Fed Denies Justice Request to Collect Data About Borrowers

The Federal Reserve Board on Friday rebuffed a request by the Justice Department to allow U.S. banks to collect data about borrowers as part of an effort to discourage racial discrimination in lending.

The unanimous decision put the central bank’s board in the unusual position of being at the center of a national debate about how best to discourage discrimination.

On the one side: those who see the collection of data on race, gender, age, religion and other characteristics as a way to ferret out discrimination. On the other: opponents who view such collection as discriminatory on its face.

Backed by banking regulators at the Office of the Comptroller of the Currency, the Justice Department urged the Fed to change a regulation that prohibits banks from collecting such data except in the case of mortgage lending.

The department argued that the lack of data was hindering its ability to evaluate charges of racial discrimination in lending to small businesses.

In a unanimous decision, the central bank’s board voted against changing Fed Regulation B, saying it might lack the authority to act without new legislation from Congress. “The issue . . . is not some technical matter of law or economics,” Fed Gov. Lawrence Lindsey said.

“Rather, it is at the center of a heartfelt and ongoing debate in America about the direction of public policy with respect to individual characteristics,” he added.

The regulation, which was established in 1977, was designed to discourage discrimination by race, gender and age by prohibiting banks from collecting such data from borrowers.

Fed Gov. Edward Kelley described the proposed change in the regulation as “social policy of the most profound sort” and said it “provides no answer to the social conundrum that’s before us.”

That is not the way the Justice Department sees it. In a letter to Fed Chairman Alan Greenspan on Friday, Associate Atty. Gen. John Schmidt said changes in the regulation would help combat discrimination.

“Allowing credit providers to collect certain basic data seems to us to be a useful step toward getting a better handle on the extent of this problem,” he said.

Existing studies, though limited, “do appear to provide some support for the widespread view . . . that minority-owned businesses face unusually difficult barriers in obtaining this type of credit.”