Draft Model Comment Letter

January [Date], 1997

William W. Wiles
Secretary RE: Docket No. R-0955
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20551

Dear Mr. Wiles:

Thank you for the opportunity to comment on the proposed revisions to Regulation B and the Official Staff Commentary to that regulation.

Provide relevant information about your bank and community:

I am the compliance manager for [ ]. Our bank is [asset size] and has [#] employees. We are located in [town, county, city or cities] and have [#] branches. [Our community includes XX% minority/ethnic population.] [Our community has an unusually high proportion of retired residents, making age discrimination a priority concern for our bank.]

Include substantive comments on the proposal that are of most concern to you or that will provide compliance relief. For example:

The proposal is inconsistent with the Act. Although the act provides that the work product of self-testing of any aspect of a credit transaction should be subject to privilege, the proposal would limit this protection to the preapplication stage of a credit transaction. This limited construction of the privilege ignores the full scope of a credit transaction and the problems that can affect applicants beyond inquiring about credit availability.

The proposal as drafted undermines the purpose of the law. Congress's purpose in enacting this protection was to encourage creditors to conduct self-assessment for any aspect of a credit transaction without subjecting the institution to prosecution because of the self-assessment. The act is designed make lending fairer and increase the access of minorities to credit. It does this by encouraging creditors to self-assess and take appropriate steps to prevent and eradicate any possible discrimination without exposing the institution to prosecution based on evidence the institution prepares. The proposal removes most of this activity from the protection of privilege and thus undermines the congressional purpose. In fact, the proposed regulation so limits the scope of the protection as to render the protection meaningless.

The proposed regulation is internally inconsistent. It identifies possible corrective action, including identifying the "policies or practices that are the likely cause of the possible violation." "Policies and practices" broadly defines the entire process of taking and processing an application. Only a very limited portion of a bank's policies and practices can be assessed through mystery shopping or customer surveys. More extensive techniques, such as the type of file analysis conducted by examiners, are needed to truly evaluate policies and practices. It is inconsistent to identify a remedy that as a practical matter cannot actually be tested within the limited meaning of self-testing that is proposed.

The Board's rationale for limiting the privilege to pre-application testing is based on the fact that the pre-application process may have little or no documentation. The fact that documentation does or does not already exist should not be relevant to the availability of the privilege. There is no such condition in the act.

The regulation should encompass any form of voluntary self-analysis, including the findings and workpapers of audits, file comparisons, and statistical analyses but not to any documents that exist independently of the self-assessment.

The complete loan file used in the self-assessment would not become privileged simply because it was so used. This would prevent conducting a sham self-assessment simply to hide certain transactions. The privilege should not be available for use as a device for concealing discrimination. However, the workpapers, analysis, and findings of a voluntary self-assessment should be privileged. A rule making this distinction between existing documents and those generated by voluntary self-assessment would not undermine the role and importance of the examination but would truly encourage institutions to work more actively to identify and eradicate discriminatory practices. Any other interpretation of the act - such as that of the proposal -would discourage self-assessment. The proposal appears to limit the privilege in a way that would facilitate federal agency investigations and lawsuits when it should instead encourage the development of fair lending practices.

If you or Board staff have any questions about this comment letter, or would like more information relating to the commentary proposal, you can reach me at [phone no.] I would be pleased to talk with you.

Sincerely,

Regulatory Compliance Manager

Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 20, 12/96