elizabeth a duke : enforcement of financial consumer protection laws testimony of ms elizabeth a duke, member of the board of governors of the us federal reserve system, before the committee on financial services, us house of representatives, washington dc, 20 march 2009. * * * chairman frank, ranking member bachus, and members of the committee, i want to thank you for the opportunity to discuss the federal reserve board's ongoing efforts to address and prevent mortgage - related fraud and abusive lending practices in the institutions we supervise. while the expansion of the subprime mortgage market over the past decade increased consumers'access to credit, too many homeowners and communities are suffering today because of lax underwriting standards and other unfair or deceptive practices that resulted in unsustainable loans. the federal reserve is committed to improving consumer protections and promoting responsible lending practices through each of the roles we play as supervisor for safety and soundness and consumer compliance, and as rulewriter. i will discuss the federal reserve's ongoing efforts as a banking supervisor to ensure that the institutions we supervise are managing their mortgage lending activities in a safe and sound manner and in compliance with laws and regulations. i will also discuss the rules and guidance that have been issued over the past several years that address many of these issues. in addition to our own examination and enforcement activities, i will talk about our ongoing efforts to coordinate with other law enforcement agencies to hold those who are involved in criminal activities in our supervised institutions accountable. the federal reserve's enforcement efforts begin with the examination of its supervised institutions. the federal reserve conducts regular examinations of state member banks for both safety and soundness and compliance with consumer protection laws. we also conduct regular inspections of bank holding companies. we examine the mortgage businesses of these institutions, including subprime residential portfolios, as applicable. institutions with weaknesses are expected to take corrective actions that include improving their risk management and underwriting practices in the future. in those rare instances where the bank is not willing to address the problem, we have and use a full range of powerful enforcement tools to compel corrective action. to ensure that banks with performance deficiencies give appropriate attention to supervisory concerns, we may require them to enter into nonpublic enforcement actions, such as memoranda of understanding. when necessary, we use formal, public enforcement actions, such as written agreements, cease and desist orders, or civil money penalties. mortgage fraud and investigations in recent years, there has been a significant increase

, like other federal banking agencies, has a statutory responsibility under the act to refer the matter to the doj, which reviews the referral and decides if further investigation is warranted. a doj investigation may result in a public civil enforcement action or settlement. the doj may instead return the matter to the federal reserve for administrative enforcement. when this occurs, we ensure that the institution takes all appropriate corrective action. if a fair lending violation does not constitute a pattern or practice, we similarly ensure that the bank takes all appropriate corrective action. in carrying out our supervisory responsibilities related to fair lending, federal reserve examiners perform many reviews to detect pricing discrimination, redlining, and steering in mortgage lending. these illegal practices can limit fair access to responsible credit, and make it more likely that minorities will fall prey to potentially abusive lending practices. several of these reviews have resulted in referrals to the doj. in the past three years, we have referred fifteen matters to the doj and four of these matters have involved illegal discrimination in mortgage lending based on race or ethnicity. the board referred two nationwide mortgage lenders to the doj because we determined that hispanic and african - american borrowers paid more for their loans than comparable non - hispanic white borrowers. these reviews resulted from a process of targeted reviews for mortgage pricing discrimination that the federal reserve initiated when the mortgage pricing data became available under the home mortgage disclosure act. we also referred a lender for imposing a restriction on rowhouse lending that resulted in discrimination against african americans. finally, we referred a lender for redlining. the lender's marketing strategy was based on negative racial stereotypes and, as a result, excluded a cluster of minority neighborhoods from its lending activity. rules banning unfair and deceptive practices in addition to our supervisory activities, the federal reserve board in 2008 finalized sweeping new rules for home mortgage loans to better protect consumers and facilitate responsible residential mortgage lending. the rules, which amend regulation z ( truth in lending ), were adopted under hoepa, and prohibit unfair, abusive or deceptive home mortgage lending practices and restrict certain other mortgage practices. importantly, the rules apply to all mortgage lenders, not just depository institutions supervised by the federal banking and thrift regulators. these rules resulted from a series of field hearings conducted by the board in 2006 and 2007 and a review of approximately 4, 500 comment letters representing a broad spectrum of views that were received in response to the board's proposed rule issued in