Investors Business Daily reports that Washington seems to have uncovered a surge in lending bias.
From 2009 through 2014, HUD, FTC and other federal agencies referred a total of 165 lending-discrimination cases to Justice. That’s an aggressive jump from their 22 referrals during the preceding six-year period from 2003 through 2008.
Now CFPB has joined the crusade, referring 15 discrimination cases just last year. That’s up from six in 2013 and one in 2012. [Emph. added]
One hundred and sixty-five cases of discrimination, up from just 22 before. Shocking! How did this sudden epidemic of lending bias among banks get going, do you suppose? Is there a secret cabal among CEOs? Do they meet regularly at an undisclosed location to hatch their nefarious scheme? Perhaps they communicate in code on a secret Facebook page.
Of course not. There is no deliberate bias against minority borrowers going on. There can’t be: banks often don’t even know a prospective borrower’s race or ethnicity when they consider his application in the first place. All the government can go on in pursuing these cases is bogus “disparate impact” evidence. Minority borrowers get turned down more often and get worse terms on their loans than whites do, the government will argue, which means ipso facto that banks must be discriminating. Except that if you adjust the data for mitigating factors such as FICO score, it turns out that banks treat minority borrowers exactly the same as they treat white ones. Which is to say, no, banks aren’t discriminating. They have done nothing wrong.
And yet that hasn’t prevented the Justice Department from coordinating with other agencies such as the CFPB and HUD to bring the mighty power of the federal government down on the hapless banks, anyway. The IBD says that fully 25 institutions are being investigated for lending bias in, among other areas, mortgage and auto. The banks know (as does the government) that fighting any charges would be an expensive P.R. fiasco. The feds have essentially limitless resources to pursue these cases, while banks have customers and shareholders to answer to. Plus, the banks would continue to be regulated during any challenge. So resistance is futile; there is no choice but to write a check.
That’s what Ally Financial did, at any rate, when it settled with the DOJ and CFPB late last year and agreed to pay $98 million for supposedly discriminating against minority auto-loan borrowers—even though not even a single victim of the purported discrimination has yet to be identified.
This is outrageous. There’s no way to describe what the DOJ is up to as anything but an old-fashioned, mafia-style shakedown—and one that’s set to be expanded on a grand scale. Pay up, or else. There is something deeply unsettling about the federal government using its power to systematically abuse law-abiding individuals and institutions. This isn’t merely unfair; it’s deeply immoral.
It gets worse. The IBD also says that as part of the coming settlements, “[b]anks must also revise lending policies to make it easier for low-income minorities to qualify for prime loans. They must even set aside millions for otherwise uncreditworthy borrowers. These programs include hundreds of millions of dollars in direct down-payment assistance to borrowers.” So banks are essentially being forced by the government to boost their lending to poor credit risks. We tried this once recently. It did not end well. That the government is going down this same road again is insane.
There are enough authentically bad guys to be tracked down and brought to trial to occupy the DOJ’s time, without it also engaging in a sideline of mistreating the banking industry. The DOJ ought to cut out this kind of behavior. Unfortunately, I doubt that’s going to happen any time soon
What do you think? Let me know!