House Financial Services Committee members Reps. Al Green (D-TX), Maxine Waters (D-CA), and Luis V. Gutierrez (D-IL), and the committee’s chairman Barney Frank (D-MA) today released a Government Accountability Office (GAO) report which is critical of federal regulators’ ability to effectively and efficiently enforce the nation’s fair lending laws.  In the report, GAO found that “[f]ederal 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.”

“The information in this report is just one of many examples of the need for improved protection for all consumers of financial products.  Inadequate enforcement of consumer protection laws hurts all consumers, regardless of color, creed, sex or economic status,” said Congressman Green.  “It is time to work together and create a consumer financial protection agency that will finally give adequate attention to safeguarding consumers from abusive products.”

Congresswoman Waters said, “As the Chairwoman of the Subcommittee on Housing and Community Opportunity, I am concerned about the role that mortgage lenders played in steering homeowners into predatory loans.  The GAO report issued today reveals many shortcomings in the current U.S. financial regulatory structure, including the failure of the Home Mortgage Disclosure Act to require certain lenders to collect and report data on the credit risks of borrowers, information most helpful in identifying lenders most likely to engage in discriminatory practices. This report highlights the need for the proposed Consumer Financial Protection Agency, which would close these regulatory gaps and protect consumers from predatory loans.”

“The results of the GAO's study on fair lending unfortunately come as no surprise to me,” said Congressman Gutierrez, Chair of the Subcommittee on Financial Institutions and Consumer Credit. “The weaknesses of our current system in identifying and ending discriminatory lending practices is something that my constituents and Americans across the country have lived with for too long. Recent consumer studies have indicated what we have known to be true at the community level — African American and Latino borrowers are significantly more likely to receive a subprime loan or to be targeted by predatory lenders. This GAO report is yet another contribution to the mountain of evidence indicating that Congress needs to act immediately to create an independent consumer protection agency with the focus and the authority to enforce our fair lending laws.”

The report will be constructive to the committee and Congress as it considers legislation to revamp and update the nation’s financial regulatory system.  In fact, the committee is already considering a number of GAO’s recommendations to enhance the data available to detect potential fair lending violations as part of HR 3126, a bill to create a new federal Consumer Financial Protection Agency, including amending the Equal Credit Opportunity Act to require collection of race and ethnicity information and some loan data for small business loans.   The report was requested by Chairman Frank along with 15 other Democratic Financial Services Committee members who asked GAO in April 2008 to review the effectiveness of federal oversight of the country’s fair lending laws. 

Key findings of the GAO report:

Data available to detect potential fair lending violations have limitations, which may affect federal efforts to enforce fair lending laws.

Although depository institution regulators’ fair lending initial activities to assess evidence of potential fair lending violations generally have been more comprehensive than those of the enforcement agencies, the differences in the various oversight programs raise questions about the consistency and effectiveness of their efforts and highlight challenges associated with a fragmented regulatory system.
 
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