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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Illinois AG Sues Countrywide, Alleges Lending Discrimination

Posted on July 1, 2010 by Fred Rivera

The Associated Press reports that Illinois Attorney General Lisa Madigan has sued Countrywide Home Loans, alleging the company discriminated against African American and Latino borrowers in Illinois between 2005 and 2007.  The complaint includes allegations that Countrywide charged African American and Latino borrowers higher rates and fees compared to similarly situated white borrowers.   The complaint states that Countrywide engaged "in practices that resulted in a disparate impact and disparate treatment of African American and Latino borrowers.  The complaint also alleges that Countrywide utilized lending standards that had no economic basis and were discriminatory in effect..."

While the complaint includes allegations not unfamiliar in lending discrimination cases, it may spark important legal analysis regarding the use of the disparate impact theory as the sole basis to provide lending discrimination.  See prior posting  - "AAG Perez Reiterates DOJ's Emphasis on Lending Discrimination Enforcement," June 24, 2010.

 

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AAG Perez Reiterates DOJ's Emphasis on Lending Discrimination Enforcement

Posted on June 24, 2010 by Fred Rivera

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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