSmOTS,a HUD, DOJ OTS,b FTC, DOJ 

Affiliates of savings associations OTSn OTS,a HUD, DOJ OTS,b FTC, DOJ 

Page 78 GAO-09-704 Fair Lending
Appendix II: Federal Oversight Authority for 

FHA and ECOA 

Type of Entity Examination Authority 

FHA 

Enforcement Authoritya

ECOA 

Enforcement Authorityb

Bank service company or independent 

servicer providing mortgage or lendingrelated services to a bank or savings 

association 

Federal Reserve, OCC, FDIC, or 

OTS as appropriateo

HUD, DOJ, Federal 

Reserve, OCC, FDIC, or 

OTS as appropriateo

FTC, DOJ, Federal 

Reserve, OCC, FDIC, or 

OTS as appropriateo

Federal credit unions National Credit Union 

Administration (NCUA) 

NCUA,p HUD, DOJ NCUA,p DOJ 

Federally insured state-chartered credit 

unions 

NCUAq HUD, DOJ FTC, DOJ 

Credit Union Service Organizations NCUArHUD, DOJ FTC, DOJ 

Independent nonbank lender No regulatory agency has this 

authority 

HUD, DOJ FTC, DOJ 

Sources: GAO analysis of statutes and agency information. 

a

The Federal Reserve, OCC, FDIC, and the OTS (federal banking agencies) generally may take an 

administrative enforcement action against an insured depository institution or an institution-affiliated party 

that is violating or has violated a law, rule, or regulation. 12 U.S.C. § 1818(b). The appropriate federal 

banking agency will have enforcement authority over an institution-affiliated party that is not itself an 

insured depository institution with a different appropriate federal banking agency or a holding company, 

provided that the affiliate otherwise meets the definition of an institution-affiliated party. 12 U.S.C. §§ 

1813(q), (u) and 1818. An institution-affiliated party means 

(1) any director, officer, employee, or controlling stockholder (other than a bank holding company) of, or 

agent for, an insured depository institution; 

(2) any other person who has filed or is required to file a change-in-control notice with the appropriate 

Federal banking agency under [12 U.S.C. § 1817(j)]; 

(3) any shareholder (other than a bank holding company), consultant, joint venture partner, and any other 

person as determined by the appropriate Federal banking agency (by regulation or case-by-case) who 

participates in the conduct of the affairs of an insured depository institution; and 

(4) any independent contractor (including any attorney, appraiser, or accountant) who knowingly or 

recklessly participates in— 

(A) any violation of any law or regulation; 

(B) any breach of fiduciary duty; or 

(C) any unsafe or unsound practice, which caused or is likely to cause more than a minimal 

financial loss to, or a significant adverse effect on, the insured depository institution, 

which caused or is likely to cause more than a minimal financial loss to, or a significant adverse effect 

on, the insured depository institution. 

Page 79 GAO-09-704 Fair Lending
Appendix II: Federal Oversight Authority for 

FHA and ECOA 

12 U.S.C. § 1813(u). For example, the term “institution-affiliated party” is defined to include OTSregulated institution’s employees, directors and officers, controlling shareholders, agents, consultants 

and other “persons participating in the conduct of the affairs” of an institution, and under certain 

circumstances independent contractors. When an institution-affiliated party engages in a direct or 

indirect violation of any law or regulation the appropriate regulatory agency is authorized to remove such 

party from office or prohibit such party from any further participation in the conduct of the affairs of any 

insured depository institution in certain circumstances. 12 U.S.C. § 1818(e)(1). This is in addition to 

cease and desist authority. 12 U.S.C. § 1818(b). Moreover, civil money penalties may be imposed for 

each day that a violation continues. 12 U.S.C. § 1818(i)(2). 

b

See note.a FTC has authority to enforce ECOA except to the extent that enforcement is specifically 

committed to another government agency, and is authorized to use “[a]ll of the functions and powers of 

the [FTC] under the Federal Trade Commission Act” to do so. 15 U.S.C. § 1691c(c). Under the FTC Act, 

FTC may sue in federal court for an injunction and other equitable relief, 15 U.S.C. § 53(b), for civil 

penalties, 15 U.S.C. § 45(m)(1)(A), and in some circumstances for damages, 15 U.S.C. § 57b(b); or FTC 

may institute administrative proceedings under 15 U.S.C. § 45(b). Under pertinent parts of 15 U.S.C. § 

1691c(a), OCC, the Federal Reserve, FDIC, and OTS are each charged with enforcing ECOA under 12 

U.S.C. § 1818 regarding the depository institutions they supervise, and NCUA is charged with enforcing 

ECOA under 12 U.S.C. § 1751 et seq. regarding federal credit unions. See also 12 C.F.R. pt. 202, app. 

