On April 28, the CFPB published its third annual report to Congress on its fair lending activities. Among other developments, the report highlights the following key supervision and enforcement priorities taken by the Bureau in the past year: (i) A continued focus on discrimination in the mortgage lending industry, including redlining and underwriting disparities; (ii) Emphasis on the auto lending industry, which has resulted in guidance given to lenders on complying with Federal consumer financial laws, and action taken when lenders do not abide by those laws; (iii) Attention to the credit card market, including an enforcement action against a company for its alleged failure to provide certain consumers with debt relief offers because of national origin; and (iv) Assistance to consumers who receive disability income by issuing Bulletin 2014-03 to lenders, which outlines the rights of a consumer whose income is derived, in part or in whole, from a public assistance program. According to the report, the Bureau’s efforts in 2014 to protect consumers from credit discrimination lead to financial institutions providing approximately $224 million in monetary relief to over 300,000 consumers.
Southern District of New York Denies Class Certification in Fair Lending Suit Against Global Investment Bank
On May 14, the District Court for the Southern District of New York denied class certification status in a fair lending suit brought by the ACLU and NCLC against a global investment bank. Adkins v. Morgan Stanley, No. 12-CV-7667 (VEC) (S.D.N.Y. May 14, 2015). The Plaintiffs had alleged that the bank, as a significant purchaser of subprime residential mortgage loans, had caused a disparate impact on African-American borrowers in Detroit in violation of the Fair Housing Act and the Equal Credit Opportunity Act. In an exhaustive 50-page opinion, the court denied class certification on multiple grounds, including the variation in loan types and the role of broker discretion. BuckleySandler anticipates the ruling will be widely cited in future fair lending class actions.
On April 13, the DOJ released its 2014 Annual Equal Credit Opportunity Act (ECOA) Report highlighting its activities to address credit discrimination. The twenty-page report highlights discrimination lawsuits and settlements in the automobile lending and credit card industry, as well as a consent order resulting from alleged discrimination on the basis of disability and the receipt of public assistance. It also includes information on the DOJ’s work under other federal fair lending laws including the Fair Housing Act (FHA) and the Servicemember Civil Relief Act (SCRA). According to Vanita Gupta, Acting Assistant AG for the Civil Rights Division, in the five years since the Fair Lending Unit was established, the Civil Rights Division has filed or resolved 37 lending matters under the ECOA, FHA, and SCRA. Total settlements in these matters, including enforcement actions from 2014, have resulted in over $1.2 billion in monetary relief for affected borrowers and communities.
On April 1, HUD held a special Fair Housing event and announced a national media campaign to help ensure that all Americans – regardless of race, color, national origin, religion, gender, family status, and disability – receive equal access to housing, as per the FHA. Through various media channels, the new campaign will (i) increase the public’s awareness of housing discrimination; and (ii) explain how to report violations of the FHA. The new campaign is designed to further the agency’s enforcement efforts when FHA violations occur. At the same event, DOJ Acting Assistant AG Gupta delivered remarks regarding recent actions taken in response to alleged housing discrimination. Specifically, Gupta noted that while racial discrimination remains prevalent, familial status discrimination has recently become a significant concern and that the DOJ and HUD “continue to see the scourge of sexual harassment in housing.” Finally, Gupta emphasized that HUD’s proposed rule on Affirmatively Furthering Fair Housing is “an important way to ensure that the promises of the Fair Housing Act will continue to be fulfilled.”
On February 10, the DOJ, along with the U.S. Attorney’s Office for the Western District of North Carolina and the North Carolina AG, announced the settlement of the federal government’s discrimination suit involving two “buy here, pay here” auto dealerships. According to the DOJ, this is the federal government’s first-ever settlement involving discrimination in auto lending. Filed in January 2014, the settlement resolves a lawsuit alleging that two North Carolina-based auto dealerships violated the federal Equal Credit Opportunity Act by “intentionally targeting African-American customers for unfair and predatory credit practices in the financing of used car purchases.” The North Carolina AG further alleges that the auto dealerships’ lending practices violated the state’s Unfair and Deceptive Trade Practices Act. The terms of the settlement require the two dealerships to revise the terms of their loans and repossession practices to ensure that “reverse redlining” ceases to exist; required amendments include: (i) setting the maximum projected monthly payments to 25% of the borrower’s income; (ii) omitting hidden fees from required down payment; (iii) prohibiting repossession until the borrower has missed at least two consecutive payments; and (iii) providing better-quality disclosure notices at the time of the sale. Also required by the settlement agreement, the two auto dealerships must establish a fund of $225,000 “to compensate victims of their past discriminatory and predatory lending.”
On February 3, the Fair Housing Justice Center (FHJC), a regional fair housing non-profit organization based in New York City, filed a complaint alleging that a large bank discriminated in its mortgage lending practices on the basis of race and national origin. According to the complaint, the organization hired nine “testers” of various racial backgrounds to inquire about obtaining a mortgage for first-time homebuyers. Specifically, the complaint claims that the bank’s loan officers (i) used neighborhood racial demographics to steer minority testers to racially segregated neighborhoods and (ii) offered different loan terms and conditions based on race or national origin. The plaintiff is seeking compensatory and punitive damages and injunctive relief to ensure compliance with fair housing and fair lending laws. FHJC et al v. M&T Bank Corp., No-15-cv-779 (S.D. NY. Feb. 3, 2014).
