Microfinance Practice: RE: [MFP] RE: The Equal Credit Opportunity Act / USA

Starting in the early 2000s the NCRC (National Community Reinvestment Coalition) annual meetings had sessions discussed the problem with predatory lending practices. I have on my computer the record of me signing a petition intitiated by the NCRC to send to Fed Chair Alan Greenspan in 2003 (March) calling on the Federal Reserve to look into the bad (for borrowers) practices being followed in many communities. There was no response from this believer in markets and company self-discipline.

The NCRC supported widespread homeownership, but never wished for it to be achieved by this sort of predation (that did occur both for Alt-A and Subprime loans) that would ensure problems for poor households (and others) at some point in their repayment-years. The banks and mortgage brokers claimed to be carrying out policies urged by Democrats and others, but failed to do it in a manner consistent with traditional 'conservative' mortgage lending. The story from some, is that the fault lay with the advocates of low income household ownership, but at that time few of these advocates urged lending to poor people under any terms as were done by many mortgage brokers and backed up by major banks.

Charlie Rock

Winter Park, FL

From: MicrofinancePractice@yahoogroups.com <MicrofinancePractice@yahoogroups.com> on behalf of dfitchett <DFitchett@msn.com>
Sent: Tuesday, February 18, 2014 10:26
To: MicrofinancePractice@yahoogroups.com
Subject: Re: [MFP] RE: The Equal Credit Opportunity Act / USA

Dick,

One might suggest amplifying your observation "There are allegations that minorities were charged higher rates and given tougher terms for loans made during this period" with the caveat "but often still not sufficiently adjusted upward by mortgage lending institutions to reflect the possible higher risk that some such borrowers would face difficulty in properly servicing these loans and possibly even default on these loans". E.g., so-called "ninja" (no income, no job/assets) loans.

An even more curious case relates the authorities' (mainly the Department of Justice) use of "disparate impact analysis", which appears to argue that even if minorities were not "charged higher rates and given tougher terms for loans" by mortgage lending institutions, the borrowers really didn't qualify for the same relatively favorable lending terms and conditions as provided by mortgage lending institutions to more creditworthy borrowers. I believe that several big banks/mortgage lending institutions have had to page fines for this "infraction". (Even though the lending institutions claim that they thought they were complying with the provision of the laws with respect to "redlining", nondiscrimination in lending or the "fair housing standards" legislation.)

Of course, as you point out, the mortgage lending institutions thought they were accommodating "government policies to stimulate home ownership, including relaxed credit underwriting".

So much time in Washington reminds me of Puck's line in Act 3, Scene 2 of Shakespeare's "A Midsummer's Night Dream:

"Lord, what fools these mortals be!"

Del

----- Original Message -----

From: Meyer, Richard

To: MicrofinancePractice@yahoogroups.com

Sent: Monday, February 17, 2014 9:22 PM

Subject: [MFP] RE: The Equal Credit Opportunity Act / USA

You probably know that there has been a large debate over the years in the US about redlining, the practice of outlining geographic areas of housing (may be poor, deteriorated, occupied by minorities) and make fewer or no loans within those areas. There have been many attempts to measure the phenomena, and reduce the problem through various means when it is found. I do not know about the current state of the research regarding the issue. It is argued that government policies to stimulate home ownership, including relaxed credit underwriting, is one of the causes behind the financial collapse a few years ago. There are allegations that minorities were charged higher rates and given tougher terms for loans made during this period. Dick

From: MicrofinancePractice@yahoogroups.com [mailto:MicrofinancePractice@yahoogroups.com] On Behalf Of Anuj Jain
Sent: Monday, February 17, 2014 10:59 AM
To: MicrofinancePractice@yahoogroups.com
Subject: [MFP] The Equal Credit Opportunity Act / USA

We in the sector have often talked and debated about ‘right to capital or a loan’, and if that is indeed a right, or is rather a privilege that one must earn by building one’s credit worthiness. Some years ago, Prof. Yunus had created quite a debate by saying that it can be considered as a fundamental right.

Regardless of that debate, here is this example, from USA, of this Equal Credit Opportunity Act; which does not give a right to borrow, but at the same time, stops the lending institutions from discriminating against any group of people or individual for accessing credit.

Federal Fair Lending Regulations and Statutes

Equal Credit Opportunity

The Equal Credit Opportunity Act (ECOA) of 1974, which is implemented by the Board’s Regulation B, applies to all creditors. The statute requires financial institutions and other firms engaged in the extension of credit to ‘‘make credit equally available to all creditworthy customers without regard to sex or marital status.’’ Moreover, the statute makes it unlawful for ‘‘any creditor to discriminate against any applicant with respect to any aspect of a credit transaction (1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract); (2) because all or part of the applicant’s income derives from any public assistance program; or (3) because the applicant has in good faith exercised any right under the Consumer Credit Protection Act.’’

Read on for more details…

http://www.federalreserve.gov/boarddocs/supmanual/cch/fair_lend_reg_b.pdf

I wonder if such / similar laws exist in other countries; and what have been practical implications of this Act in USA? Will look forward to hear back.

Best,

anuj

Anuj K. Jain

Sr. Coady Fellow| Microfinance and Development| COADY International Institute

St. Francis Xavier University, Antigonish, Nova Scotia, B2G 2W5| Ph: 902-872-0521