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Consumer and Community Affairs

Among the Federal Reserve's responsibilities in the areas of consumer and community affairs are

These responsibilities are carried out by the members of the Board of Governors, the Board's Division of Consumer and Community Affairs (DCCA), and the consumer and community affairs staffs at Federal Reserve Banks.

The Federal Reserve System's various consumer protection and community development roles continued to be areas of interest in 2008. Amid the consequences of a deteriorating financial marketplace, consumer protection was among the issues of concern, particularly in the mortgage and credit card markets. Throughout the year, lawmakers, regulators, the media, and consumers scrutinized various practices used in the financial services marketplace, expressing concern at the complexity of products and characterizing some practices as unfair or deceptive. In 2008, the Federal Reserve Board advanced consumer protection in financial services by finalizing regulations that set new rules for fairness and transparency in the high-cost mortgage and credit card markets. In addition, the Board continued to commit significant resources in the areas of supervision, research, community development, and consumer education to increase understanding of the issues and impacts of the credit crisis on consumers and communities.

Mortgage Credit

Throughout 2008, concerns over consumer protection and access to credit in the mortgage market continued to escalate, prompting the Federal Reserve to continue to pursue a range of efforts to support both consumers and industry through its regulatory and supervisory activities.

Regulatory Actions

Expansion of Consumer Protections under Regulation Z

Concerns about the mortgage credit markets continued into 2008 as many lenders and borrowers suffered significant losses and as property values declined in much of the country. Analyses of these developments revealed a range of lender practices that contributed to the crises, including lax underwriting standards and inadequate analyses of borrowers' ability to repay their mortgages. Many of these practices were common among nonbank, subprime mortgage creditors offering higher-priced mortgage loans. These lenders were not subject to the same level of supervision as insured depository institutions.

The Board had taken action to address some of these concerns in late 2007, when it issued proposed amendments to Regulation Z to strengthen consumer protection and underwriting standards. The proposed rules addressed, in particular, certain creditor practices as they relate to higher-priced mortgage loans, under authority granted by the Home Ownership and Equity Protection Act (HOEPA). The proposal received more than 4,500 comment letters from the mortgage industry, consumer and community organizations, individual consumers, and policymakers.

In July 2008, the Board approved and published the final rules for mortgage loans under Regulation Z to improve consumer protections and facilitate responsible lending. The new rules apply to all mortgage lenders, not just insured depository institutions, to provide broader protection to consumers and a uniform set of rules for the mortgage industry. The regulation prohibits unfair, abusive, or deceptive home mortgage lending practices, and restricts certain other mortgage practices. The final rules also establish advertising standards, and require lenders to provide certain mortgage disclosures to consumers earlier in the lending process.1

The regulation was approved at a public meeting held by the Board, where Federal Reserve Chairman Ben S. Bernanke stated, "The proposed final rules are intended to protect consumers from unfair or deceptive acts and practices in mortgage lending, while keeping credit available to qualified borrowers and supporting sustainable homeownership." The new rules apply to "higher-priced mortgage loans"--defined to capture virtually all loans originated in the subprime market--but generally exclude loans in the prime market. In addition, the rules also establish new consumer protections that apply to all mortgage loans secured by a borrower's principal dwelling.

For higher-priced mortgage loans secured by a consumer's principal dwelling, the final regulation adds four key protections:

For all mortgage loans secured by a borrower's principal dwelling, the final rules establish several requirements:

The final rules also set additional standards that apply to all mortgage advertising, requiring additional information about rates, monthly payments, and other loan features. In addition, the final rules ban seven deceptive or misleading advertising practices, including representing that a rate or payment is "fixed" when it can change. The new rules take effect on October 1, 2009, except for the escrow requirement, which will be phased in during 2010 to allow lenders to establish new systems as needed.

After extensive consumer testing, the Board withdrew one element of the original proposal relating to "yield-spread premiums"--a common compensation method used by lenders originating loans through mortgage brokers. The testing, conducted to ascertain the effectiveness of a variety of strategies to disclose this practice and its impact on the cost of the loan to borrowers, revealed that the proposed disclosures were inadequate in conveying this information to consumers.2 As a result, the Board committed to considering alternative approaches as part of its ongoing review of mortgage rules under Regulation Z.

Illustrations to Improve Consumers' Understanding of Adjustable-Rate Mortgage Products

With the expansion of mortgage credit markets over the last several years, the range and complexity of loan types also increased, particularly in the subprime market. Here, various adjustable-rate mortgage (ARM) loan products became more prevalent as a means to make homeownership more affordable through lower rates and payments in the early years of a loan.

While beneficial to some borrowers, ARMs also can be very complex and can present repayment challenges to borrowers whose circumstances prove unsuitable for loans with significant payment increases. Because of concerns that consumers were not fully aware of the implications presented by these products, the Federal Reserve and other federal financial regulatory agencies in May 2008 issued guidance containing illustrations that mortgage lenders can use to help consumers understand certain hybrid ARMs.3 These illustrations are designed to assist institutions in complying with recommendations set forth in the agencies' 2007 "Statement on Subprime Mortgage Lending," which called on institutions to provide clear, balanced, and timely information to consumers about the relative benefits, costs, and risks of hybrid ARM products.4 The illustrations were developed in response to requests by some industry groups, in commenting on the proposed Subprime Statement, that the agencies either provide uniform disclosures for these products or publish illustrations of the consumer information.

Although the illustrations are not mandatory, institutions may use them, provide information based on them, or provide consumers with information described in the guidance in an alternate format. The illustrations provide

Foreclosures: Responding to Consumers and Communities in Crisis through the Federal Reserve's Home Mortgage Initiative

With continued deterioration of the subprime mortgage market and the overall economy, 2008 was marked by an increase in the rate of foreclosure throughout the country. As foreclosures mounted and projections worsened throughout the year, nonprofit organizations, governments, lenders, and servicers mobilized to respond to the needs of borrowers and communities confronting defaulting mortgages and foreclosures. The Federal Reserve System actively engaged in national and regional partnerships to help inform policy and practices around foreclosure prevention and neighborhood stabilization in communities hard hit by foreclosures.

The Federal Reserve System has a significant presence throughout the country through its 12 regional banks and their branch offices and the Board of Governors in Washington, D.C. Each of these locations offers important research, supervision, and community development expertise and insights that help inform local and regional responses to economic conditions. As the mortgage market continued to deteriorate in 2008, the System worked to coordinate its resources through the Homeownership and Mortgage Initiative (HMI), a comprehensive strategy to provide information and outreach to stem unnecessary foreclosures, to stabilize communities, and to prevent negative spillovers at the neighborhood level. The HMI coordinated the activities of the various functional areas of the System, including research, public affairs, and community affairs, to improve access to data and information and to develop policies relating to foreclosure. This strategy capitalized on the following areas of expertise:

  • outreach to strengthen existing collaborations with other regulators, community groups, policy organizations, financial institutions, and public officials to identify solutions to prevent unnecessary foreclosures and their negative effects
  • regulation to foster an environment that supports the homeownership goals of creditworthy borrowers with appropriate consumer protection and responsible lending practices
  • research and analysis to provide community groups, counseling agencies, regulators, financial institutions, and others with detailed analysis to support efforts to help troubled borrowers and communities
  • financial education to help consumers make informed personal financial decisions, including those about home ownership

With respect to outreach, the Federal Reserve provided community coalitions, counseling agencies, fellow regulators, financial institutions, and others with detailed analyses identifying neighborhoods at high risk of foreclosures. By understanding those areas with high concentrations of subprime mortgages, delinquencies, and foreclosures, community leaders can better target their scarce resources to borrowers in need of counseling and other interventions that may help forestall foreclosure.

To explore the impact of the foreclosure crisis on different real estate markets, the Federal Reserve hosted a series of conferences entitled, "Recovery, Renewal, Rebuilding: A Federal Reserve Foreclosure Series," in five cities.1 These conferences, held in Atlanta, Los Angeles, Columbus (Ohio), St. Louis, and Washington, D.C., looked at strategies to address the negative impact of foreclosures in high-cost markets, as well as the difficulty of dealing with foreclosures in neighborhoods in weak-market communities. The series also highlighted research on foreclosure and the resulting problems of vacancy and abandonment. Through this series, conference attendees worked to clarify the issues and identify the strategies and best practices for moving toward solutions by examining best practices, creative solutions, and innovative ways to prepare for the future.

The Federal Reserve also forged a partnership with NeighborWorks America, a national nonprofit organization, to address issues related to neighborhood stabilization and, in particular, the disposition of real estate owned (REO) properties. As part of the collaboration, a website, www., was developed to provide a one-stop source of information for homeowners, community development organizations, and local governments dealing with foreclosure-related vacant and abandoned properties.

In addition, the Community Affairs offices at each of the 12 Reserve Banks launched online Foreclosure Resource Centers that provide information for homeowners, prospective homebuyers, and community groups to prevent foreclosures and lessen their negative influence on neighborhoods. A Community Foreclosure Mitigation Toolkit was also developed.2 The Board also developed information for consumers on how to protect their homes from foreclosure and updated other mortgage publications, including A Consumer's Guide to Mortgage Settlement Costs and What You Should Know about Home Equity Lines of Credit.

Staff also revised A Consumer's Guide to Mortgage Refinancings, providing a link to a mortgage refinancing calculator.3 For consumers with questions about banking procedures and rules, or who feel they may have been treated unfairly by their banks, the Federal Reserve Consumer Help Center feeds queries directly to the various regulatory agencies so that consumers have only one stop to make to ask questions or file complaints.4

In the regulatory realm, the Federal Reserve issued new rules to improve consumer protections and disclosures relating to loans secured by a borrower's home (see the "Mortgage Credit" discussion earlier in this chapter).