On November 19, the CFPB issued a press release highlighting the publication of its compliance bulletin, “Social Security Disability Income Verification.” The compliance bulletin reminds lenders that requiring consumers receiving social security disability income to provide burdensome or unnecessary documentation may raise fair lending issues. The Equal Credit Opportunity Act (ECOA) prohibits lenders from discrimination against “an applicant because some or all of the applicant’s income is from a public assistance program, which includes Social Security disability income,” and the Bureau’s bulletin highlights standards and guidelines intended to help lenders comply with the requirements of ECOA and its implementing regulation, Regulation B.
On October 15, the NCUA released a statement noting that Jamie Goodson, Director of Consumer Compliance Policy and Outreach in the National Credit Union Administration’s Office of Consumer Protection, will participate in the scheduled webinar, “Fair Lending Hot Topics.” Regulators from the Federal Reserve, the CFPB, the FDIC, the OCC, the Justice Department, and HUD are also scheduled to participate in the webinar on October 22. Webinar topics include, among others, auto lending enforcement, fair lending risk assessments, and mortgage pricing risks. The webinar is part of an ongoing series of consumer compliance events.
On September 17, the CFPB released new information about its plans to supervise and enforce auto finance companies’ compliance with consumer financial laws, including fair lending laws. As it indicated it would earlier this year, the CFPB released a proposed rule that would allow it to supervise certain nonbank auto finance companies. Also as previously promised, the CFPB published a white paper on its method to proxy for race and national origin in auto finance transactions. Finally, the CFPB published its most recent Supervisory Highlights report, which is dedicated to its supervisory findings at depository institutions with auto finance operations.
The CFPB released the materials in connection with its September 18th field hearing on auto finance issues. These actions come roughly 18 months after the CFPB first provided guidance to auto finance companies regarding its expectations related to dealer “reserve” (or “participation”) and fair lending. Read more…
On September 9, the U.S. District Court for the Southern District of New York dismissed an industry group’s challenge to a New York City ordinance that requires banks doing business with the city to report certain information about their banking and lending activities. New York Bankers Assoc. v. New York, No. 13-7212, 2014 WL 4435427 (S.D.N.Y. Sept. 9, 2014). In May 2012, the New York City Council approved, over the Mayor’s veto, an ordinance that establishes a Community Investment Advisory Board (CIAB) with authority to collect certain information from the city’s depository banks regarding each bank’s efforts to, among other things, (i) meet small business credit needs; (ii) conduct consumer outreach and other steps to provide mortgage assistance and foreclosure prevention; and (iii) offer financial products for low and moderate-income individuals throughout the city. The ordinance also directs the CIAB to (i) perform an assessment on whether such banks are meeting the credit, financial, and banking services needs throughout the city; and (ii) publish the assessment and the information collected from each such bank. The results of these evaluations may be considered in connection with a bank’s application for designation or redesignation as a depository bank. The court dismissed for lack of standing the industry group’s argument that the ordinance conflicts with and is preempted by federal and state laws that exclusively regulate federal and state chartered depository institutions by granting the CIAB regulatory powers that are not relevant to the quality and pricing of the services that banks provide to the city. The court explained that at the time the suit was filed, the group could not establish imminent harm, or that injuries were subject to substantial risk of occurrence, and as such were too speculative to support Article III standing. The court noted, however, that the group “brings serious substantive claims” and may have standing based events that have occurred since filing, or that may occur in the future.
On August 13, the National Fair Housing Alliance (NFHA) published its annual fair housing report titled “Expanding Opportunity: Systemic Approaches to Fair Housing.” The paper summarizes 2013 fair housing enforcement actions and litigation, as well as federal policy developments, and provides fair housing-related data. NFHA reports that, overall, the number of fair housing complaints filed in 2013 remained flat compared to recent years, but notes that private fair housing organizations received more complaints of discrimination in real estate sales and homeowners insurance, as well as complaints of discriminatory housing advertisements by housing providers. According to the report, the DOJ Housing Section filed 43 cases in 2013, including 24 cases involving pattern and practice claims, compared to 36 cases in 2012, of which 21 involved pattern and practice. Of the 2013 pattern or practice cases, five alleged fair lending claims; 11 alleged rental discrimination on the basis of race, disability, sex, familial status, national origin, or religion; three alleged violations of the accessibility provisions of the Fair Housing Act; three alleged discrimination in land use and zoning practices or policies by local governments; and one alleged disability discrimination by a homeless shelter. Finally, the report provides, for the first time, an analysis of HUD data by region, which includes a breakdown of complaints by protected class within each of HUD’s 10 regions.
