Both NMAC and the Dealers Are Creditors Under ECOA and Subject to ECOA's Broad Prohibition Against Discrimination
It shall be unlawful for any creditor to discriminate
against any applicant, with respect to any aspect of a
credit transaction --
(1) on the basis of race, color, religion,
national origin, sex or marital status, or age ...
15 U.S.C. §1691(a). Regulation B, promulgated pursuant to ECOA,
defines creditor as "a person who, in the ordinary course of
business, regularly participates in the decision of whether or
not to extend credit. The term includes a creditor's assignee,
transferee, or subrogee who so participates." 12 C.F.R.
202.2(l). For purposes of ECOA's general prohibitions against
discrimination, the definition also includes a "person who, in
the ordinary course of business, regularly refers applicants or
prospective applicants to creditors, or selects or offers to
select creditors to whom requests for credit may be made." Id.
Both NMAC and the dealers are thus creditors under ECOA and
subject to its anti-discrimination provisions. Plaintiffs'
alleged facts state an ECOA claim against both. By charging
higher non-risk finance charges to African-Americans, the dealers
violated ECOA. Likewise, by approving and funding loans in which
African-Americans are charged a higher finance charge than
similarly qualified whites, NMAC too violated ECOA.
Because NMAC Has a Non-Delegable Duty to Comply with
ECOA, NMAC May Not Expressly Permit Dealers to Set
Finance Charges and Then Disclaim Responsibility for the Racial Disparities That Allegedly Resulted.
It is the position of the United States that ECOA, like the
Fair Housing Act, imposes a non-delegable duty not to
discriminate. See, e.g., Marr v. Rife, 503 F.2d 735, 741 (6th
Cir. 1974) ("[T]he duty to obey the law is non-delgable.")
(quoting United States v. Youritan Construction Co., 370 F. Supp.
643 (N.D. Cal. 1973),aff'd in part, remanded in part by, 509 F.2d
623 (9th Cir. 1975)). Both the Fair Housing Act and ECOA must be
liberally construed to best effectuate the purpose of eradicating
discrimination in credit transactions and to prevent creditors
form profiting from invidious discrimination. See United States
v. Landmark Financial Services Inc., 612 F. Supp. 623, 628 (D.
Md. 1985) ("Congress believed 'that strong enforcement of [the
ECOA] is essential to accomplish its purposes.") (quoting S.Rep.
589, 94th Cong., 2d Sess.); Silverman v. Eastrich Multiple
Investor Fund, L.P., 51 F.3d 28, 32-33 (3d Cir. 1995) (ECOA
should be interpreted so that creditors do not benefit from
discrimination). Accordingly, courts regularly look to case law
developed under the Fair Housing Act to interpret ECOA. See
Shuman v. Standard Oil Co. of Cal., 453 F. Supp. 1150, 1153-54
(N.D. Cal. 1978) (in absence of decisional law under ECOA, court
looked to Fair Housing Act); United States v. Beneficial Corp.,
492 F. Supp. 682, 686 (D. N.J. 1980), aff'd, 673 F.2d 1302 (3rd
Cir. 1981) ("Although there is at this time a paucity of
precedent with respect to ECOA, analysis of the enforcement
network of the analogous Fair Housing Act . . has resulted in
similar conclusions."); Emigrant Savings Bank v. Elan Management
Corp., 668 F.2d 671 n.3 (2d Cir. 1982) (stating that ECOA claim
does not require separate analysis from Fair Housing Act claim).
Thus, Fair Housing Act cases applying the non-delegable duty
doctrine should apply with equal force to plaintiffs' ECOA
In Marr, the Sixth Circuit held that the owner of a real
estate company was liable for the discrimination of the company's
agents under the Fair Housing Act, despite the fact that "[t]here
was no evidence that [he] had personally joined in any
discriminatory acts . . . ." 503 F.2d at 740. Similarly, in
Walker v. Crigler, 976 F.2d 900, 904 (4th Cir. 1992), the owner
of property was liable under the Fair Housing Act regarding the
discriminatory conduct of his manager, even though he
"specifically intended that [she] not discriminate." The Fourth
Circuit reasoned that the property owner "could not insulate
himself from liability for sex discrimination in regard to living
premises owned by him and managed for his benefit merely by
relinquishing the responsibility for preventing such
discrimination to another party." Id. at 904.(2)
Although many of the cases applying the non-delegable duty
doctrine have involved the actions of employees, the doctrine is
not limited by state law concepts of respondeat superior or
agency. Marr v. Rife, 503 F.2d 735, 740 (6th Cir. 1974).