To support needed research and analysis, the Federal Reserve System launched several initiatives to provide studies, data, and other foreclosure-related resources to communities grappling with foreclosures. The System provided, on the website of the Federal Reserve Bank of New York, data concerning subprime lending patterns and performance.5 These dynamic maps and data illustrate subprime and alt-A mortgage loan conditions that may assist community groups, policymakers, and local governments as they prioritize the use of thei r resources for these foreclosure-related efforts. In addition, a System workgroup, consisting of some of the Federal Reserve System's top economists and community development experts, prepared overviews that summarize the current state of knowledge about housing and mortgage markets, as well as about foreclosures. The System continues to conduct research on a wide range of topics to fill analytical gaps and better understand the effects of foreclosure on neighborhoods, the economy, and the housing and mortgage markets.

In the interest of supporting borrowers experiencing difficulty in meeting their mortgage obligations, the Board has provided outlets for mortgage-related consumer financial education materials. In addition, through the HMI, the Federal Reserve has posted internal and external resources on each of the System's 13 websites to help improve staff and consumers' access to information that can assist them as they work to address challenges in the mortgage market.6 As the mortgage and foreclosure issues and their implications evolve, the Federal Reserve will continue to coordinate its resources and expertise to assist consumers and communities during the crisis.

1. See additional information on the conferences at and (1.11 MB PDF). Return to text

2. See Foreclosure Resources at to text

3. See "5 Tips for Protecting your Home from Foreclosure, and" Return to text

4. See Return to text

5. See "Dynamic Maps of Nonprime Mortgage Conditions in the United States," mortgagemaps/. Return to text

6. See Resources for Consumers, www.federalreserve. gov/consumerinfo/foreclosure_consumers.htm. Return to text

Supervisory Actions

The Board applied its supervisory authority in an effort to address the aggressive credit tightening that gave cause for concern in 2008 and to urge mortgage lenders to work with troubled mortgage borrowers. Joining with other financial regulatory agencies, the Board issued an interagency statement on both topics in November 2008.5

With respect to the credit tightening, the supervisory statement noted the agencies' expectation that all banking organizations should fulfill their fundamental role in the economy as intermediaries that provide credit to businesses, consumers, and other creditworthy borrowers. The statement emphasizes the essential nature of providing credit in a manner consistent with prudent lending practices and continuing to ensure the pursuit of new lending opportunities on the basis of realistic asset valuations and balanced assessments of borrowers' repayment capacities.

In light of the escalating rate of mortgage foreclosures in 2008, the supervisory statement also articulated the agencies' expectation that financial institutions work with existing borrowers to avoid preventable foreclosures, which can prove costly to both the institutions and to the communities they serve, and to help mitigate other potential mortgage-related losses. The agencies' statement urges all lenders and servicers to adopt systematic, proactive, and streamlined mortgage loan modification protocols and to review troubled loans using these protocols. The goal of such efforts is to help achieve modifications that result in mortgages that borrowers can better manage.

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Credit Cards

Credit cards are the most common consumer financial services credit product, and represent an important tool for facilitating transactions for both consumers and businesses. Advances in technology (such as credit scoring) and the expansion of the financial services marketplace have contributed to a significant increase in competition in the credit card market over the last decade. During this time, lenders have employed aggressive marketing and product development strategies and have applied billing practices to generate more fee-based income. (Previously, lenders had relied almost solely on interest from their customers' account balances for revenue.) These industry developments have elevated concerns about consumer protection, the transparency of credit card pricing, and the adequacy of consumer disclosures in credit card marketing materials, contracts, and periodic statements.

With the significant presence and increased consumer use of credit cards in the marketplace, concerns about certain practices have been the topic of public discussion and debate. In response, the Board issued proposed amendments to Regulation Z (Truth in Lending) in May 2007 that were intended to increase consumer protections and improve disclosures for credit cards.6 Throughout 2008, Board staff conducted consumer testing and collected input from consumer advocates, lenders, and policymakers to gain insight into the effect the proposed rules would have on consumers' access to credit and their understanding of information they need to make informed decisions about the myriad credit card options in the market (see the "Advice from the Consumer Advisory Council" discussion later in this chapter). Based on this information, the Board issued additional proposed amendments to Regulation Z as well as proposed amendments to Regulation AA (Unfair or Deceptive Acts or Practices) in May 2008.7 The public response to these proposals was unprecedented, with Board staff carefully considering information obtained through extensive consumer testing and review of more than 60,000 comment letters received during the comment period.8

Final rules regarding credit cards were issued in December 2008, with an effective date of July 1, 2010.9 These rules were designed to address areas of concern by prohibiting certain unfair acts or practices and by improving the disclosures consumers receive in connection with credit card accounts and other revolving credit plans.

The final rules prohibit certain credit card practices that the Board found most concerning. At the Board meeting where the rules were approved, Chairman Bernanke remarked, "The revised rules represent the most comprehensive and sweeping reforms ever adopted by the Board for credit card accounts. These protections will allow consumers to access credit on terms that are fair and more easily understood."10 The rules seek to promote the responsible use of credit cards through greater transparency in credit card pricing, including the abolition of unfair practices. Greater transparency will enhance competition in the marketplace and improve consumers' ability to find products that meet their needs. In addition, reduced reliance on penalty rate increases should spur industry efforts to improve upfront underwriting.

The final rule amending Regulation AA prohibits specific unfair acts or practices by banks in connection with credit card accounts. Specifically, the final rule will

The final rule amending Regulation Z improves the effectiveness of the disclosures consumers receive in connection with credit card accounts and certain other revolving credit plans. These revisions are designed to ensure that information is provided to consumers in a timely manner and in a readily understandable form. Specifically, the final rule will

As Governor Randall Kroszner noted when the rules were approved, "Our intent is to increase transparency and fairness in how credit card and deposit accounts operate, thereby enhancing competition and empowering consumers to better manage their accounts and avoid unnecessary costs. The rules represent a significant step forward in consumer protection."11

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Overdraft Services

Overdraft services are sometimes offered by depository institutions as an alternative to traditional ways of covering transactions that overdraw a deposit account (for example, overdraft lines of credit or linked accounts). Coverage is generally provided "automatically" to consumers who meet a depository institution's criteria (for example, the account has been open a certain number of days or deposits are made regularly). If an overdraft is paid, the consumer is charged a flat fee for each item. A daily fee also may apply for each day the account remains overdrawn.

In the past, institutions generally provided overdraft coverage only for check transactions. In recent years, however, the service has been extended to cover overdrafts resulting from other types of transactions, including automated teller machine (ATM) withdrawals and debit card transactions at the point of sale. For debit card transactions in particular, the fee may far exceed the amount of the transaction. Thus, concerns have been raised regarding the potentially substantial costs associated with a service that consumers may not be aware of or did not request.

In December 2008, the Board addressed concerns regarding overdraft services by adopting a final rule amending Regulation DD (Truth in Savings) and a proposed rule amending Regulation E (Electronic Fund Transfers).12 The final rule amending Regulation DD (effective January 1, 2010) addresses depository institutions' disclosure practices related to overdrafts. This rule is intended to ensure that consumers receive accurate information regarding the available funds in their deposit accounts so that they can make informed decisions about the costs of engaging in transactions that overdraw those accounts. Specifically, the final rule will

In addition, the proposed rule amending Regulation E would, if adopted, provide consumers with certain protections relating to the assessment of overdraft fees. The proposed rule would

-- under one approach, an institution would be prohibited from imposing an overdraft fee unless (1) the consumer is given an initial notice and a reasonable opportunity to opt out of the institution's overdraft service and (2) the consumer does not opt out; or

-- under an alternative approach, an institution would be prohibited from imposing an overdraft fee for paying such overdrafts unless the consumer affirmatively consents (or opts in) to the institution's overdraft service.

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Other Regulatory Actions: Proposed Rules on Risk-Based Pricing Notices

Consumer reports are a primary tool used by creditors to evaluate consumer creditworthiness and establish appropriate credit terms, including pricing, based on the risk level a loan applicant represents. Risk-based pricing refers to the practice of using consumer reports (which reflect a consumer's risk of nonpayment) in setting or adjusting the price and other terms of credit offered or extended to an individual. Many creditors offer more favorable terms to consumers with better credit histories. In recent years, concerns have been raised that consumers may not be provided with adequate information regarding risk-based pricing and the role that negative information in consumer reports can play in determining the cost of credit.

To help address this issue, Congress enacted the Fair and Accurate Credit Transactions Act (FACT Act), which directed the Federal Reserve Board and the Federal Trade Commission (FTC) to issue joint regulations requiring creditors to provide consumers with risk-based pricing notices when, based in whole or in part on information in consumer reports, a creditor offers or provides credit to a consumer on terms less favorable than it offers or provides to other consumers.13

The Board and the FTC issued proposed regulations in May 2008.14 The proposed regulations would apply, with certain exceptions, to all creditors that engage in risk-based pricing. Under these regulations, a risk-based pricing notice would generally be provided to the consumer after the terms of credit have been set, but before the consumer becomes contractually obligated with regard to the credit transaction. The proposed regulations reflect the agencies' judgments as to the best approaches identified through extensive outreach efforts to consumer groups, financial institutions, mortgage bankers, and consumer reporting agencies. Based on this outreach, the proposal provides creditors with a number of acceptable approaches to use in identifying consumers to whom they must provide risk-based pricing notices. The notices serve to alert consumers to the existence of negative information on their consumer reports so that they may check their reports for accuracy and correct any inaccurate information.

In addition, the proposed regulations include certain exceptions to the notice requirement. The most significant of the exceptions permits creditors, in lieu of providing a risk-based pricing notice to those consumers who receive less favorable terms, to provide all of their consumers with their credit scores and explanatory information about their scores. The proposed regulations include model notices to facilitate compliance.

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Other Supervisory Activities Related to Compliance with Consumer Protection and Community Reinvestment Laws

DCCA supports and oversees the supervisory efforts of the Federal Reserve Banks to ensure that consumer protection laws and regulations are fully and fairly enforced. Division staff members provide guidance and expertise to the Reserve Banks on consumer protection regulations, examination and enforcement techniques, examiner training, and emerging issues. Routinely, staff members develop and update examination policies, procedures, and guidelines; review Reserve Bank supervisory reports and work products; and participate in interagency activities that promote uniformity in examination principles and standards.

