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Banking Regulators Say Discrimination Hard To Prove

May 14, 1992

WASHINGTON (AP) _ Senior banking regulators, under attack for their failure to stem lending bias, said Thursday most discrimination is so subtle its hard to prove.

Representatives of four agencies, appearing at a congressional hearing, acknowledged that black and Hispanic applicants for home mortgages are rejected as much as twice as often as white and Asian applicants with similar incomes.

Yet, the regulators said, in the past year they have asked the Justice Department to consider prosecuting only two cases of suspected bias.

″If we’re going to refer a case for criminal prosecution, it has to be supported by the documents in front of us. ... Most of the discrimination is subtle. ... It’s not going to show up in a piece of paper in front of an examiner,″ said Federal Reserve Board member Lawrence B. Lindsey.

Most bias occurs even before a would-be borrower applies, the regulators said. For instance, a lending officer who is more comfortable talking with white applicants might give them advice on how to make themselves more creditworthy but not offer similar counseling to black applicants.

Jonathan L. Fiechter, deputy director of the Office of Thrift Supervision, said some bank policies, while not discriminatory on their face, can have a discriminatory effect.

Some lenders, for instance, won’t make a mortgage loan of less than $50,000 or extend credit on homes over a certain age. That effectively excludes people wanting to buy low-cost homes in older neighborhoods.

″I believe that a lot of subtle discrimination exists,″ said Susan F. Krause, senior deputy in the Office of the Comptroller of the Currency. ″A lot of it is not intentional. ... That doesn’t make it legal. That doesn’t make it right. But it means the banks can develop an awareness of it and ... get educated on the things that have the effect of discrimination.″

She said a Federal Reserve study published last October, showing minorities were rejected for loans far more often than whites, did not necessarily prove discrimination because it did not take into account such factors as the applicants’ credit and job histories.

She said her agency is using the data to target some 250 banks with apparent problems for further investigation.

″The exams that have been done so far, and there haven’t been very many yet, are finding legitimate business reasons for the differences in the acceptance and denial rates,″ she said.

But regulators’ explanations met with little sympathy from members of two House Banking subcommittees conducting a hearing on lending bias.

″Should I go back to Los Angeles and tell young entrepreneurs and people who want housing that basically the regulators tell me that nothing should be done and these institutions should understand racism is not nice?″ asked Rep. Maxine Waters, D-Calif., whose office was burned in the rioting that followed the Rodney King verdict.

Rep. Floyd Flake, D-N.Y., who represents a black neighborhood in Queens, said lack of credit in minority neighborhoods contributes to the sense of exclusion that helped fuel the riots.

″The Rodney King beating takes place every day in this nation. It takes place when people have the power, as banks and regulators do, to ... take people lying on the ground and give them the incentive to get up. But rather we beat them down,″ he said.

Rep. Esteban Torres, D-Calif., said he is considering introducing legislation transferring responsibility for enforcing community lending rules from banking regulators to a new agency within the Department of Housing and Urban Development.

But, the banking regulators said that would derail the progress they are making.

″If you did set up a new agency, you would probably have several years of not knowing who’s on first,″ Fiechter said.

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