A. DOJ has authority to bring civil actions regarding pattern or practice violations of ECOA against any 

lender, regardless of regulator, and to bring civil actions to redress FHA violations against any lender so 

long as the claim is based on a real estate-based transaction. 

C

Under 12 U.S.C. § 1844(c)(2)(A)(i)-(ii), the Federal Reserve may examine bank holding companies and 

nonfunctionally regulated subsidiaries (including nonbank subsidiaries) of bank holding companies to 

determine the nature of their operations, their financial condition, risks that may pose a threat to the 

safety and soundness of a depository institution subsidiary and the systems of monitoring and controlling 

such risks. In addition, the Federal Reserve may examine a bank holding company or nonfunctionally 

regulated subsidiary (including a nonbank subsidiary) to monitor compliance with certain laws, including 

any federal law that the Federal Reserve has specific jurisdiction to enforce against the bank holding 

company or nonfunctionally regulated subsidiary and those laws governing transactions and 

relationships between any depository institution subsidiary and its affiliates. See 12 U.S.C. § 

1844(c)(2)(A)(iii). ECOA explicitly addresses enforcement by the federal banking agencies. In particular, 

15 U.S.C. § 1691c(b) provides authority for among others the federal banking agencies to exercise any 

other authority conferred by law. ECOA provides the Federal Reserve with enforcement authority 

against bank holding companies and their nonbank subsidiaries. See 15 U.S.C. § 1691c(b). FHA has no 

similar enforcement provisions. 

d

The Federal Reserve has general authority to enforce any law or regulation with respect to a bank 

holding company and subsidiary (other than a bank). 12 U.S.C. § 1818(b)(3). In addition, the Federal 

Reserve has specific jurisdiction to enforce ECOA violations against a bank holding company and 

nonbank subsidiary pursuant to the enforcement authority conferred by 12 U.S.C. § 1818. 15 U.S.C. § 

1691c(b). 

e

OCC’s authority to examine national banks and national bank operating subsidiaries derives from 12 

U.S.C. § 481. See also, 12 C.F.R. § 5.34(e)(3) (regarding examination and supervision of national bank 

operating subsidiaries). 

f

OCC may conduct such examinations of certain affiliates of national banks as shall be necessary to 

disclose fully the relations between the bank and such affiliates and the effect of these relations on the 

affairs of the bank. 12 U.S.C. § 481. 

g

The Federal Reserve examines state member banks and their subsidiaries under 12 U.S.C. § 325. 

h

12 U.S.C. § 338 provides authority for the Federal Reserve to examine the affairs of affiliates of a state 

member bank as necessary to determine the relations between a bank and its affiliates and the effect of 

those relations on the affairs of the bank. 

Page 80 GAO-09-704 Fair Lending
Appendix II: Federal Oversight Authority for 

FHA and ECOA 

i

12 U.S.C. §§ 1819(a) Eighth and 1820(b)(2). 

j

12 U.S.C. § 1820(b)(4) provides authority for FDIC to examine any affiliate of any depository institution 

as may be necessary to disclose the relationship between the depository institution and an affiliate; and 

the effect of such relationship on the depository institution. 

k

12 U.S.C. § 1467a(b)(4). 

l

12 U.S.C. § 1818(b)(9). 

m

12 U.S.C. §§ 1463 and 1464. 

n

OTS, in making an examination of a savings association may make examinations of the affairs of all 

affiliates of the savings association as shall be necessary to disclose fully the relations between the 

savings association and such affiliates and the effect of these relations on the affairs of the savings 

association. 12 U.S.C. § 1464(d)(1)(B)(i). 

o

12 U.S.C. § 1867 permits examination and regulation of bank service companies or independent 

servicers performing under a contract or otherwise any service for a federally regulated depository 

institution by the appropriate Federal banking agency of the depository institution acquiring the service, 

which includes OCC, the Federal Reserve, FDIC, and OTS. 