Examinations are the Federal Reserve System's primary means for enforcing compliance with consumer protection laws. During the 2008 reporting period,15 Reserve Banks conducted 268 consumer compliance examinations: 263 of state member banks and five of foreign banking organizations.16

Fair Lending

The Federal Reserve is committed to ensuring that the institutions it supervises comply fully with the federal fair lending laws--the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act. The Federal Reserve enforces ECOA and the provisions of the Fair Housing Act that apply to its supervised lending institutions. The Federal Reserve conducts fair lending reviews regularly within the supervisory cycle. Additionally, examiners may conduct fair lending reviews outside of the usual supervisory cycle, if warranted by fair lending risk. When examiners find evidence of potential discrimination, they work closely with the division's Fair Lending Enforcement Section, which brings additional legal and statistical expertise to the examination and ensures that fair lending laws are enforced rigorously and consistently throughout the Federal Reserve System.

ECOA prohibits creditors from discriminating against any applicant, in any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age. In addition, creditors may not discriminate against an applicant because the applicant receives income from a public assistance program or has exercised, in good faith, any right under the Consumer Credit Protection Act. The Fair Housing Act prohibits discrimination in residential real estate-related transactions, including the making and purchasing of mortgage loans, on the basis of race, color, religion, national origin, handicap, familial status, or sex.

Pursuant to ECOA, if the Board has reason to believe that a creditor has engaged in a pattern or practice of discrimination in violation of ECOA, the matter will be referred to the Department of Justice (DOJ). The DOJ reviews the referral and decides if further investigation is warranted. A DOJ investigation may result in a public civil enforcement action or settlement. The DOJ may decide instead to return the matter to the Federal Reserve for administrative enforcement. When a matter is returned to the Federal Reserve, staff ensures that the institution takes all appropriate corrective action.

During 2008, the Board referred the following three matters to the DOJ:

If a fair lending violation does not constitute a pattern or practice, the Federal Reserve takes action to ensure that it is remedied by the bank. Most lenders readily agree to correct fair lending violations. In fact, lenders often take corrective steps as soon as they become aware of a problem. Thus, the Federal Reserve generally uses informal supervisory tools (such as memoranda of understanding between the bank's board of directors and the Reserve Bank) or board resolutions to ensure that violations are corrected. If necessary to protect consumers, however, the Board can and does bring public enforcement actions.

Evaluating Pricing Discrimination Risk with HMDA Data and Other Information

When Home Mortgage Disclosure Act (HMDA) pricing data first became available in 2005, Board staff developed--and presently continues to refine--HMDA screens that identify institutions warranting further review based on an analysis of HMDA pricing data. Because HMDA data lack many factors that lenders routinely use to make credit decisions and set loan prices, such as information about a borrower's creditworthiness and loan-to-value ratios, HMDA data alone cannot be used to determine whether a lender discriminates. Thus, the Federal Reserve staff analyzes HMDA data in conjunction with other available supervisory information to evaluate a lender's risk for engaging in discrimination.

For the 2007 HMDA pricing data--the most recent year for which the data are publicly available--Federal Reserve examiners performed a pricing discrimination risk assessment for each institution that was identified through the HMDA screening process. These risk assessments considered not just the institution's HMDA data, but also the strength of the institution's fair lending compliance program; past supervisory experience with the institution; consumer complaints against the institution; and the presence of fair lending risk factors, such as discretionary pricing. On the basis of these comprehensive assessments, Federal Reserve staff determined which institutions would receive a targeted pricing review. Depending on the examination schedule, the targeted pricing review could occur as part of the institution's next examination or outside the usual supervisory cycle.

Even if an institution is not identified through HMDA screening, examiners may still conclude that it is at risk for engaging in pricing discrimination and may elect to perform a pricing review. The Federal Reserve supervises many institutions that are not required to report data under HMDA. Also, many of the HMDA-reporting institutions supervised by the Federal Reserve originate few higher-priced loans and, therefore, report very little pricing data. For these institutions, examiners analyze other available information to assess pricing-discrimination risk and, when appropriate, perform a pricing review.

During a targeted pricing review, staff analyze additional information, including potential pricing factors not available in the HMDA data, to determine whether any pricing disparity by race or ethnicity is fully attributable to legitimate factors, or whether any portion of the pricing disparity may be attributable to illegal discrimination. To perform these reviews, staff use analytical techniques that account for the increasing complexity of the mortgage market. Two industry changes in particular--the proliferation of product offerings and the increased use of risk-based pricing--have increased the complexity of fair lending reviews. To effectively detect discrimination by lenders offering an expanding range of products and credit-risk categories, the Federal Reserve increasingly uses statistical techniques. When performing a pricing review, staff typically obtain extensive proprietary loan-level data on all mortgage loans originated by the lender, including prime loans (that is, not just the higher-priced loans reported under HMDA). To determine how to analyze these data, the Federal Reserve studies the lender's specific business model, its pricing policies, and its product offerings. On the basis of the review of the lender's policies, staff determine which factors from the lender's data should be considered. A statistical model is then developed that takes those factors into account and is then tailored to that specific lender. Typically, a test for discrimination in particular geographic markets, such as metropolitan statistical areas (MSAs), is performed. Analyzing specific markets is important, as relatively small unexplained pricing disparities at the national level can mask much larger disparities in individual markets.

Monitoring Emerging Fair Lending Issues

During this period of financial turbulence in credit markets, many institutions have been reevaluating and tightening credit standards. Some consumer advocates have voiced concern that certain policies implemented by lenders to tighten credit standards may fall disproportionately on minorities. For example, some lenders have implemented tighter credit standards in specific geographic markets.

The Federal Reserve evaluates lenders' policies to ensure that lenders comply with the federal fair lending laws as they adjust their lending practices. It conducts reviews to evaluate whether lender policies may violate the fair lending laws by having an illegal disparate impact on minorities, and to identify steering, redlining, reverse redlining, and other fair lending violations.

Reporting on HMDA Data

HMDA, enacted by Congress in 1975, requires most mortgage lenders located in metropolitan areas to collect data about their housing-related lending activity, report the data annually to the federal government, and make the data publicly available. In 1989, Congress expanded the data required by HMDA to include information about loan applications that did not result in a loan origination, as well as information about the race, sex, and income of applicants and borrowers.

In response to the growth of the subprime loan market, the Federal Reserve updated Regulation C (HMDA's implementing regulation) in 2002. The revisions, which became effective in 2004, require lenders to collect price information for loans they originated in the higher-priced loan segment of the home mortgage market. When applicable, lenders report the number of percentage points by which a loan's annual percentage rate exceeds the threshold that defines "higher-priced loans." The threshold is 3 percentage points or more above the yield on comparable Treasury securities for first-lien loans, and 5 percentage points or more above that yield for junior-lien loans. The HMDA data, collected in 2004 and released to the public in 2005, provided the first publicly available loan-level data about loan prices. The Federal Financial Institutions Examination Council (FFIEC) released the 2007 HMDA data to the public in September 2008.

Analysis of the HMDA data for 2004 through 2007 found that the approach used to identify higher-priced loans could be improved in a way that could make the identification of higher-priced loans less sensitive to changes in the term-structure of interest rates and more consistent with the way mortgage prices are established. Consequently, Regulation C was modified in 2008 (effective for loan applications taken as of October 1, 2009) to define higher-priced loans as closed-end mortgages where the spread between the loan's APR and a survey-based estimate of rates currently offered on prime mortgage loans of a comparable type meets or exceeds 1.5 percentage points for a first-lien loan (or 3.5 percentage points for a subordinate-lien loan). The revised definition of higher-priced loans under Regulation C is the same as the definition of "higher-priced mortgage loan" adopted by the Federal Reserve Board under Regulation Z (Truth in Lending) in July 2008, when it modified this regulation to address unfair and deceptive practices in the closed-end segment of the mortgage market.

An article published in December 2008 by Federal Reserve staff in the Federal Reserve Bulletin uses the 2007 HMDA data to describe the market for higher-priced loans and patterns of lending across loan products, geographic markets, and borrowers and neighborhoods of different races and incomes.17 The article focuses attention on the effects of the mortgage market turmoil on the 2007 HMDA data, including a detailed assessment of the effects on the data of the unusually large number of institutions that discontinued operations in 2008.

As with the 2004-2006 HMDA data, the 2007 HMDA data show that most reporting institutions originated few if any higher-priced loans in 2007: 56 percent of the lenders originated less than 10 higher-priced loans that year, and 33 percent originated no higher-priced loans. The data also indicate that relatively few lenders accounted for most of the higher-priced loan originations in 2007. Of the 8,610 mortgage lenders reporting HMDA data, 987 made 100 or more higher-priced loans. The 10 mortgage lenders with the largest volume of higher-priced loans accounted for about 31 percent of all such loans in 2007.

As in earlier years, the HMDA data show that the majority of all loan originations were not higher priced; in fact, owing in large part to the mortgage market turmoil in 2007, the incidence of higher-priced lending fell from 28.7 percent in 2006 to 18.3 percent in 2007. Some of the decrease reflects the fact that (1) 169 lenders reporting HMDA data for 2006 data closed operations in 2007 and (2) although these lenders extended higher-priced loans in 2007, they did not report this lending activity. The effect of these 169 institutions on the 2007 data is explored in-depth in the Federal Reserve Bulletin article. The analysis shows that these lenders were heavily involved in the higher-priced segment of the mortgage market, but they did not account for most of the decline in the share of loans that were higher-priced. The 169 lenders that closed operations also tended to extend larger loans than did other lenders, and these lenders were more likely to lend in the western region of the United States and in U.S. metropolitan areas that experienced greater recent declines in home values and greater increases in mortgage delinquencies.

Loan pricing is a complex process that may reflect a wide variety of factors about the level of risk a particular loan or borrower presents to the lender. As a result, the prevalence of higher-priced lending varies widely.

First, the incidence of higher-priced lending varies by product type. For example, manufactured-home loans show the greatest incidence of higher-priced lending (more than half of these loans are higher priced), because these loans are considered higher risk. In addition, first-lien mortgages are generally less risky than comparable junior-lien loans: 14.0 percent of first-lien conventional home purchase loans were reported as higher-priced in 2007, compared with 21.6 percent of comparable junior-lien loans.

