A complex banking bill currently making its way through the Senate is praised by proponents as a common sense revision of banking regulations, that would help small banks and lenders thrive. But activists for fair housing practices are increasingly sounding alarms warning the bill opens the door for many financial institutions to hide racially discriminatory practices in mortgage lending.
Amid provisions to roll back many of the Dodd-Frank banking rules implemented in response to the 2008 economic crisis, the Economic Growth, Regulatory Relief and Consumer Protection Act (S.2155) — which has been nicknamed the “Bank Lobbyist Act” by its opponents — contains language that would exempt roughly 85 percent of the nation’s banks and credit unions from soon-to-be-enacted obligations to report mortgage lending data. Compliance with these expanded reporting regulations were a part of the Obama-era changes to the Home Mortgage Disclosure Act (HMDA), a decades-old law intended to monitor and compel equitable lending to qualified borrowers.
“I’m flabbergasted,” exclaimed Greg D. Squires, a professor of sociology and public policy and public administration at George Washington University. “HMDA has been has been used effectively by the banking industry, regulators, academics, journalists and fair housing advocacy groups to document instances of housing discrimination. This [if passed into law] dramatically weakens efforts to combat discriminatory lending that may be occurring in the housing market.”
Dems who voted to move forward with Senate's bank deregulation bill: Bennet, Carper, Coons, Donnelly, Hassan, Heitkamp, Jones, Kaine, King, Manchin, McCaskill, Nelson, Peters, Shaheen, Stabenow, Tester and Warner. #S2155 #DoddFrank
— Victoria Guida (@vtg2) March 6, 2018
While banks spend heavily on advertising, promoting their lending policies as community-friendly and equal-opportunity for its customers, a wealth of data – collected using the HMDA reports – suggests financial institutions are reluctant to make loans with African Americans, Latinos and other minority groups. Without access to this data, critics contend, banks would have a freer hand to pledge their good intentions and promote their products with feel-good advertising — with substantially less risk of being held accountable for discriminatory practices.
For example, a study released last month by The Center for Investigative Reporting, based on its year-long analysis of 31 million HMDA records, found that even a half century since the passage of the federal Fair Housing Act that outlawed racial discrimination in lending, African Americans and Latinos are still routinely denied conventional mortgage loans at rates far greater than white Americans. According to the CIR study:
The analysis – independently reviewed and confirmed by The Associated Press – showed black applicants were turned away at significantly higher rates than whites in 48 cities, Latinos in 25, Asians in nine and Native Americans in three. In Washington, D.C., the nation’s capital, Reveal found all four groups were significantly more likely to be denied a home loan than whites.
However, supporters of the Senate bill, including 17 Democrats, argue the legislation will not hamper efforts to monitor banks, credit unions and other mortgage lenders for racial and other forms of discrimination because financial institutions will still be required to collect and report demographic data used to make loans. As the Huffington Post’s Zach Carter reports: “That’s technically true: Banks would still have to report the race of loan applicants to regulators, just not the new details about rates and types of loans.”
Without the reporting requirements, the public, the media, watchdog groups like us have no way of knowing whether the banks are investing in their communities.
Erstwhile stalwarts of fair housing and fair lending polices such as Sen. Tim Kaine (D-Virginia) have signed on the bill because it proposes to lift only the expanded reporting requirements on small banks and credit unions that are set to go into effect this year. Asked about Kaine’s support for these relaxed reporting requirements in the bill, the senator’s office issued a statement to Think Progress explaining the bill doesn’t impact existing reporting requirements.
“Senator Kaine supports this bill because it provides relief for small community banks that weren’t responsible for the financial crisis, while protecting consumers and preventing harmful consolidation that’s causing local banks to close while supersized banks get even bigger,” according the statement. “As a former fair housing attorney who fought against discriminatory lending practices, Senator Kaine supports stringent requirements to protect against unfair lending, and this legislation keeps those protections in place.”
Sen. Heidi Heitkamp (D-North Dakota), another of the bill’s supporters, said in a statement sent to ThinkProgress that HMDA is needed to prevent discrimination in the mortgage industry. “Despite some inaccurate claims to the contrary, our bipartisan bill maintains strong efforts to combat lending discrimination,” she said in the statement. “Under our bill, all financial institutions will still have to report ethnicity, race, and gender data as has been required for years to prevent discrimination…. Our bill would give relief solely to small financial institutions so they don’t have to provide some new data impacting just 3.57 percent of all data collected, but the previously required data is still mandated.”
But opponents to the legislation, which is expected to clear the Senate later this week, have expressed shock and outrage that any of the reporting requirements would be relaxed at all, noting that small banks make up the bulk of mortgage lending in many communities. Lifting any of HMDA’s reporting requirements grants those institutions greater ability to engage in discriminatory lending, said John Taylor, president and chief executive of the National Community Reinvestment Coalition.
“I don’t know where this impression comes from that small, local and community-based banks are these perfect entities that are color-blind, gender-blind, always fair-minded and don’t every engage in discrimination,” Taylor told me in an interview. “They’re the ones most likely to discriminate.”
As Taylor explained, bank executives collect all sorts of data regarding mortgage and other lending applicants, but they don’t want the public to know how, or to whom, they invest the money that’s deposited in their vaults. Hence, they are quite successful in lobbying politicians to limit reporting requirements.
“The HMDA data gives us an idea of whether this bank or that bank is investing in the community is claims to serve,” Taylor said. “Without the reporting requirements, the public, the media, watchdog groups like us have no way of knowing whether the banks are investing in their communities as they claim they are or whether they’re sitting on the money to invest in high-profit ventures that have little connection to their communities.”