p

12 U.S.C. § 1786 generally provides NCUA authority to take enforcement action against an insured 

credit union or an institution-affiliated party that is violating or has violated a law, rule or regulation, which 

is somewhat comparable to 12 U.S.C. § 1818(b) authority. See note.a

 NCUA has the authority to enforce 

ECOA against federal credit unions as the other regulatory agencies have for the institutions they 

supervise. See note.b

q

The state supervisory authority (SSA) has primary examination authority for federally insured statechartered credit unions (FISCU); however, NCUA may examine in this area if it believes there is a safety 

and soundness concern. 

r

For credit union service organizations (CUSO) providing services only to federal credit unions (FCU), 

NCUA has review authority. For CUSOs that provide services to both FCUs and FISCUs, NCUA and the 

appropriate SSA have review authority. Effective June 29, 2009, NCUA regulation provide NCUA the 

authority to review any CUSO that provides service to a FISCU. However, the NCUA Board may exempt 

FISCUs in a given state from compliance with section 712.3(d)(3) if the NCUA Board determines the 

laws and procedures available to the SSA in that state are sufficient to provide NCUA with the degree of 

access to CUSO books and records it believes is necessary to evaluate the safety and soundness of 

credit unions having business relationships with CUSOs owned by credit union(s) chartered in that state. 

Page 81 GAO-09-704 Fair Lending
Appendix III: Comments from the Federal Appendix III: Comments from the Federal Trade Commission 

Trade Commission 

Page 82 GAO-09-704 Fair Lending 
Appendix III: Comments from the Federal 

Trade Commission 

Page 83 GAO-09-704 Fair Lending
Appendix IV: Comments from the Federal Appendix IV: Comments from the Federal Deposit Insurance Corporation 

Deposit Insurance Corporation 

Page 84 GAO-09-704 Fair Lending 
Appendix IV: Comments from the Federal 

Deposit Insurance Corporation 

Page 85 GAO-09-704 Fair Lending
Appendix V: Comments from the Board of Appendix V: Comments from the Board of Governors of the Federal Reserve System 

Governors of the Federal Reserve System 

Page 86 GAO-09-704 Fair Lending 
Appendix V: Comments from the Board of 

Governors of the Federal Reserve System 

Page 87 GAO-09-704 Fair Lending
Appendix VI: Comments from the National Appendix VI: Comments from the National Credit Union Administration 

Credit Union Administration 

Page 88 GAO-09-704 Fair Lending 
Appendix VI: Comments from the National 

Credit Union Administration 

Page 89 GAO-09-704 Fair Lending
Appendix VII: Comments from the Office of Appendix VII: Comments from the Office of the Comptroller of the Currency 

the Comptroller of the Currency 

Page 90 GAO-09-704 Fair Lending 
Appendix VII: Comments from the Office of 

the Comptroller of the Currency 

Page 91 GAO-09-704 Fair Lending
Appendix VII: Comments from the Office of 

the Comptroller of the Currency 

Page 92 GAO-09-704 Fair Lending
Appendix VII: Comments from the Office of 

the Comptroller of the Currency 

Page 93 GAO-09-704 Fair Lending
Appendix VII: Comments from the Office of 

the Comptroller of the Currency 

Page 94 GAO-09-704 Fair Lending
Appendix VIII: Comments from the Office of Appendix VIII: Comments from the Office of Thrift Supervision 

Thrift Supervision 

Page 95 GAO-09-704 Fair Lending 
Appendix IX: GAO Contact and Staff Appendix IX: GAO Contact and Staff Acknowledgments 

Acknowledgments 

Orice Williams Brown, (202) 512-8678, or williamso@gao.gov

In addition to the individual name above, Wesley M. Phillips, Assistant 

Director; Benjamin Bolitzer; Angela Burriesci; Kimberly Cutright; Chris 

Forys; Simin Ho; Marc Molino, Carl Ramirez; Linda Rego; Barbara 

Roesmann; Jim Vitarello; and Denise Ziobro made major contributions to 

this report. Technical assistance was provided by Joyce Evans and 

Cynthia Taylor. 

Page 96 GAO-09-704 Fair Lending

GAO Contact 

Staff 

Acknowledgments 

(250420) 
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