Second, higher-priced lending varies widely by U.S. geographic region, reflecting among other things differences in regional housing and economic conditions and differences in the credit-risk profiles of borrowers by region. As in 2004, 2005, and 2006, many of the metropolitan areas reporting the greatest incidence of higher-priced lending in 2007 were in the southern region of the country, including a number of areas in Texas. Several West Coast metropolitan areas also reported elevated incidences of higher-priced lending in 2007. Overall, in many metropolitan areas in the South, Southwest, and West, 25 percent to 40 percent of the homebuyers who obtained conventional loans in 2007 received higher-priced loans.

Third, the incidence of higher-priced lending varies greatly among borrowers of different races and ethnicities. In 2007--as in 2004, 2005, and 2006--African-Americans and Hispanics were much more likely than non-Hispanic whites and Asians to receive higher-priced loans. For example, in the second half of 2007, 29.5 percent of African-American borrowers and 24.3 percent of Hispanic borrowers received higher-priced, first-lien conventional home purchase loans, compared with 9.2 percent of non-Hispanic white and 5.6 percent of Asian borrowers.18 Because HMDA data lack information about credit risk and other legitimate pricing factors, it is not possible to determine from HMDA data alone whether the observed pricing disparities and market segmentation reflect discrimination. When analyzed in conjunction with other fair lending risk factors and supervisory information, however, the HMDA data can facilitate fair lending supervision and enforcement (see the "Fair Lending" discussion earlier in this chapter).

Examinations and Activities Related to the Community Reinvestment Act

The Community Reinvestment Act (CRA) requires that the Federal Reserve and other banking agencies encourage financial institutions to help meet the credit needs of the local communities in which they do business, consistent with safe and sound operations. To carry out this mandate, the Federal Reserve

The Federal Reserve assesses and rates the performance of state member banks under CRA in the course of examinations conducted by staff at the 12 Reserve Banks. During the 2008 reporting period, the Reserve Banks conducted 243 CRA examinations: 35 of the banks were rated Outstanding, 204 were rated Satisfactory, 4 were rated Needs to Improve, and none was rated Substantial Noncompliance.20

Annual Release of CRA Distressed or Underserved List

In May 2008, the Federal Reserve and other federal bank and thrift regulatory agencies21 released the 2008 list of "distressed" or "underserved" nonmetropolitan, middle-income geographies where bank revitalization or stabilization activities will receive consideration as "community development" under CRA. "Distressed" or "underserved" geographies are designated by the agencies in accordance with their CRA regulations. In accordance with 2005 CRA regulatory changes, the agencies annually designate "distressed" and "underserved" geographies, and post the list of these geographies on the FFIEC website.

Supervisory Practices regarding Banking Organizations Affected by Hurricanes

In September 2008, the Federal Reserve released a joint supervision and regulation (SR) and consumer affairs (CA) letter reaffirming a longstanding policy to use available regulatory flexibility to facilitate the recovery efforts of banking organizations affected by hurricanes. Banking organizations supervised by the Federal Reserve were encouraged to work with Reserve Bank supervisory and operations staff to resolve any operational issues resulting from Hurricane Gustav or any subsequent storms. The letter encouraged banking organizations to work with borrowers and other customers in affected areas, and recognized that banking organizations may have to take prudent steps to modify, extend, or restructure existing loans in areas affected by 2008 hurricanes.

A separate CA letter, issued in October 2008, extended for an additional 36 months the period for examiners to recognize community development activities related to revitalization or stabilization activities in the Gulf Coast areas affected by Hurricanes Rita and Katrina. The extension was based on the continued need for long-term recovery efforts in those communities affected by these hurricanes.

Analysis of Applications for Mergers and Acquisitions in relation to CRA

Throughout 2008, the Board considered applications for several significant banking mergers. In June, the Board approved the application by Bank of America Corporation, Charlotte, North Carolina, one of the nation's largest depository institutions, to acquire Countrywide Financial Corporation, Calabasas, California. Public meetings were held in Chicago, Illinois, and Los Angeles, California, to allow interested persons the opportunity to present oral testimony on the factors the Board must review under the Bank Holding Company Act.

Several other significant applications were

The public submitted comments related to concerns about consumer compliance or CRA issues on nine applications. Many of the commenters referenced pricing information on residential mortgage loans and concerns that minority applicants were more likely than nonminority applicants to receive higher-priced mortgages. These concerns were largely based on observations of lenders' 2006 and 2007 HMDA pricing data. Other issues raised by commenters included incidents where minority applicants were allegedly denied mortgage loans more frequently than nonminority applicants, where potentially predatory lending was practiced by subprime and payday lenders, where branch closings created potentially adverse effects, and where lenders allegedly failed to effectively address the needs of low- and moderate-income communities. In addition, the Board also received comments about the adverse effects of increased foreclosures, especially in low- and moderate-income communities.

The Board considered an additional 59 expansionary applications by bank holding companies or state member banks with outstanding issues involving compliance with consumer protection statutes and regulations, including several related to CRA or fair lending laws. Of those applications, 55 were approved, three were withdrawn (including one with an adverse CRA rating), and one was returned due to an adverse consumer compliance rating.

The Board also considered several nontraditional bank holding company applications from commercial entities with banking affiliates, including GMAC, LLC, in Detroit, Michigan, and CIT Group, Inc., in New York, New York. These entities were required to become bank holding companies in order to participate in the TARP program administered by the Department of the Treasury. CRA and consumer compliance performance records of those banking affiliates were factors considered by the Board in approving the applications.

Bank Examiner Training and Guidance

Ensuring that financial institutions comply with the laws that protect consumers and encourage community reinvestment is an important part of the Federal Reserve's bank examination and supervision process. As the number and complexity of consumer financial transactions have grown, training for examiners of the organizations under the Federal Reserve's supervisory responsibility has become even more crucial. The Board's consumer compliance examiner training curriculum consists of six courses, focused on various consumer protection laws, regulations, and examination concepts. In 2008, these courses were offered in 12 sessions where nearly 200 consumer compliance examiners and System staff members participated.

Board and Reserve Bank staff regularly review the core curriculum for examiner training, updating subject matter and adding new elements as appropriate. During 2008, staff conducted a curriculum review of the Consumer Compliance Examinations II (CA II) course in order to incorporate recent technical changes in policy and laws, along with changes in instructional delivery techniques. This course, renamed Real Estate Lending Examination Techniques, enables assistant examiners to focus on the fundamental skills necessary to determine a bank's compliance with consumer laws and regulations as they apply to real estate products. Examiners also learn about the Federal Reserve System policies and regulatory requirements associated with the residential real estate lending examination, including annual percentage rate calculations. In addition, Board and Reserve Bank staff conducted an interim curriculum review of the Consumer Affairs Risk-focused Examination Techniques course to update and realign technical content with the risk-focused examination procedures.

The consumer compliance examiner training curriculum was included in the System's content mapping initiative. These content maps provide stakeholders--staff development experts throughout the Federal Reserve--a "bird's eye view" of individual instructional learning objectives and topics for all of the courses included in the Federal Reserve's examiner commissioning program. The goal of the mapping initiative is to facilitate modularization of course content for "just-in-time training" and periodic sourcing of course content for core proficiency examinations.

When appropriate, courses are delivered by methods alternative to classroom training, such as via the Internet or other distance-learning technologies. Several courses use a combination of instructional methods: (1) classroom instruction focused on case studies, and (2) specially developed computer-based instruction that includes interactive self-check exercises.

In addition to providing core training, the examiner curriculum emphasizes the importance of continuing professional development. In 2008, the System initiated a powerful training delivery method, entitled Rapid Response, to better meet this need. In contrast to a much longer and more traditional training development and delivery model, technical and instructional content on time-sensitive or emerging topics are being designed, developed, and presented to System staff within days or weeks of any perceived need.

Statement to Financial Institutions Servicing Residential Mortgages on Reporting Loss Mitigation of Subprime Mortgages

In March 2008, DCCA and the Division of Banking Supervision and Regulation jointly released a statement that encourages financial institutions that service subprime mortgage loans to report their loss-mitigation activities consistent with uniform standards.22 The statement encourages financial institutions to consider utilizing loan modification reporting standards provided by the HOPE NOW alliance, and emphasizes that standard reporting will help investors in securitized mortgages, including financial institutions, monitor foreclosure prevention efforts.23 It also notes that consistent loan modification reporting will foster transparency in the securitization market and provide standardized data across the mortgage industry. The latest statement follows previous statements, issued by the Federal Reserve and the other federal banking agencies, that encourage financial institutions to work constructively with residential borrowers who are financially unable to make contractual payment obligations on their home loans.24

Interagency Examination Procedures for the Department of Defense's Final Rule on Limitations on Consumer Credit Extended to Service Members and Dependents (Talent Amendment)

In July 2008, DCCA issued interagency examination procedures associated with establishing compliance with a Department of Defense (DoD) rule limiting the extension of consumer credit to service members and their dependents (the Talent Amendment). The examination procedures are intended to help determine a service provider's compliance with regulations issued by the DoD regarding limitations on the amount of consumer credit that may be extended to service members and dependents for payday loans, motor vehicle title loans, and tax refund anticipation loans. The rule applies to all persons engaged in the business of extending such credit and their assignees, and limits the amount that a creditor can charge service members and their dependents in connection with these transactions. Total charges must be expressed as a total dollar amount and as an annualized rate referred to as the "Military Annual Percentage Rate" or "MAPR," and which may not exceed 36 percent.

Interagency Examinations Concerning Affiliate Marketing Standards

In August 2008, DCCA issued interagency examination procedures associated with establishing compliance with a regulation implementing Section 624 of the Fair Credit Reporting Act (FCRA), as amended by the FACT Act. This "affiliate marketing regulation" generally prohibits a financial institution from using certain information received from an affiliate to make a solicitation to a consumer unless the consumer is given notice and a reasonable opportunity to opt out of such solicitations, and the consumer does not opt out. The final rule applies to information obtained from the consumer's transactions or account relationships with an institution's affiliate, from any application the consumer submitted to an affiliate, and from third-party sources, such as credit reports, if the information will be used to send marketing solicitations.

