ABA Bank Compliance - January/February 2011

through the use of uniform disclosures, to enable consumers to make informed decisions when shopping for and using deposit accounts. The TCPA applied to telemarketing, and like the FDCPA it limited calls to people during certain times and required that information be given to the person being called. The TCPA also required solicitors to maintain a “do not call” list, honoring a person’s request that he or she not be called.

During this period the Department of Justice (DOJ) focused significantly on nondiscrimination in lending. The department had implemented a fair lending initiative and between 1992 and 1997, filed 11 fair lending suits. Some of the suits were based on referrals from bank regulators; others were the result of DOJ investigations. The cases alleged marketing, underwriting, and pricing discrimination. The marketing discrimination cases involved Blackpipe State Bank, Chevy Chase Federal Savings Bank, and Albank, FSB. In these three cases, DOJ noted the geographic limitations in each institution’s polices or practices. In the underwriting discrimination cases—Decatur Federal Savings & Loan Association, The Northern Trust Company, the First National Bank of Dona Ana County, and Shawmut Mortgage Company—the DOJ alleged that bank employees were providing assistance to white applicants that they were not providing to African-American or Hispanic applicants. This assistance took the form of explaining negative information on their credit reports and helping document all of their income. With respect to some of the pricing discrimination cases—Huntington Mortgage Company, Fleet Mortgage Corp., Long Beach Mortgage Company, First National Bank of Vicksburg, Security State Bank of Pecos, and First National Bank of Gordon—the practice of charging overages was the primary concern; in other cases, higher interest rates were at issue.

It was also during this period that the bank regulatory agencies, working together, issued revised fair lending examination procedures. These procedures called out the three different types of lending discrimination (disparate treatment, disparate impact, and overt discrimination) and provided instructions to examiners on how to detect the various types of discrimination. During this period the regulators also issued a revised fair lending enforcement policy. In addition, the “Boston Fed Study,” a working paper prepared by staff from the Federal Reserve Bank of Boston, was published. Based on HMDA data, the study concluded that there was a small but real disparity between the loan rejection rates for whites versus minorities.

In assessing this decade, although new consumer protection laws were passed, it is clear that enforcement was the primary activity and that the focus was on nondiscrimination in lending.

DeCADe 4: 1998–2007

The most recent decade was very active, legislatively speaking. Congress passed the Homeowners Equity Protection Act ( HOEPA), Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM), the Gramm-Leach-Bliley Act (GLBA), and the Fair and Accurate Credit Transactions Act (FACT Act). These laws offered more consumer protections. HOEPA required lenders to provide additional disclosures for certain high-cost loans, and CAN-SPAM prohibited certain e-mail practices. The GLBA protected the privacy of customer

information by prohibiting financial institutions from disclosing nonpublic personal information about consumers and requiring institutions to provide notice of their privacy policies and practices to their customers. The FACT Act sought to improve the accuracy of data in consumer reporting by requiring many new consumer disclosures as well as steps to address identity theft. Importantly, the FACT Act provided free annual consumer report rights for consumers and improved access to consumer report information.

During this period, the banking agencies made numerous referrals (239) to DOJ, which continued to file lawsuits and issue consent orders alleging discrimination in lending. Several banks were accused of redlining (First American Bank, Centier Bank, and Old Kent Bank); one of discrimination in underwriting (Deposit Guaranty National Bank and Associates National Bank); and another of discrimination in pricing (Compass Bank). Several of these cases are particularly noteworthy. First, the redlining cases against Old Kent and First American alleged discrimination in lending other than residential real estate in addition to residential real estate lending (small business lending in the case of Old Kent, consumer and small business lending in the case of First American). Second, the underwriting cases alleged discrimination in home improvement and credit card lending (Deposit Guaranty National Bank and Associates National Bank, respectively). Third, the Compass Bank case involved auto lending and alleged discrimination on the basis of marital status.

During this decade, bank regulators issued a series of consent orders calling out practices considered unfair or deceptive. The banks accused of wrongdoing included Providian (2000), Direct Merchants Bank and First National Bank of Marin (2001), and First National Bank of Brookings (2003). Each of these cases involved aspects of credit card marketing or lending or both.

This fourth decade was filled with enforcement actions, notably those alleging discrimination and those alleging unfair or deceptive practices. Also, the cases and orders in this decade reflect the government’s concern about small business, auto, and credit card lending, making it clear that “consumer” protection applied to all types of lending and the various lending functions.

the CurreNt DeCADe: 2008–2017

Although we are in the early part of the fifth compliance decade, it promises to be a significant one. Indeed, the laws passed in the first three years of this decade—the Credit Card Accountability, Responsibility and Disclosure Act (Credit CARD Act) and the Dodd-Frank Wall Street Reform and Consumer Protection Act—and the overdraft regulation issued by the Federal Reserve Board signaled a significant change in the way we think about consumer compliance. The Credit CARD Act limited interest rate increases, required additional disclosures, and prohibited a variety of billing and payment practices that were commonplace in the industry. The Fed issued regulations regarding the payment of certain overdrafts and the fees associated with overdrafts. The Credit CARD Act and the overdraft rules have had widespread impact, affecting many consumers.