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Final Action on Monitoring Data

In what may be the most significant cost savings actions of the year, compared to what might have been, the Board of Governors of the Federal Reserve System has withdrawn the proposal to amend Regulation B to permit voluntary collection of monitoring data, for consumer and small business loans.

In April 1995, the Board published a proposal to amend Regulation B that would have lifted the prohibitions against asking an applicant's race, gender, color, and national origin. The proposal would have made it permissible to obtain such information on the condi-tion that providing the information was voluntary for the applicant. The proposal was published in conjunction with the Board's issuance of the final rule on CRA.

The Board's withdrawal of the proposal means that the existing rule in Regulation B stands unchanged. The rules governing collection of infor-mation about applicants are contained in Section 202.5. As a general rule, the section permits collection of any information that is not prohibited. Paragraphs 202.5(c)-(d) contain specific restrictions or outright prohibitions on collecting information related to marital status and prohibited basis attributes.

Paragraph 202.5(c) outlines the specific situations when it is permissible to obtain information relating to or revealing the applicant's marital status.

Paragraph 202.5(d) prohibits the collection of information relating to or revealing the applicant's marital status, sex, race, color, religion, or national origin. These prohibitions exist in the context of both the limited permissions in Section 202.5(c) and the monitoring data requirements of Section 202.13. The rules on information gathering are therefore complex and not easy to implement. Careful training is essential to provide staff with the necessary knowledge and skills to comply.

These information rules are designed to implement the Equal Credit Opportunity Act's sweeping prohibitions against discrimination in any aspect of a credit transaction. The prohibitions against collecting information are based on the idea that what isn't known can't be used for illegal purposes. the information ban also serves the function of reinforcing the anti-discrimination rules.

The Board discussed the two philosophies, prohibitions on information to prevent illegal use, and use of data to monitor and enforce and concluded that both are designed to serve the same goal of preventing illegal discrimination.

Governor Lindsey identified two primary issues for the Board's deliberation. First, Governor Lindsey discussed the impact of the decision on community development and the need for information about credit in specific neighborhoods. Governor Lindsey pointed out that detailed information is available by census tract and that this information should be sufficient for the purpose.

Second, the proposal should be considered in the context of enforcement needs. Governor Lindsey pointed out that enforcement agencies can override the Regulation B prohibition for enforcement purposes. Thus, when there is a need for applicant specific information, Regulation B permits the enforcement agency to require it.

The Board also concluded that removing the information prohibitions is a policy matter that belongs in the hands of Congress. In reaching this conclusion, the Board discussed the history of the current monitoring data requirement in Regulation B and Regulation C (HMDA) and the distinctions between the mortgage related information gathering and the consumer lending information prohibition.

Gathering information for mortgage loans is based in both the Fair Housing Act and the Equal Credit Opportunity Act. At the time the rule was adopted, redlining, the refusal to lend in certain neighborhoods, was a heated concern. Congress was considering legislation which resulted in the Community Reinvestment Act and the Home Mortgage Disclosure Act.

Placing the requirement in Regulation B had the merit of establishing a uniform rule for all creditors. The rule was directed at mortgage loans not only because of the redlining issues of the time, but also because in mortgage lending, the loan officer usually had personal contact with the applicant.

This personal contact does not always occur in consumer loans. In today's environment of telephoneand electronic banking, that contact is actually diminished. The justification for introducing data collection in this environment makes less sense than it did in 1976. The result of data collection, whether voluntary or mandatory, would be seriously incomplete data. No reliable analysis could be performed on a data base that has extensive omissions.

How To Audit Consumer Lending
With the monitoring data collection issue resolved, banks face the challenge of auditing consumer and commercial loans for fair lending violations without having information about the borrowers' identities. Both banks and bank examiners will need to audit consumer and commercial loans to evaluate compliance with fair lending laws.

Several techniques are feasible. First, if the bank does business in a community with a significant ethnic minority group which can be identified by surname, it may be appropriate to identify minority and control groups by surname. Similarly, a minority and control group based on gender can be identified by given names. Warning: only do this after all loan decisions have been made!

Second, if racial, ethnic, or income grouping can be identified by census tract, it may be appropriate to conduct a lending analysis based on geography.

Both of these methods have drawbacks. Neither is completely accurate. Even with all the errors, HMDA data is more accurate than these methods will be. Any analysis that is not based on data collection must be conducted within the context of the limitation of the information. These methods also have the undesirable impact of having people make guesstimates about prohibited factors. This activity should therefore be confined to those involved in the audit. However, these methods will get you a general picture of fair lending practices. In that respect, they can be useful.


  • Review training materials to be sure staff has the correct information on the information rules.·
  • Review information collection in your audits of loans that are not subject to Section 202.13. Make sure that prohibited information is not being collected.
  • Check files to be sure that staff is not making copies of applicants' drivers licenses - unless the copy is required by a federal loan program.
  • Review audit procedures and decide how to adapt a fair lending analysis to consumer and commercial lending.
  • Review geographic data, loan files, and lists of borrowers to decide whether it would be feasible to base an audit on the names of applicants.

Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 20, 12/96

First published on 12/01/1996

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