Interagency Examinations Concerning Identity-Theft Red Flags and Other Regulations under the Fair Credit Reporting Act

In October 2008, DCCA and the Board's Division of Banking Supervision and Regulation jointly released interagency25 examination procedures associated with establishing compliance with regulations implementing several sections of the FCRA, as amended by the FACT Act. The procedures established the agencies' expectations for financial institutions and examination staff with respect to the final rules and guidelines regarding identity-theft red flags as well as for other regulations under FCRA. The regulatory provisions focused on the duties of users of consumer reports regarding address discrepancies; the duties of financial institutions and creditors in detecting, preventing, and mitigating identity theft; the duties of card issuers regarding changes of address; and the duties of financial institutions regarding affiliate marketing practices.

A new identity-theft red-flags rule requires a financial institution to periodically determine whether it offers or maintains consumer accounts susceptible to identity theft. For accounts covered under the new rule, an institution must develop and implement a written identity-theft prevention program that detects, prevents, and mitigates identity theft involving new or existing covered accounts. The program must be appropriate to the size and complexity of the financial institution and the nature and scope of its activities. A new card-issuer rule requires credit and debit card issuers to develop reasonable policies and procedures to assess the validity of requests for changes of address followed closely by requests for additional or replacement cards. In such situations, the card issuer must not issue an additional or replacement card until it assesses the validity of the change of address in accordance with its policies and procedures.

Examinations Concerning Truth in Savings Disclosures

In July 2008, DCCA issued updated interagency examination procedures associated with establishing compliance with Regulation DD (Truth in Savings). The updated procedures incorporate recommendations made by the Government Accountability Office (GAO) in a report issued in March 2008 entitled Bank Fees: Federal Banking Regulators Could Better Ensure That Consumers Have Required Disclosure Documents Prior to Opening Checking or Savings Accounts (GAO-08-281). The study suggests that, despite regulatory disclosure requirements, consumers may find it difficult to obtain information about checking and savings account fees. As a result of the study, the GAO recommended that federal banking regulators assess the extent to which customers receive disclosures on fees, terms, and conditions prior to opening an account. It also recommended that the agencies incorporate appropriate steps into their oversight programs to ensure that disclosures continue to be made available.

The Board's updated Regulation DD examination procedures emphasize the existing requirement to provide full account disclosure (e.g., fees, terms, and conditions) to a consumer, upon request, whether or not the consumer is an existing or a prospective customer. The revisions also highlight that the disclosures should be provided at the time of the request if the consumer makes the request in person, or within 10 days if the consumer is not present when making the request. The revisions to the procedures also remind examiners that institutions must maintain evidence of compliance with Regulation DD, including the requirement to provide consumer disclosures upon request.

Interagency Examinations Concerning Electronic Fund Transfers

In August 2008, DCCA issued approved interagency examination procedures associated with establishing compliance with Regulation E (Electronic Fund Transfers). The updated procedures incorporate all amendments to Regulation E (and the Federal Reserve's Official Staff Commentary) since a prior version was released in 1998. Among other changes, the procedures clarify the responsibilities of parties involved in electronic check conversion transactions, include a requirement that consumers receive written notification in advance of these transactions, and revise the Official Staff Commentary to provide guidance on preauthorized transfers from consumers' accounts, error resolution, and disclosures at automated teller machines.

Interagency Statement on Lending to Creditworthy Borrowers

In November 2008, the agencies issued an Interagency Statement on Meeting the Needs of Creditworthy Borrowers. In implementing this statement, institutions were encouraged to lend prudently and responsibly to creditworthy borrowers, work with borrowers to preserve homeownership and avoid preventable foreclosures, adjust dividend policies to preserve capital and lending capacity, and employ compensation structures that encourage prudent lending. The statement emphasized that the agencies expect banking organizations to work with existing borrowers to avoid preventable foreclosures, which can be costly to both the organizations and to the communities they serve, and to mitigate other potential mortgage-related losses. The agencies urged that all lenders and servicers seek modifications that result in mortgages that borrowers will be able to sustain over the remaining maturity of their loans. The statement also emphasized that the agencies will fully support banking organizations as they work to implement effective and sound loan modification programs.

Flood Insurance

The National Flood Insurance Act imposes certain requirements on loans secured by buildings or mobile homes located in, or to be located in, areas determined to have special flood hazards. Under Regulation H, which implements the act, state member banks are generally prohibited from making, extending, increasing, or renewing any such loan unless the building or mobile home--and any personal property securing the loan--are covered by flood insurance for the term of the loan. Moreover, the act requires the Board and other federal financial institution regulatory agencies to impose civil money penalties when it finds a pattern or practice of violations of the regulation. The civil money penalties are payable to the Federal Emergency Management Agency for deposit into the National Flood Mitigation Fund.

In March 2008, the agencies, along with the National Credit Union Administration (NCUA) and Farm Credit System, requested public comment on new and revised interagency questions and answers regarding flood insurance. The agencies proposed substantive as well as technical revisions to existing guidance to help financial institutions meet their responsibilities under federal flood insurance legislation and increase public understanding of the flood insurance regulations. Final action on these proposed revisions is expected in 2009.

During 2008, the Board imposed civil money penalties against four state member banks that violated the act. The penalties, which were assessed via consent orders, totaled $17,790.

Agency Reports on Compliance with Consumer Protection Laws

The Board reports annually on compliance with consumer protection laws by entities supervised by federal agencies. This discussion summarizes data collected from the 12 Federal Reserve Banks and the FFIEC member agencies (collectively, the FFIEC agencies), as well as other federal enforcement agencies.26

Regulation B (Equal Credit Opportunity)

The FFIEC agencies reported that 85 percent of institutions examined during the 2008 reporting period were in compliance with Regulation B, which equals the level of compliance for the 2007 reporting period. The most frequently cited violations involved

The FFIEC agencies did not issue any public enforcement actions specific to Regulation B during the reporting period.

The Farm Credit Administration, the Department of Transportation, the Securities and Exchange Commission, the Small Business Administration, and the Grain Inspection, Packers and Stockyards Administration of the United States Department of Agriculture reported substantial compliance among the entities they supervise.

Regulation E (Electronic Fund Transfers)

The FFIEC agencies reported that approximately 94 percent of the institutions examined during the 2008 reporting period complied with Regulation E, which equals the level of compliance for the 2007 reporting period. The most frequently cited violations involved the failure to take one or more of the following actions:

The FFIEC agencies did not issue any formal enforcement actions specific to Regulation E during the period.

Regulation M (Consumer Leasing)

The FFIEC agencies reported that more than 99 percent of institutions examined during the 2008 reporting period complied with Regulation M, which equals the level of compliance for the 2007 reporting period. The FFIEC agencies did not issue any formal enforcement actions relating to Regulation M during the period.

Regulation P (Privacy of Consumer Financial Information)

The FFIEC agencies reported that 97 percent of the institutions examined during the 2008 reporting period complied with Regulation P, which equals the level of compliance for the 2007 reporting period. The most frequently cited violations involved the failure to take one or more of the following actions:

The FFIEC agencies did not issue any formal enforcement actions relating to Regulation P during the reporting period.

Regulation Z (Truth in Lending)

The FFIEC agencies reported that 81 percent of the institutions examined during the 2008 reporting period were in compliance with Regulation Z, compared with 82 percent in 2007. The most frequently cited violations involved the failure to accurately disclose one or more of the following:

In addition, 146 banks supervised by the Federal Reserve, FDIC, OCC, and OTS were required, under the Interagency Enforcement Policy in Regulation Z, to reimburse a total of approximately $2.77 million to consumers for understating annual percentage rates or finance charges in their consumer loan disclosures.

The FFIEC agencies did not issue any public enforcement actions specific to Regulation Z during the reporting period. The Department of Transportation continued to prosecute one air carrier for its improper handling of credit card refund requests and other Federal Aviation Act violations.

Regulation AA (Unfair or Deceptive Acts or Practices)

The FFIEC agencies reported that more than 99 percent of the institutions examined during the 2008 reporting period were in compliance with Regulation AA, which equals the level of compliance for the 2007 reporting period. No formal enforcement actions relating to Regulation AA were issued during the reporting period.

Regulation CC (Availability of Funds and Collection of Checks)

The FFIEC agencies reported that 89 percent of institutions examined during the 2008 reporting period were in compliance with Regulation CC, compared with 90 percent for the 2007 reporting period. The most frequently cited violations involved the failure to take one or more of the following actions:

The FFIEC agencies did not issue any public enforcement actions specific to Regulation CC during the reporting period.

Regulation DD (Truth in Savings)

The FFIEC agencies reported that 86 percent of institutions examined during the 2008 reporting period were in compliance with Regulation DD, compared with 88 percent for the 2007 reporting period. The most frequently cited violations involved the failure to take one or more of the following actions:

The FFIEC agencies did not issue any public enforcement actions specific to Regulation DD during the reporting period.

Consumer Complaints and Inquiries

The Federal Reserve investigates complaints against state member banks, and forwards complaints against other creditors and businesses to the appropriate enforcement agency. Each Reserve Bank investigates complaints against state member banks in its District. The Federal Reserve also responds to consumer inquiries on a broad range of banking topics, including consumer protection questions.

The Federal Reserve centralized processing of consumer complaints and inquiries in late 2007, with the establishment of Federal Reserve Consumer Help (FRCH). In 2008, its first full year of operation, FRCH processed 36,996 cases. Of these cases, 19,515 (53 percent) were inquiries and 17,481 (47 percent) were complaints, with most cases received directly from consumers. Approximately six percent were referred from other agencies.

While consumers can contact FRCH by phone, fax, mail, e-mail, or online, most FRCH consumer contacts occurred by telephone. Nevertheless, online complaints submissions totaled 5,147 (29 percent) of all complaints received in 2008, and the online form received over 300,000 visits during the year.

