The GAO has spoken, but will the regulators listen?
The General Accounting Office issued a blistering report that put much of the blame for our financial crisis on the feet of the regulatory agencies. The GAO also made some specific policy suggestions. Many of those proposals, incidentally, are contained in some form within the Consumer Financial Protection Act (CFPA).
The GAO said that both a lack of adequate data collection and a system that is too broken up were important in
preventing adequate regulation.
In terms of data, GAO asked why lenders were not required to release important data points:
- no data on race, sex, or ethnicity of non-mortgage loan borrowers. GAO suggests that loans to small business owners should have the same data points as for home mortgage borrowers under the Home Mortgage Disclosure Act.
- no data in HMDA about relevant aspects of credit risk. They seek data on debt-to-income, loan-to-value, and credit scoring.
These proposals match some of the ideas that I presented last spring at a conference held by the Federal Reserve, and some ideas that are captured with HR 1479 (Community Reinvestment Act Modernization). The GAO wondered why oversight for the Fair Lending Act and the Equal Credit Opportunity Act should be divided among three enforcement entitities (HUD, Department of Justice, and the Federal Trade Commission). It asked why it was efficient for depository institutions to be regulated by five different agencies (OTS, OCC, Fed, NCUA, and HUD).
Then, the GAO noted the complete lack of enforcement activity. They write:
since 2005, OTS, the Federal Reserve, and FDIC have referred more than 100 lenders to DOJ for further investigations of potential fair lending violations, as required by ECOA, while OCC made one referral and NCUA none. Enforcement agencies have settled relatively few (eight) fair lending cases since 2005.
The details reveal even greater dilemmas. For example, the Department of Housing and Urban Development did not make one fair lending settlement from 2001 to 2005. What were all those regulators doing? Of the eight fair lending settlements, only one was issued against a bank. The rest were against consumer credit suppliers. That bank, incidentally, was just a small blip on the system.