On August 5, the U.S. Court of Appeals for the Eighth Circuit held that ECOA clearly provides that a person does not qualify as an applicant under the statute solely by virtue of executing a guaranty to secure the debt of another. Hawkins v. Comm. Bank of Raymmore, No. 13-3065, 2014 WL 3826820 (8th Cir. Aug. 5, 2014). In this case, two individuals executed personal guaranties to secure several loans made to a residential development company owned by their husbands. After the company defaulted on the loans, the bank accelerated the loans and demanded payment from the company and the two individual guarantors. The guarantors, in turn, sued the bank, seeking damages and an order declaring their guaranties void and unenforceable, alleging that the bank required them to execute the guaranties securing the company’s loans solely because they are married to their respective husbands—the owners of the company. The guarantors asserted that such a requirement constituted discrimination against them on the basis of their marital status, in violation of ECOA. The court held that “the plain language of ECOA unmistakably provides that a person is an applicant only if she requests credit,” and that “a person does not, by executing a guaranty, request credit.” In doing so the court rejected the Federal Reserve Board’s implementing regulation that interpreted the term applicant to include guarantors. The court’s holding also creates a split with the Sixth Circuit, which recently “came to the contrary conclusion, finding it to be ambiguous whether a guarantor qualifies as an applicant under the ECOA.”
On July 8, the CFPB released guidance designed to ensure equal treatment for legally married same-sex couples in response to the Supreme Court’s decision in United States v. Windsor, 133 S. Ct. 2675 (2013). Windsor held unconstitutional section 3 of the Defense of Marriage Act, which defined the word “marriage” as “a legal union between one man and one woman as husband and wife” and the word “spouse” as referring “only to a person of the opposite sex who is a husband or a wife.”
The CFPB’s guidance, which took the form of a memorandum to CFPB staff, states that regardless of a person’s state of residency, the CFPB will consider a person who is married under the laws of any jurisdiction to be married nationwide for purposes of enforcing, administering, or interpreting the statutes, regulations, and policies under the Bureau’s jurisdiction. The Bureau adds that it “will not regard a person to be married by virtue of being in a domestic partnership, civil union, or other relationship not denominated by law as a marriage.”
The guidance adds that the Bureau will use and interpret the terms “spouse,” “marriage,” “married,” “husband,” “wife,” and any other similar terms related to family or marital status in all statutes, regulations, and policies administered, enforced or interpreted by the Bureau (including ECOA and Regulation B, FDCPA, TILA, RESPA) to include same-sex marriages and married same-sex spouses. The Bureau’s stated policy on same-sex marriage follows HUD’s Equal Access Rule, which became effective March 5, 2012, which ensures access to HUD-assisted or HUD-insured housing for LGBT persons.
DOJ, CFPB Fair Lending Enforcement Actions Target Credit Card Repayment Programs, Marketing Of Add-On Products
On June 19, the CFPB and the DOJ announced parallel enforcement actions against a federal savings bank that allegedly violated ECOA in the offering of credit card debt-repayment programs and allegedly engaged in deceptive marketing practices in the offering of certain card add-on products. The bank will pay a total of $228.5 million in customer relief and penalties to resolve the allegations.
The CFPB and DOJ charge that the bank excluded borrowers who indicated that they preferred communications to be in Spanish or who had a mailing address in Puerto Rico, even if the consumers met the promotion’s qualifications. The CFPB and DOJ assert that as a result, Hispanic populations were unfairly denied the opportunity to benefit from the promotions, which constitutes a violation of the ECOA’s prohibition on creditors discriminating in any aspect of a credit transaction on the basis of characteristics such as national origin. Read more…
On May 28, the U.S. District Court for the Central District of California held, without addressing the merits, that the City of Los Angeles has standing to pursue Fair Housing Act and restitution claims against a mortgage lender, and that the claims were sufficiently and timely pled. Los Angeles v. Wells Fargo & Co., No. 13-9007, 2014 WL 2206368 (C.D. Cal. May 28, 2014). The court denied the lender’s motion to dismiss. The city alleges the lender engaged in predatory lending in minority communities, that the allegedly predatory loans were more likely to result in foreclosure, and that foreclosures allegedly caused by those practices diminished the city’s tax base and increased the costs of providing municipal services. The court found that by identifying specific properties alleged to have caused injury and asserting that regression analysis would support its claims and attenuated theory of causation, the city adequately pled a connection between the injury and the alleged conduct sufficient to support Article III standing. The court further concluded that the city adequately pled statutory standing under the FHA insofar as it alleged that its injuries are separate and distinct from the injuries of borrowers, and were proximately caused by the alleged lending practices. The court also held that the city’s claims were timely under the FHA’s two-year statute of limitations because it alleged broad discriminatory practices that are alleged to continue, no matter how changed over time (e.g., from redlining to reverse redlining). Notably, the court did not consider whether the city slept on its rights and could have filed sooner notwithstanding the alleged continuing nature of the practices. Finally, the court found that the city sufficiently pled facts, for purposes of surviving the motion to dismiss, to support claims of disparate treatment and disparate impact under the FHA.