Consumer Complaints

Complaints against state member banks totaled 5,520 in 2008. Most of these complaints, 2,411 (44 percent) were closed without investigation pending the receipt of additional information from consumers. Of the remaining 3,109 complaints, 2,173 (70 percent) involved unregulated practices and 936 (30 percent) involved regulated practices.

The Federal Reserve forwarded 11,966 complaints against other banks and creditors to the appropriate regulatory agencies for investigation. To minimize the time required to re-route complaints to these agencies, referrals were transmitted electronically.

Complaints against State Member Banks about Regulated Practices

Complaints against State Member Banks That Involve Regulated Practices, by Classification, 2008
Classification Number
Regulation AA (Unfair or Deceptive Acts or Practices) 117
Regulation B (Equal Credit Opportunity) 30
Regulation C (Home Mortgage Disclosure Act) 8
Regulation E (Electronic Funds Transfers) 116
Regulation M (Consumer Leasing) 3
Regulation P (Privacy of Consumer Financial Information) 41
Regulation Q (Payment of Interest) 0
Regulation Z (Truth in Lending) 247
Regulation BB (Community Reinvestment) 0
Regulation CC (Expedited Funds Availability) 122
Regulation DD (Truth in Savings) 71
Regulation V (Fair and Accurate Credit Transactions) 9
Fair Credit Reporting Act 72
Fair Debt Collection Practices Act 62
Fair Housing Act 3
National Flood Insurance Act/Insurance Sales 6
Home Ownership Counseling 1
HOPA (Homeowners Protection Act) 0
Real Estate Settlement Procedures Act 18
Right to Financial Privacy Act 10
Total 936

The majority of regulated-practice complaints concerned checking account (28 percent) and credit card (26 percent) activity. The most common checking account complaints related to insufficient funds or overdraft charges and procedures (33 percent), funds availability (13 percent), and disputed withdrawals of funds (15 percent). The most common credit card complaints concerned billing error resolutions (14 percent), "other rates, terms and fees" (12 percent) and debt-collection practices (9 percent).

Real estate-related complaints27 made up 18 percent of total complaints. Of those, 48 percent related to home-purchase loans, 32 percent to home equity credit lines, and only one percent (or two complaints) concerned adjustable rate mortgages. The most common complaints related to real estate-related payment errors and delays (14 percent), "other rates, terms, and fees" (10 percent), and escrow account problems (9 percent).

Seventeen complaints (2 percent) alleged discrimination on the basis of prohibited borrower traits or rights (race, color, religion, national origin, sex, marital status, handicap, age, applicant income deriving from public assistance programs, or applicant reliance on Consumer Credit Protection Act provisions). Sixty-five percent of discrimination complaints were related to the race or national origin of the applicant or borrower.

In the substantial majority (80 percent) of investigated complaints against state member banks, gathered evidence revealed that banks correctly handled the situation. Of the remaining 20 percent, 5 percent were deemed law violations, 3 percent were general errors, and the remainder mainly involved factual disputes or litigated matters. The most common violations involved checking accounts and credit cards.

Complaints against State Member Banks That Involve Regulated Practices, 2008
Subject of Complaint All complaints Complaints involving violations
Number Percent Number Percent
Total 936 100 44 5
Discrimination alleged
Real estate loans 10 1 1 .1
Credit cards 1 .1 0 0
Other loans 6 1 0 0
Nondiscrimination complaints1
Credit cards 245 26 6 1
Checking accounts 264 28 16 2
Real estate loans 156 18 7 1

1. Only the top three product categories of nondiscrimination complaints are listed here.  Return to table

Unregulated Practices

As required by section 18(f) of the Federal Trade Commission Act, the Board continued to monitor complaints about banking practices not subject to existing regulations, with a focus on instances of potential unfair or deceptive practices. In 2008, the Board received 2,119 complaints against state member banks that involved these unregulated practices. Most complaints concerned credit card and checking account activity. More specifically, consumers most frequently complained about issues involving insufficient funds or overdraft charges and procedures (386), deposit forgery, fraud, embezzlement or theft (91), concerns about credit card interest rates, terms, and fees (87), and concerns about opening and closing deposit accounts (80).

Complaint Referrals to HUD

In 2008, the Federal Reserve forwarded three complaints to the Department of Housing and Urban Development that alleged violations of the Fair Housing Act.28 The Federal Reserve's investigation of these complaints revealed no evidence of illegal credit discrimination.

Consumer Inquiries

In 2008, the Federal Reserve received 19,515 inquiries from consumers related to a wide range of topics. Of these, 4,488 (23 percent) fell into the "other" category, with several inquiries related to personal and national economic conditions and several inquiries related to regulatory changes or proposals under consideration. The top three consumer protection issues documented with specific codes were the following: adverse action notices received pursuant to the Equal Credit Opportunity Act (13 percent), consumer protection regulations (7 percent), and pre-approved credit solicitations (7 percent). Consumers were typically directed to other resources, including other federal agencies or written materials, to address their inquiries.

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Outreach and Response to Community Development Needs in Historically Underserved Communities and Markets

The mission of the community affairs function within the Federal Reserve System is to promote community economic development and fair access to credit for low- and moderate-income communities and populations. A decentralized function, the Community Affairs Offices (CAOs) are maintained at each of the 12 Reserve Banks, where CAO staffs design activities in response to the needs of communities in the Districts they serve, with oversight of operations provided by Board staff. The CAOs focus on providing information and promoting awareness of investment opportunities to financial institutions, government agencies, and organizations that serve low- and moderate-income people and communities. Similarly, the Board's CAO promotes and coordinates Systemwide community development efforts; in particular, Board community affairs staff focus on issues that have public policy implications.

In 2008, the Board's regulatory and supervisory actions were augmented by the System's Community Affairs staff activities to address the negative impact of foreclosures on individuals and communities. Community Affairs staff developed online Foreclosure Resource Centers on the websites of each Reserve Bank and the Board. These centers provide up-to-date information regarding resources available to distressed borrowers, local governments, and lenders. Community Affairs analysts and outreach specialists continued to use their longstanding networks of industry and community relationships to convene meetings and provide information to local community and business leaders, government officials, consumer and community groups, and others engaged in addressing the foreclosure issue locally. To complement these efforts, System research staff collected and analyzed data on real estate and subprime mortgage conditions, and provided regional foreclosure projections and in-depth analysis of the incidence of defaults within particular areas to support state and local government efforts to develop action plans under the Neighborhood Stabilization Program (NSP). In addition, visiting scholar Alan Mallach, of the Federal Reserve Bank of Philadelphia, published a discussion paper, How to Spend $3.92 Billion: Stabilizing Neighborhoods by Addressing Foreclosed and Abandoned Properties. The paper serves to assist states, counties, and cities in determining the best use of funds distributed under the Housing and Economic Recovery Act of 2008 (HERA).

Federal Reserve Community Affairs staff also hosted a number of events, conferences, and meetings on the topic of foreclosure in 2008. The System developed a conference series, Renewal, Recovery, Rebuilding: A Federal Reserve System Foreclosure Series, to highlight issues and best practices in weak as well as strong housing markets (see Foreclosures: Responding to Consumers and Communities in Crisis through the Federal Reserve's Home Mortgage Initiative in the "Mortgage Credit" discussion earlier in this chapter). The culmination of the series, held at the Board's offices in Washington, D.C., were presentations on the challenges of valuing foreclosed properties, on the NSP program, and on the issuance of best practices for dealing with large numbers of foreclosures developed in communities such as Flint, Michigan and Youngstown, Ohio.

The System also continued to work with the HOPE NOW alliance, a collaboration of counselors, servicers, investors, and other mortgage market participants. Many Reserve Banks co-sponsored "foreclosure mitigation" events, bringing distressed borrowers together with counselors and mortgage servicers to discuss and, where possible, to implement loan compromises between borrowers and lenders. The largest such event drew more than 2,000 borrowers to Gillette Stadium in Foxboro, Massachusetts. The Federal Reserve Bank of Boston is working to track the success of the loan modifications that were arranged at that event and to better understand any limitations of the current modification structure. Similar events have either been held or are planned in other Reserve Bank districts.

The Board and System worked with NeighborWorks America on a unique partnership to (1) address the impact of foreclosures on neighborhoods by jointly developing the tools and training necessary to help local governments and nonprofit organizations, and (2) evaluate approaches and tailor responses to address the increase in foreclosures and real-estate-owned (REO) properties. The partnership, begun in May 2008, not only builds on an existing relationship with NeighborWorks (Federal Reserve staff serve on its Board of Directors), but also leverages the System's ability to conduct data analysis, research, and outreach to address issues related to neighborhood stabilization. As part of the partnership, the Board supported the development of a new website,29 and new courses for the NeighborWorks Training Institute, which helps ensure effective management of REO properties. In addition to being offered as part of the Training Institute, these courses are designed to be portable so that they can be brought directly to communities in 2009.

Finally, the Community Affairs programs at all 12 Reserve Banks and the Board of Governors collaborated to publish The Enduring Challenge of Concentrated Poverty: Case Studies from Communities Across the U.S.(7 MB PDF), a project undertaken by Community Affairs in partnership with the Brookings Institution. The report was undertaken to develop a deeper understanding of the relationship between "poverty, people, and place." The Board hosted a policy forum to highlight issues raised in the case studies and to discuss place-based and people-based policy solutions, such as workforce development and education, to address problems prevalent in communities experiencing concentrated poverty.

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Advice from the Consumer Advisory Council

The Board's Consumer Advisory Council--whose members represent consumer and community organizations, the financial services industry, academic institutions, and state agencies--advises the Board of Governors on matters of Board-administered laws and regulations as well as other consumer-related financial services issues. Council meetings, open to the public, were held in March, June, and October. For a list of members of the Council, see the "Federal Reserve System Organization" section in this report; also, visit the Board's website for transcripts of Council meetings.30

Three significant topics of discussion for the Council in 2008 were

Proposed Rules for Home Mortgage Loans

In its March meeting, the Council addressed various issues related to consumer protections proposed under Regulation Z (see the "Mortgage Credit" discussion earlier in this chapter).

