Minority loan rules proposed

September 27, 1994|By New York Times News Service

WASHINGTON -- The Clinton administration and the Federal Reserve proposed yesterday to require banks and savings institutions to collect data on the race, ethnicity and gender of small-business loan recipients.

But regulators also proposed to abandon rigid formulas that they had planned to impose for measuring the proportion of loans that financial institutions issued in poor communities.

The changes are part of a revised set of regulations, first proposed in December, that are intended to help carry out President Clinton's 1992 campaign pledge to make credit more available in poor and minority neighborhoods.

But the December regulations were withdrawn after banks complained that the rules were too rigid and community activists complained that the rules did not deal with racial discrimination.

Federal law has banned banks until now from collecting race and gender information for small-business loans to prevent discrimination. The new data will not be used in any explicit formula for determining a bank's overall community lending rating, regulators say.

But the hope of community activists -- and the fear of banks -- is that the new race and gender data will show a pattern of discrimination, creating public pressure on financial institutions to change.

Under the 17-year-old Community Reinvestment Act, banks are already required to show that their loan procedures do not discourage people in poor neighborhoods from seeking to borrow money.

The goal of the new regulatory proposals has been to change the rules so as to measure whether banks actually make loans in poor neighborhoods -- instead of following procedures that make them look good on paper but that don't result in much lending.

The compromise drew a mixed reaction from community groups and banks. The American Bankers Association, a Washington-based trade group representing mainly big banks, immediately criticized the extra data collection requirement as an unnecessary increase in regulatory paperwork.

But the Independent Bankers Association of America, a trade group here that represents small banks, cheered the revised proposal because banks and savings institutions with less than $250 million in assets would not have to collect the race and gender data and would face less paperwork concerning loans in poor neighborhoods.

Community groups were also divided on the plan. Consumers Union criticized the new plan for not doing enough for poor neighborhoods. But the Greenlining Coalition, a San Francisco-based group of civil rights and minority business organizations, applauded the new draft.

"Over all it's better than the December draft, particularly because it contains data by race and gender," said Robert L. Gnaizda, the coalition's general counsel.

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