Earlier this week, the U.S. Government Accountability Office (GAO) released a report of GAO’s examination of federal oversight of the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA), including the data used and enforcement actions taken by the eight federal agencies tasked with the enforcement of these fair lending laws. The report makes several recommendations for Congress to consider “to best ensure consistent and effective federal oversight of the fair lending laws.” Many proponents of the creation of a consumer financial protection agency view this GAO report as validation of the need for a single regulatory body to oversee the regulation of consumer financial products.
A summary of the report provides information on the scope and methods used by the GAO during its study. The GAO reviewed information provided to federal regulators by certain lenders under the Home Mortgage Disclosure Act (HMDA). This information is then used by the agencies to determine if a lender has or may be in violation of the FHA or ECOA. The report notes, however, that “HMDA data also have limitations; they do not include information on the credit risks of mortgage borrowers, which may limit regulator’s and the public’s capacity to identify lenders most likely to be engaged in discriminatory practices without first conducting labor-intensive reviews.” Another limitation on the HMDA data is that it only applied to mortgage lending activities. “Without additional data, agencies’ and regulators’ capacity to identify potential lending discrimination is limited.”
The GAO report identifies two limitations in the “consistency and effectiveness” of federal oversight of lenders – a result it concludes is “largely attributable to the fragmented U.S. financial regulatory system.” The first limitation identified in the report is that HMDA data is used by the federal agencies to identify “outliers” who may have violated the fair lending laws to focus their examinations and investigations. This focus may permit certain conduct to go undetected or unexamined. The second limitation deals solely with depository institutions and notes that the five federal agencies tasked with oversight may create a situation where examination and enforcement is not consistently or effectively applied over all depository institutions.
To deal with these limitations, the report recommends that Congress consider requiring lenders to disclose additional information on its borrowers, including underwriting standards and information on nonmortgage loans. The report also recommends that Congress extend the statute of limitations for ECOA violations and that any new regulatory structure “address gaps an inconsistencies in the oversight of independent mortgage brokers and nonbank subsidiaries, as well as address the potentially inconsistent oversight provided by depository institution regulators.”