BLURRED LINES BETWEEN CRA AND FAIR LENDING

The Department of Justice’s Civil Rights Division, with it’s beefed up staff and budget, is actively pursuing fair lending issues. Several recent cases are blurring the lines between the Community Reinvestment Act (CRA) and the Fair Housing and Equal Credit Opportunity Acts.

The purpose of CRA is to encourage banks to meet the credit needs of their local communities. The level of encouragement has increased significantly over the years.

The Department of Justice (DOJ) has threatened lawsuits in several cases unless the bank opened branch offices in minority neighborhoods. The banks were apparently meeting the needs of consumers, both minorities and non-minorities, in their assessment areas. DOJ alleged that the banks were engaging in illegal discrimination in the form of “redlining.” To avoid legal action DOJ wants the banks to expand their presence in nearby minority neighborhoods.

CRA has clearly defined standards for delineating an assessment area. Among other rules, CRA states that the delineation of an assessment area may not reflect illegal discrimination. CRA requires regulators to evaluate the bank’s CRA performance within the assessment area if the bank has followed the CRA rules for delineating the assessment area.

DOJ has shown a willingness to threaten legal action against banks that apparently have followed CRA rules, but may have fair lending issues. Is this a CRA issue or a ECOA/Fair Housing issue? Does it matter? Who wants to fight DOJ in Federal Court on either issue? Do you think DOJ has a bit of a home court advantage in Federal Court?

There has always been some cross over between CRA and Fair Lending. To avoid problems evaluate your CRA performance to assure you are meeting the credit of your entire assessment area. Double check your assessment area to assure you have followed the CRA rules for delineating the assessment area. CRA lists what census tracts must be included in your assessment area. But you also need to pay attention to the areas that are not included in your assessment area. Examiner’s and DOJ are focusing on this latter area, as evidenced by the recent DOJ actions.

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