OCC Mortgage Lending Testing Program, 94-5
| Decision Date | 08 March 1994 |
| Docket Number | 94-5 |
| Citation | 18 Op. O.L.C. 23 |
| Parties | OCC Mortgage Lending Testing Program |
| Court | Opinions of the Office of Legal Counsel of the Department of Justice |
WALTER DELLINGER Assistant Attorney General Office of Legal Counsel.
Individuals who serve as "testers" in a proposed Office of the Comptroller of the Currency program designed to identify discriminatory lending practices by national banks would not violate any federal criminal laws if, as part of the program they provide false information to targeted banks
MEMORANDUM OPINION FOR THE COMPTROLLER OF THE CURRENCYOur office has been asked to respond to your request to the Attorney General for the Justice Department's view on whether individuals who serve as "testers" in a proposed Office of the Comptroller of the Currency ("OCC") program designed to identify discriminatory lending practices by national banks would be subject to criminal liability if, as part of the testing program, they provide false information to targeted banks. Based on our understanding of the manner in which the testing program will be conducted, [1] we do not believe that the testers would violate any federal criminal laws. The Criminal Division of the Justice Department has advised us that it agrees with our conclusion.[2]
OCC is the primary regulator of national banks. In that role, OCC is responsible for ensuring that national banks comply with federal laws that prohibit racially discriminatory lending practices. Last year, OCC announced that it would undertake a serious effort to ferret out such practices. The proposed testing program is part of those efforts.[3]
Posing as prospective borrowers, the testers will communicate with a targeted bank and inquire about available home mortgage programs. In the course of their discussions with bank personnel, testers may provide false information about their identities, employment, income, and credit history. Testers representing different racial groups will be given similar false background information to provide to the bank. Accordingly, when OCC evaluates the manner in which a targeted bank responds to the testers' inquiries, the false information will serve as the constant factor, while the race of the tester providing the information will be the variable [ 24] factor. In this way, OCC will seek to determine whether the race of the testers influenced the bank's conduct, and thus whether the bank may be in violation of the federal fair lending laws.
The testing program will be restricted to what is known as the "pre-application" phase, which means that the testers will only engage in preliminary discussions with bank personnel about available loan programs. The testers will be instructed not to fill out any loan applications or any other document, even if the bank requests that the testers do so.
The testers will not be OCC employees, but rather, persons hired by organizations with which OCC will contract to administer the testing program. Those organizations will help OCC to design the testing program and to train the testers. OCC will, however, oversee and retain ultimate control of the program.
Notice of the testing program will be provided to other federal agencies that have some regulatory authority over national banks.[4] In addition, we believe that OCC should give notice about the testing program to the United States Attorney in the particular districts in which targeted banks are located; it is our understanding that OCC has no objection to providing such notice.
In considering whether the OCC testers would be subject to criminal liability, we have analyzed four federal statutes that, in certain circumstances, reach false statements made to financial institutions. In of their relevance to the OCC testing program, those statutes are 18 U.S.C. § 1014, which proscribes false statements made with an intent to influence the actions of a financial institution with respect to loans and certain other transactions; 18 U.S.C. § 1344, which proscribes efforts to defraud a financial institution or obtain money from the institution; 18 U.S.C. § 1005, which proscribes the making of false entries in the records of a financial institution with the intent to deceive officers of the institution; and 18 U.S.C. § 1001, the general federal false statements statute, which proscribes false statements made "in any matter within the jurisdiction of any department or agency."
We do not believe that false statements made by OCC testers in the context of pre-application testing would violate any of the four statutes. The critical features of the OCC testing program are that (i) it will be confined to the pre-application stage; (ii) the testers only will be seeking information from targeted banks; (iii) the testers will not fill out application forms or submit any other documents to the banks; and (iv) the testers will have no intention of applying for a loan or obtaining any funds from the banks. In light of these limitations, the testers will lack the requisite [ 25] intent to violate §§ 1014, 1344, and 1005. As for § 1001, we do not believe that the testers' false statements would come within the scope of that statute, because the statements would not be made in connection with a "matter within the jurisdiction of any department or agency." Furthermore, we do not think that the testers false statements would satisfy the "materiality" requirement that most courts have read into § 1001.
Our opinion is limited to false statements that may be made as part of the OCC pre-application testing program. In our view, persons acting outside the particular context of the OCC testing program who make false statements in connection with pre-application inquiries could violate the statutes in question here, particularly §§ 1014, 1344, and 1005. Simply put, such persons might well have the requisite intent to violate those statutes, whereas the OCC testers will lack that intent.[5]
A. Section 1014
18 U.S.C. § 1014 prohibits persons from making false statements, either written or oral, "for the purpose of influencing in any way the action of [financial institutions] upon any application, advance, discount, purchase, purchase agreement, repurchase agreement, commitment, or loan." One of the elements of a § 1014 violation is "intent to influence action by the financial institution concerning a loan or one of the other transactions listed in the statute." United States v. Erskine, 588 F.2d 721, 722 (9th Cir. 1978) (Kennedy, Cir. J.) (emphasis added). See United States v. Krown, 675 F.2d 46, 51 (2d Cir. 1982); United States v. Pavlick, 507 F.Supp. 359, 362 (M.D. Pa. 1980), aff'd, 688 F.2d 826 (3d Cir. 1982). Because the OCC testing program will be limited to the pre-application setting in which testers only will be seeking information from targeted banks, and because [ 26] they will have no intention of actually applying for a loan or entering into any of the other types of transactions specified in the statute, their false statements will not come within the scope of § 1014.
Construing § 1014 broadly, some courts have held that the statute covers any transaction that might subject a financial institution to risk of financial loss.[6] But even under that reading of § 1014, the testers' false statements would not violate the statute: again, because the testing program will be restricted to the pre-application phase, and because the testers will have no intention of either applying for a loan or entering into any of the specified transactions, there is no risk of financial loss to the targeted bank.[7]
B. Section 1344
18 U.S.C. § 1344, the federal bank fraud statute, makes it a crime to "knowingly execute[], or attempt[] to execute, a scheme or artifice to (1) defraud a financial institution or (2) to obtain any of the moneys, funds, credits, assets, securities or other property ... of a financial institution, by means of false or fraudulent pretenses, representations, or promises." Under either prong of the statute, it is not necessary to show that the "scheme or artifice" actually caused the institution a loss or that the defendant personally benefitted - it is enough that the institution is [ 27] exposed to a potential loss.[8] However, there must be an intention on the part of the defendant to cause an actual or potential loss to the institution.[9] The testers will have no such intention, since the purpose of the testing program is merely to obtain information from a targeted bank, rather than obtaining any funds from the bank. As a result, the testers' false statements will not violate § 1344.
C. Section 1005
In pertinent part, 18 U.S.C. § 1005 imposes criminal penalties on "[w]hoever makes any false entry in any book, report or statement of [a bank] with intent to injure or defraud [the bank] ... or to deceive any officer [of the bank]." In light of the fact that the testers will only seek pre-application information, and will not fill out any applications or other documents, they will not make any entries in bank records. To be sure, if it is the policy of a targeted bank to record information obtained in pre-application meetings with prospective borrowers, then it is conceivable that the testers' false statements could cause bank personnel to make false entries. In turn, it could be argued that this would lead the testers to violate § 1005, through the "aider and abetter" statute, 18 U.S.C. § 2. In our view, however, even if the testers' statements do prompt the bank to make false entries, the testers would not have any intention of causing that result, and thus they would lack any intention to violate § 1005. See United States v. Barel, 939 F.2d 26, 42 (3rd Cir. 1991) (...
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