US DOJ Settles Lending Discrimination Case

Posted on December 10, 2010 by Fred Rivera

On December 8, 2010, the Justice Department's Civil Rights Division announced in a press release that it had reached a $2 million settlement with Texas-based PrimeLending to resolve allegations that the lender engaged in a pattern or practice of discrimination against African-American borrowers between 2006 and 2009.  The Complaint includes allegations that the lender's policy allowing loan officers to set "overages" on loans had a disparate impact on African-American borrowers.  The settlement, filed in conjunction with a Complaint in the U.S. District Court for the Northern District of Texas, was brought under the Fair Housing Act and Equal Credit Opportunity Act. 

According to the government's Complaint, between 2006 and 2009, PrimeLending charged African-American borrowers higher annual percentage rates of interest for prime fixed-rate home loans and for home loans guaranteed by the Federal Housing Administration and Department of Veterans Affairs than it charged to similarly-situated white borrowers.  The government's complaint relies, in part, on the disparate impact theory.  According to the government, the lender's policy allowing its employees wide discretion to increase their commissions by adding “overages” to loans that increased the borrowers' interest rates had a "disparate impact" on African-American borrowers.
 

In addition to paying $2 million to the victims of discrimination, the settlement incorporates provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and regulations recently enacted by the Federal Reserve that restrict loan officer compensation based on the terms or conditions of a particular transaction.  The Justice Department's announcement stated that PrimeLending had already began to implement policies to prevent discrimination, including requiring employees to provide legitimate non-discriminatory reasons in order to adjust loan prices.    

Over the past year, the Justice Department has stated its intent to increase efforts to combat lending discrimination.  This is the second lending discrimination complaint and settlement filed by the Department in 2010.   The theory of the case--disparate impact caused by discretionary pricing--has been used by DOJ for over a decade, and likely will continue.  For example, in 1996, the Justice Department reached a $4 million settlement with Fleet Mortgage Corp. in connection with allegations that the lender's policy of granting loan officers wide discretion to charge overages resulted in charging African-American and Hispanic borrowers higher prices for home mortgage loans than comparably qualified whites.

(Read more at Los Angeles Times and Wall Street Journal.

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