Some industry representatives endorsed the Board's approach to define subprime loans based on the annual percentage rate (APR) charged rather than on other loan features, but they expressed the view that the proposed definition would be too broad and would cover many prime loans. One member recommended using a mortgage-rate (instead of Treasury-securities) index to set the threshold and apply a different spread for first-lien loans. Another member commented that any APR threshold or other definitional trigger for higher-priced loans would be, at times, under-inclusive or over-inclusive, and expressed a preference for erring on the side of over-inclusion.

Several consumer representatives expressed support for the Board's proposal under which a creditor would be prohibited from engaging in a "pattern or practice" of lending based on the collateral without regard to the consumer's ability to make scheduled payments. They emphasized the importance of establishing rules for prudent underwriting. Offering the perspective of community banks, an industry representative commented that such institutions generally follow rigorous underwriting standards, but noted that they sometimes need flexibility to adjust their practices to meet the needs of particular customers. Regarding the proposal's "pattern or practice" provision, members expressed concern about the difficulty of establishing proof of a pattern or practice in litigation, and urged the Board to clarify what constitutes a pattern or practice. Some members noted that the "pattern or practice" provision sets up significant hurdles for individual consumers to bring cases against lenders. Members presented a variety of views about the idea of designating a bright-line presumption of a violation, or a safe harbor, for repayment ability at a 50 percent debt-to-income (DTI) ratio. Several members cautioned against using the 50 percent DTI ratio or another specific number in the regulation.

Several members endorsed the use of third-party documentation to verify income and assets, noting that such flexibility would help address the needs of different borrowers. A consumer representative urged the Board to clarify whether nontraditional forms of documentation from small- or micro-business owners would be acceptable under the regulation.

Various members endorsed a complete ban on prepayment penalties for higher-priced loans. They expressed concern that prepayment penalties are not balanced by lower interest rates for subprime borrowers, who are often the least financially sophisticated consumers and for whom there is no well-known interest-rate benchmark for negotiating better loan terms. Several industry representatives expressed the view that, although there have been problems with prepayment penalties in the subprime market, they can be useful tools and yield lower interest rates for consumers. Industry representatives suggested that prepayment penalties can be effectively regulated, such as through better disclosure and limits on duration or amount. Both consumer and industry representatives agreed that the five-year duration permitted in the proposal for penalties would be too long, and considered it not reflective of current best practices in the industry.

There was general support among Council members for proposed mandatory escrow accounts as a way to help ensure the successful performance of higher-priced loans. In considering the option to cancel escrow accounts 12 months after consummation, one member expressed the view that 12 months would be too short, especially for more financially vulnerable borrowers or first-time homeowners. Several industry representatives noted the potential impacts of mandatory escrow accounts on financial institutions' business processes.

In the discussion of yield-spread premiums, some members expressed support for requiring the same compensation disclosures for all loan originators in order to facilitate better comparisons among products and services as well as to better ensure fair lending. Other members supported applying the proposed disclosure rules only to brokers. Some members spoke against the idea of establishing an agreement characterized by a specific compensation figure before the loan application is received. In the absence of key information about the borrower or the loan product, the broker would have to disclose the highest possible fee, which would not be useful to the particular borrower. One member noted that, in the subprime market, loan applications and fees are often taken at closing, and recommended that the Board consider another trigger for the written agreement that would more likely occur earlier.

Consumer representatives generally supported the proposal's advertising restrictions. They specifically endorsed a "bright-line" rule for use of the word "fixed" in advertisements, permitting it only if the rate or payment would not change for the entire length of the loan.

Members expressed support for the proposed rules regarding servicing practices. An industry member noted that most of the rules, such as crediting payments as of the date of receipt and not pyramiding late fees, are consistent with current best practices in the industry. Other members expressed concern about the difficulty of accurately disclosing third-party fees, which may change without notice, and potential compliance challenges if a re-disclosure is required whenever a third-party fee changes.

There was general consensus regarding the provisions prohibiting coercion of appraisers, with one member noting that the rule should highlight the more subtle ways of unduly influencing the appraisal process.

Under the proposal, creditors would be required to provide transaction-specific cost disclosures earlier. Some members cautioned that providing disclosures earlier would not clarify loan terms for consumers, who could end up with several sets of disclosures as various details changed during the loan process. One member expressed concern about the proposed rule regarding what fees can be collected before early disclosures are provided. Another member stated that providing the cost disclosures early in the application process would not address a key issue, which is that estimates generally change by the time loans close.

Proposed Rules for Credit Cards and Overdraft Services

In its June and October meetings, the Council's discussions focused on various aspects of the Board's proposed rules to prohibit unfair or deceptive acts or practices in connection with credit card accounts and overdraft services for deposit accounts (see the "Credit Cards" discussion earlier in this chapter).

Credit Card Accounts

Some industry representatives expressed concern about labeling certain practices that are used widely among financial institutions as unfair or deceptive, and urged the Board to consider issuing many of the credit card rules under TILA. Other members supported issuing the rules under the FTC Act rather than TILA. They expressed the view that institutions would face little new litigation risk from the proposal, especially if the regulations have clear safe harbors.

In the discussion of payment allocation, consumer representatives encouraged the Board to require that payments be allocated first to balances with the highest APR. Several members commented that a single allocation method would make credit pricing more transparent to consumers and would provide a level playing field for creditors. Some consumer representatives emphasized the benefit to less sophisticated consumers of allocating payments first to the highest APR balance.

Industry representatives supported the current industry practice of allocating payments to the lowest APR balance first, expressing the view that the proposed pro rata and equal portion allocation methods would be confusing to consumers. They also cautioned that switching to the proposed allocation methods likely would lead to higher credit costs and reduced access to credit as institutions seek to offset losses in revenue. Some members urged the Board, in applying the approved payment-allocation methods, to treat promotional rate balances and deferred interest balances in the same way as other balances.

Several members supported the proposal to restrict creditors' ability to increase rates on existing balances, emphasizing that it would provide safeguards for both consumers and lenders. They noted that consumers may not be able to prevent risk-based repricing solely through their behavior because often they lack information about how credit scores are determined and can change. Industry representatives opposed the proposal, saying it would eliminate a key risk-management tool for creditors. They stated that, due to lost revenues, overall pricing for credit may increase and credit availability may decline if creditors cannot apply risk-based pricing to their riskiest customers. Industry representatives also urged the Board to consider expanding the circumstances where existing balances can be repriced to include other consumer behavior that raises concerns about a borrower's risk.

There was general support among the Council members for restricting the practice of financing security deposits and initial fees that use up most of a borrower's credit limit. Several members expressed concern that the percentages in the proposed rule would be too high, and they cautioned that those thresholds could become the standard. One member recommended that the financing of security deposits and fees should be spread out beyond the proposed 12 months.

Members disagreed about the appropriateness of the proposed safe harbor for mailing periodic statements 21 days before a payment's due date, particularly given the trend toward electronic payments. There was general agreement among the members about the proposed provisions regarding cut-off times and due dates for mailed payments. Several members recommended that the rule apply to all types of payments. Consumer representatives endorsed the ban on two-cycle billing, and expressed support for the proposed provision regarding firm offers of credit.

Overdraft Services

The Board's overdraft services proposal would prohibit banks from imposing a fee for paying an overdraft unless the bank provides the consumer with an opportunity to opt out of the overdraft payment and the consumer has not done so. Industry representatives recommended issuing the rules under Regulation E (Electronic Fund Transfer Act) rather than the FTC Act, expressing the view that overdraft services do not constitute an unfair or deceptive practice because they provide important benefits to consumers. Industry representatives supported the proposed right to opt out of the payment of overdrafts and described potential operational difficulties with an opt-in. They also suggested additional exceptions under which overdrafts should be paid and a fee charged even if the consumer has opted out.

Several other members urged the Board to require institutions to gain consumers' affirmative consent for overdraft payments with an opt-in, commenting that banks would be more likely to provide clear information about overdraft services to their customers. They expressed concern that consumers are currently enrolled in overdraft programs automatically, which they described as an expensive form of credit that often poses more harm than benefits for low- and moderate-income consumers, especially college-age students and the elderly. Some members supported the proposed rule requiring institutions to allow consumers to opt out of overdrafts for ATM and point-of-sale transactions without opting out of overdraft services for checks. Industry representatives opposed the partial opt-out, and urged the Board to treat all transactions in the same way. There was general support for requiring notice of the opt-out at least once for each periodic statement cycle in which an overdraft fee or charge occurs.

Industry representatives commented on the operational challenges and the potential impact on consumers of a provision that would prohibit banks from imposing a fee when an account is overdrawn solely because a hold was placed on funds in the consumer's deposit account. Consumer representatives supported the provision, expressing the view that institutions should be able to readily address any operational issues. There was general consensus on the importance of faster settlement of authorized transactions so that debit holds can be released more quickly. Several members also expressed the view that consumers should receive better notice of debit holds from merchants at the point of sale so they can choose whether and how to proceed with the transaction.

In a discussion of disclosures related to overdraft services, several members emphasized the importance of disclosing, on the opt-out notice, any alternatives for the payment of overdrafts that the institution offers. Consumer representatives expressed support for disclosing on periodic statements the aggregate dollar amounts charged for overdraft fees and returned-item fees. Some members also stated that institutions, when they provide account-balance information, should not be permitted to include funds that would be available through overdrafts.

Foreclosure Issues

In its March and October meetings, the Council also addressed various issues related to the surge in foreclosures, including loss-mitigation strategies, counseling initiatives, and community stabilization efforts. The October discussion focused on two initiatives in HERA: the HOPE for Homeowners Program and the NSP.

In March, consumer representatives expressed concern about the capacity of servicers to engage in loss mitigation on a large scale. They stated that, despite some recent improvements, servicers generally are overwhelmed. Members pointed to other areas of concern regarding servicers, such as the lack of coordination between servicers' foreclosure and loss-mitigation departments as well as pressure for repayment workouts rather than modifications of loan rates or principal amounts. The efforts of the HOPE NOW alliance--coordinating servicer and lender work with borrowers and collecting and sharing data--were also highlighted.

