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Agencies expand definition of loan bias

Federal regulators said Tuesday they're extending tough fair lending policies beyond banks and thrifts to encompass other lenders _ everything from retailers to auto companies.

In recent years, federal regulators have used what they call "disparate-impact" analysis to challenge the lending practices of banks and savings and loans, practices that might withhold loans in entire neighborhoods.

The latest policy, agreed to by 10 agencies, says that the same tests will be applied equally to retailers, credit card issuers, credit unions, finance companies, auto companies and other lenders.

Housing Secretary Henry Cisneros and Attorney General Janet Reno stressed that this doesn't mean lenders will have to make loans in exact proportion to the racial makeup of their communities.

"This does not call for a quota system, but it does seek to eliminate practices that have the effect of denying opportunity to people on the basis of color or other prohibited factors (sex, age and handicaps)," Cisneros said.

"We are not asking people to make bad loans, but we are asking that people be fair in their whole lending practice," Reno said.

Officials said that if an analysis shows that a lending policy results in fewer loans for minorities, the lender will be required to show that practice is a business necessity.

For example: A lender does not extend loans for single-family houses worth less than $60,000. An analysis shows that a larger percentage of minorities are denied loans as a result. The lender will have to prove that policy is a business necessity.

Lawrence Lindsey, a member of the Federal Reserve Board of Governors, said regulators will attempt to more narrowly define "business necessity" and what constitutes discrimination in the coming months.

But he said, "Under no circumstances will discrimination in lending be tolerated in this country. It is an evil that must be struck down."

Besides Reno, Cisneros and Lindsey, the policy also was agreed to by the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Housing Finance Board and the Office of Federal Housing Enterprise Oversight.

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