Financial Services Litigation & Investigation Monitor : Financial Services Lawyer & Attorney : Perkins Coie Law Firm : Government Investigations, Class Actions

Speaking at a June 23, 2010 Brookings conference, the Department of Justice's Assistant Attorney General for the Civil Rights Division made clear that investigating and prosecuting lending discrimination is a top priority for his administration.  As reported on mainjustice.com, AAG Thomas Perez reaffirmed the DOJ's commitment to increased oversight and enforcement of the financial industry, as well as close interaction among the federal regulators that police the financial systems.

Mr. Perez also reiterated that his division will use the "disparate impact" theory to file lending discrimination case.  “The government must be a credible deterrent,” he said. “Our Fair Lending Unit will use every tool in our arsenal, including but not limited to disparate impact theory.”  Perez made similar remarks at the May 2010 Legal Issues Conference of the Mortgage Banker's Association.  The disparate impact theory, as articulated in U.S. Supreme Court's 1971 decision Griggs v. Duke Power Co., 401 U.S. 424 (1971), allows a plaintiff to challenge a facially neutral practice that has an unjustified adverse impact on members of a protected class; evidence of an intent to discriminate is not required.  The DOJ's reliance on the disparate impact theory as the sole basis to file a lending discrimination case signals a marked departure from its prior lending discrimination cases, none of which relied exclusively on disparate impact.  The department's aggressive approach will undoubtedly lead to a significant increase in enforcement cases and litigation in this area.  And lenders anticipating this change in enforcement are wise to adapt their compliance program accordingly. 

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The DOJ's Civil Rights Division announced a $6.1 million settlement with two AIG subsidiaries that the government alleged had engaged in a pattern and practice of lending discriminated against African-Americans.  According to the Wall Street Journal, the government identified approximately 2,500 African-American borrowers that will each receive about $2,300 in compensation under the agreement. 

The Justice Department's settlement resolved its complaint filed under the federal Fair Housing Act and Equal Credit Opportunity Act.  The complaint alleges that African-American borrowers were charged higher fees on wholesale loans made by AIG Federal Savings Bank and Wilmington Finance Inc., an affiliated mortgage lending company.

According to the WSJ article, the AIG subsidiaries disagreed with the Justice Department's allegations but were pleased to reach the settlement and "avoid the distractions and burdens of protracted litigation over contentious issues."

The settlement comes a month after the Department of Justice announced the creation of a Fair Lending Task Force, and resulted from a 2007 referral by the Treasury Department's Office of Thrift Supervision to the Justice Department's Civil Rights Division.   In announcing the AIG settlement, Assistant Attorney General Thomas Perez signaled that  more such cases were in the pipeline.  Perez said that for a long time, lenders' supervision over their mortgage brokers was inadequate.

The DOJ's full press release and links to the complaint and settlement agreement are available at the Civil Rights Division's website: DOJ, Civil Rights Division.

The recent settlement sends a clear message that lending discrimination matters are a top priority for the Obama Justice Department, and this is likely the tip of the iceberg.  As DOJ's Civil Rights Division continues to staff its new Lending Discrimination Task Force and communications between the various federal banking regulatory agencies improve, many more complaints and settlements can be expected over the next several months.

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United Security Bancshares Inc., Thomasville, Ala., entered into a settlement agreement with the Department of Justice's Civil Rights Division to resolve allegations that its subsidiary First United Security Bank violated the Fair Housing Act and the Equal Credit Opportunity Act when dealing with African-American borrowers.  According the the Justice Department's press release, the Complaint alleged that the bank charged African-American borrowers higher rates than similarly-situated white borrowers on home mortgage-related loans. The complaint also alleged that the bank engaged in unlawful "redlining" by failing to provide its lending products and services on an equal basis to majority African-American areas in west central Alabama.

Under the Consent Order, which remains subject to court approval, First United Security Bank will invest more than $600,000 to open a new branch in an African-American neighborhood in west central Alabama and take other steps resolve allegations that it engaged in a pattern of discrimination on the basis of race.  The additional steps include investing $500,000 in a special financing program, and spending more than $110,000 for outreach to potential customers, promotion of its products and services and consumer financial education in the redlined areas.

The lawsuit originated from a referral from the Federal Deposit Insurance Corporation (FDIC), according to the DOJ press release.

This is the first Fair Lending case regarding mortgage lending filed by the Justice Department in over a year, and comes on the heals of the FFIEC's release of 2008 HMDA data that, according to  a Wall Street Journal article summarizing the HMDA report, shows that African-Americans and Hispanic whites were far more likely than non-Hispanic whites to be denied last year in applying to refinance.

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