Possibly hinting toward a revival of fair lending enforcement following a recent lull, the OCC's Ombudsman recently declined a bank's appeal of the OCC's decision to refer the bank to both DOJ and HUD for potential Fair Housing Act violations.
The OCC's Ombudsman oversees an infrequently used program for banks that desire to appeal agency decisions and actions. In 2018, a bank appealed the determination of the OCC's supervisory office that the bank may have engaged in a pattern or practice of discrimination on the basis of race, national origin, or sex in violation of the Fair Housing Act.
The Ombudsman reviewed the bank's appeal under Section 2-204 of Executive Order 12892 and DOJ guidance from 1996 describing the circumstances that qualify as a "pattern or practice" meriting a referral. Under Executive Order 12892, when the OCC receives "information from a consumer compliance examination...suggesting a violation of the Fair Housing Act," it must forward that information to HUD. If the information indicates a possible pattern or practice of discrimination in violation of the Act, the OCC must also forward it to DOJ. After examining the information, HUD may choose to pursue an administrative enforcement action and DOJ may choose to pursue legal action.
Significantly, in ruling on the bank's appeal, the Ombudsman determined that the OCC is only required to have information suggesting a possible pattern or practice of Act violations in order to forward that information to HUD or DOJ pursuant to Executive Order 12892. In other words, the OCC is not required to meet evidentiary standards that would otherwise be applicable in court. According to the Ombudsman's decision, DOJ conducts its own investigation of information forwarded by the OCC and directs bank regulatory agencies that they need not have "overwhelming proof" of an "extensive pattern or practice of discrimination" before making a referral.
Appeals to the Ombudsman rarely involve fair lending matters. The last bank appeal involving fair lending occurred in 2011, and involved a community bank that the OCC believed had engaged in racial redlining. The Ombudsman agreed with the supervisory office's referral in that case as well. More recently, banks have used the Ombudsman's office to challenge various matters requiring attention in examination reports, with many focusing on ratings assigned during Shared National Credit examinations.
It's difficult to predict whether this recent Ombudsman ruling is a harbinger of more vigorous fair lending supervision. Banks should take note, however, that the OCC is conducting Fair Housing Act examinations and willing to refer matters to HUD and DOJ based solely on information "suggesting a possible pattern or practice" of violations.
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