In October, there was general agreement that the results of loss-mitigation efforts by servicers have been mixed, with some improvement in responsiveness but also continued backlogs and capacity issues. Several members also expressed concern about the voluntary nature of the HOPE for Homeowners Program for lenders, though industry representatives noted that the program is only one tool among various loss-mitigation strategies.

Several members expressed support for a more comprehensive plan to stem the increasing wave of foreclosures, including a moratorium on foreclosures and more systematic loan modifications. They urged the Board to use its influence with lenders and servicers to encourage them to pursue sustainable loan modifications. One member expressed support for court-ordered modifications of mortgages for principal residences. Several consumer representatives suggested that institutions participating in the Troubled Assets Relief Program (TARP) should be required to modify loans.

Industry representatives expressed the view that servicers and lenders increasingly recognize the importance of doing loan modifications that are sustainable for the long term, but a consumer advocate stated that many modifications still have too short-term a time frame. Several consumer representatives endorsed a focus on principal write-downs as a key way to achieve sustainable modifications. Industry representatives pointed to the difficulties in doing principal write-downs, and noted that focusing on affordability in loss mitigation can preserve homeownership even if the loss of equity is not addressed.

There was a consensus that timely, accurate, comprehensive, and accessible information about the scope of delinquencies and defaults and the outcomes of loss-mitigation efforts are critical to an effective analysis of foreclosure issues and proposed policies or solutions. Noting that some key data on these issues are privately held, several members supported the idea of a survey conducted by the Federal Reserve to ensure the credibility and comprehensiveness of the data collected.

Several members expressed concerns about the proliferation of firms that offer loan-modification or foreclosure-rescue services at high upfront fees, and consumer representatives described the need for greater support for counseling agencies.

Various members described the negative impact of the rising number of foreclosures in their communities, and expressed concern about the effects of foreclosure concentrations in low- and moderate-income neighborhoods. They also described various local efforts to respond to foreclosures, such as programs to provide counseling to struggling borrowers and initiatives to reclaim and rehabilitate foreclosed properties. Some consumer representatives recommended giving favorable Community Reinvestment Act (CRA) credit to institutions to address foreclosure-related issues, which could prompt banks to go beyond their usual work in low-income areas and take on initiatives related to foreclosures. Another member suggested that banks could get favorable CRA credit for foreclosure efforts that fall outside their assessment area, similar to what was permitted after Hurricane Katrina.

There was general support for the wide array of activities permitted under the NSP, which will give communities various strategies to address their specific challenges. One member emphasized the need to pay attention to fair-housing issues amid the NSP implementation. Another member commended the intent of the NSP but cautioned that its goals cannot be met if financial institutions do not resume lending for community development projects. He expressed the view that such lending could be tied to the receipt of TARP funds or could be accomplished through the network of the Community Development Financial Institutions Fund. The members generally agreed on the need for comprehensive and accurate data on real-estate-owned properties, so that communities can more effectively develop and evaluate their stabilization strategies.

Other Discussion Topics

At the Council's June meeting, members provided feedback on proposed regulations from the Board and the Federal Trade Commission to implement a provision of the Fair and Accurate Credit Transactions Act of 2003 (which amends the Fair Credit Reporting Act) that addresses risk-based pricing. An industry representative commended the Board for its attention to the goal of operational feasibility in implementing the proposal. Some members expressed support for defining "material terms" primarily with reference to the annual percentage rate because the bright-line test would make it easier for creditors to identify consumers who must receive risk-based pricing notices. In considering the proposed tests for identifying which consumers should receive notices, one member urged the Board to set forth a test to identify those consumers receiving less-favorable terms across the spectrum of creditors. Several members expressed concern about the vagueness of the proposed definition of "materially less favorable."

One member commented that while the risk-based pricing notices would aid consumers by encouraging them to check their consumer reports, they would benefit further if the notices advised that other factors also can affect the credit terms and if the notices gave examples of those factors. Members expressed divergent views about the Board's interpretation that the statute gives a consumer the right to request a free consumer report upon receipt of a risk-based pricing notice. An industry representative commended the Board for providing alternative approaches by which creditors could determine which consumers must receive risk-based pricing notices. Several members expressed support for the proposal's exceptions for prescreened credit solicitations and credit-score disclosures. One member urged the Board to require a notice for consumers who lack credit files, so that they might become aware of their lack of credit records and receive information on how to establish traditional credit files.

At the Council's October meeting, members discussed recent financial developments, including the challenges faced by banks and nonbank financial institutions, disruptions in credit markets, and the recently launched TARP. In the discussion of the challenges and opportunities presented by the current financial crisis, several members cited the need to encourage the flow of credit to communities, especially to low-income communities. They also highlighted the opportunity for Community Development Fund Institutions, community development banks, minority banks, and credit unions to continue their responsible lending activities, particularly in distressed communities. Members also commented on the importance of maintaining access to credit for small businesses. Both consumer and industry representatives emphasized the need for greater accountability from institutions that receive TARP funds to ensure that there are benefits for low- and moderate-income areas.

Another October discussion topic was the Board's analysis of the 2007 Home Mortgage Disclosure Act (HMDA) data (see the "Evaluating Pricing Discrimination Risk with HMDA Data and Other Information" discussion earlier in this chapter). Several consumer representatives pointed to the HMDA statistics (about higher-priced loan originations by independent mortgage companies and the percentage of higher-priced loans made to CRA-eligible customers) as evidence that CRA did not cause the subprime mortgage crisis. Various members urged the Board to use its data and analysis to rebut misperceptions about CRA, especially in connection with the subprime crisis, and to highlight the positive outcomes of CRA for low- and moderate-income individuals and communities.

1. See press release, "Board Issues Final Rule Amending Home Mortgage Provisions of Regulation Z" (July 14, 2008),   Return to text
2. See Summary of Findings, Consumer Testing of Mortgage Broker Disclosures (July 10, 2008), (7.45 MB PDF).  Return to text
3. See press release, "Federal Financial Regulators Issue Final Illustrations of Consumer Information for Hybrid Adjustable-Rate Mortgage Products" (May 22, 2008),  Return to text
4. See press release, "Federal Financial Regulatory Agencies Issue Final Statement on Subprime Mortgage Lending" (June 29, 2007),   Return to text
5. See press release, "Interagency Statement on Meeting the Needs of Creditworthy Borrowers" (November 12, 2008),  Return to text
6. See press release (May 23, 2007),  Return to text
7. See press release (May 2, 2008),  Return to text
8. See Design and Testing of Effective Truth in Lending Disclosures: Findings from Qualitative Consumer Testing Research, submitted to the Federal Reserve Board of Governors by Macro International, Inc. (December 15, 2008),, (15.1 MB PDF) and Design and Testing of Effective Truth in Lending Disclosures: Findings from Experimental Study, submitted to the Federal Reserve Board by Macro International, Inc. (December 15, 2008), (3 MB PDF).  Return to text
9. See press release (December 18, 2008), to text
10. See statement by Chairman Ben S. Bernanke (December 18, 2008),   Return to text
11. See statement by Governor Randall S. Kroszner (December 18, 2008), ;  Return to text
12. See press release (December 18, 2008),   Return to text
13. In general, the FACT Act amended the Fair Credit Reporting Act (FCRA) to enhance the ability of consumers to combat identity theft, increase the accuracy of consumer reports, and allow consumers to exercise greater control regarding the type and amount of solicitations they receive.  Return to text
14. See press release, "Agencies Issue Proposed Rules on Risk-Based Pricing Notices" (May 8, 2008),  Return to text
15. The 2008 reporting period for examination data was July 1, 2007, through June 30, 2008.Return to text
16. The foreign banking organizations examined by the Federal Reserve are organizations that operate under section 25 or 25A of the Federal Reserve Act (Edge Act and agreement corporations) and state-chartered commercial lending companies owned or controlled by foreign banks. These institutions are not subject to the Community Reinvestment Act and typically engage in relatively few activities covered by consumer protection laws.  Return to text
17. Robert B. Avery, Kenneth P. Brevoort, and Glenn B. Canner, "The 2007 HMDA Data," Federal Reserve Bulletin vol. 94 (December 2008) (239 KB PDF).   Return to text
18. Because the 169 lenders that discontinued operations in 2008 extended an unknown quantity of loans in the first part of 2007 but were all out of business by the second half of 2007, focusing on data for the second half of 2007 provides the most reliable assessment of lending patterns.  Return to text
19. See testimony by Sandra F. Braunstein, director, Division of Consumer and Community Affairs (February 13, 2008),  Return to text
20. The 2008 reporting period for examination data was July 1, 2007, through June 30, 2008.   Return to text
21. Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Office of Thrift Supervision.   Return to text
22. For purposes of this statement, the term "financial institutions" refers to state-chartered banks and their subsidiaries and bank holding companies and their nonbank subsidiaries.   Return to text
23. HOPE NOW is an alliance between mortgage counselors, market participants, and servicers to create a unified, coordinated plan to reach and help as many homeowners in distress as possible. The Department of the Treasury and the Department of Housing and Urban Development encouraged the formation of this alliance. For more information, visit  Return to text
24. See SR 07-16/CA 07-4, Statement on Loss Mitigation Strategies for Servicers of Residential Mortgages (September 4, 2007),, and SR 07-6/CA 07-1, Working with Mortgage Borrowers (April 17, 2007),  Return to text
25. The Board of Governors of the Federal Reserve System, the Conference of State Bank Supervisors, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision.  Return to text
26. Because the agencies use different methods to compile the data, the information presented here supports only general conclusions. The 2008 reporting period was July 1, 2007, through June 30, 2008.  Return to text
27. Includes adjustable-rate mortgages; residential construction loans; open-end home equity lines of credit; home improvement loans; home purchase loans; home refinance/closed-end loans; and reverse mortgages.  Return to text
28. In accordance with a memorandum of understanding between HUD and the federal bank regulatory agencies requiring that complaints alleging a violation of the Fair Housing Act be forwarded to HUD.   Return to text
29. See  Return to text
30. See the Federal Reserve Board's Consumer Advisory Council webpage,  Return to text