After reviewing the Federal Reserve System’s efforts to implement revised timing goals for submitting and reviewing high-risk redlining cases, the Federal Reserve’s Office of Inspector General (OIG) concluded no recommendations were necessary for improvement.
In January 2021, the Federal Reserve’s Division of Consumer and Community Affairs (DCCA) updated review procedures to improve the efficiency of handling matters involving discriminatory lending practices, where financial institutions provide unequal access to credit based on race, color, national origin, or other prohibited characteristics.
High-risk redlining cases previously required review by the DCCA’s Fair Lending Enforcement section – which is tasked with ensuring supervised institutions comply with federal fair lending laws and regulations, including the Equal Credit Opportunity Act, Regulation B, and the Fair Housing Act – before examinations could be closed. The revised approach expanded the delegation of certain high-risk cases to Reserve Banks and reduced the overall timing goals for review from 20 weeks to 11 or 15 weeks, depending on the number of high-risk assessment areas served by a given bank.
For the evaluation, the OIG looked at potentially discriminatory practices identified during examinations initiated in 2022 and 2023. The findings indicated the Reserve Banks met the revised timing goals for 64 of 77 high-risk redlining matters (83 percent), while the Fair Lending Enforcement section met the timing goals for 51 of 52 nondelegated matters (98 percent).
In the 13 instances where the Reserve Banks missed the timing goals, four were resubmitted due to requests for additional information, six were delayed because staff identified unrelated compliance issues, and three exceeded deadlines by three days or less, according to the report.
“Our report does not contain recommendations because the board and the reserve banks generally met the revised timing goals for submitting and reviewing high-risk redlining matters,” OIG Associate Inspector General for Audits and Evaluations Michael VanHuysen wrote in the “Closing” section of the report. “We provided you with a draft of our memorandum report for review and comment, and your response, summarized above, is included in its entirety as an attachment. We appreciate the cooperation we received from DCCA and the reserve banks during the evaluation.”
To support the reserve banks in implementing these changes, DCCA provided additional training, guidance, and communication channels. Reserve Bank stakeholders indicated that they had the necessary tools and training to effectively carry out the revised review process and that coordination with the Fair Lending Enforcement section had strengthened.
In addition to the revised timing goals, 2021 also saw the Fair Lending Enforcement section implement a monitoring program to ensure consistency in redlining case reviews, assess the effectiveness of Reserve Banks’ handling of delegated cases, and identify further training needs. The program is complete with a tracking system to document the status and outcomes of reviewed cases.