Rather, in order to give effect to Congress'"broad legislative
plan to eliminate all traces of discrimination," a court must
look to federal law to determine the appropriateness of imposing
liability. Id. at 740-41; Cf. City of Chicago v. Matchmaker
Real Estate Sales Center, Inc., 982 F.2d 1086, 1097 (7th Cir.
1992) ("We note that whether an agency relationship exists for
purposes of the Fair Housing Act is a question to be determined
by federal law."); Northside Realty Assoc. Inc. v. United States,
605 F.2d 1348, 1354 n. 13 (5th Cir. 1979) (same).
Thus, NMAC's contention that the dealers are not its agents,
even if true, is not dispositive of NMAC's liability.(3) Indeed,
the arguments that NMAC makes against its liability are the
identical arguments that were made -- and overwhelmingly
rejected by courts -- in cases involving real estate agents under
the Fair Housing Act. See Heights Community Congress v. Hilltop
Realty, Inc., 774 F.2d 135, 141 (6th Cir. 1985) ("This argument
[that real estate agents are independent contractors] has
consistently been rejected in Fair Housing Act cases."). In
those cases, owners of real estate agencies claimed that real
estate agents were independent contractors and not subject to
their control. Rejecting these disclaimers of an agency
relationship, courts imposed liability based on the owners'
practical ability to control the agents. See City of Chicago,
982 F.2d at 1096-97 (discussion of cases rejecting claims that
real estate owners did not control agents).
Liability under the doctrine of non-delegable duty turns,
therefore, not on a wooden application of vicarious liability
doctrine, but more broadly on the principal's exercise of control
over the discriminatory conduct and whether the principal
benefitted from the discrimination. Cf. Markham v. Colonial Mortgage Service Co., 605 F.2d 566, 571 (D.C. Cir. 1979)
(finding no liability under ECOA where assignee neither
participated in nor benefitted from discrimination); Whitfield v.
Century 21 Real Estate Corp., 484 F. Supp. 984, 986 (S.D. Tex.
1979) (no liability under Fair Housing Act where elements of
benefit and control were absent). Both of these factors are
present in this case. According to facts set forth by
plaintiffs, NMAC exercised complete control over the method of
setting interest rates for its borrowers. See Plaintiffs'
Response to NMAC's Statement of Undisputed Facts at 45-54. The
dealers set rates in strict conformity to NMAC's policies. For
every customer, NMAC set the permissible range of finance
charges, and created an incentive for the dealer to charge as
much as possible. NMAC approved every loan application and its
terms individually, and, of course, NMAC shared in the profits
from the dealers' allegedly discriminatory conduct.
In fact, NMAC allegedly is a far more active participant in
the dealers' alleged discrimination than many of the defendants
found liable in the above cases.(4) NMAC designed and implemented
the very system that quite predictably resulted in the alleged
discriminatory conduct by dealers. An NMAC senior executive,
testifying on behalf of NMAC, admitted that judgmental pricing
was antiquated and could lead to bias. See Plaintiffs'
Memorandum in Opposition to NMAC's Motion for Summary Judgment
("Pl. Opp.") at 19-20. Despite this awareness, NMAC nonetheless
implemented a pricing policy that expressly authorized dealers to
impose at their discretion finance charges not based on risk.
To carry out its obligations under ECOA, NMAC could have
established guidelines for the imposition of finance charges that
would prevent illegal bias. Alternatively, NMAC could have
monitored racial disparities in its loans. Although NMAC may not
collect racial information as part of the loan application
process, ECOA expressly permits a creditor to assess its fair
lending compliance. 15 U.S.C. § 1691c-1. ECOA even provides
incentives for creditors to monitor their compliance by making
the results of self-testing privileged so long as the creditor
meets certain requirements. Id.; 12 C.F.R. §202.15. NMAC has
demonstrated that it is fully capable of obtaining information
regarding the race of its customers through drivers' records and
other methods of racial identification. Pl. Resp. at 27-28.
Additionally, Nissan dealers were certainly aware of the race of
NMAC borrowers. NMAC's argument that it is not possible for it
to monitor racial disparities in its loans therefore is without
merit. See Def. Mem. at 28 n. 14.
Accordingly, NMAC may be liable for the discriminatory
pricing of its loans as a result of dealers' discrimination. A
contrary interpretation would permit lenders to immunize
themselves from ECOA liability by delegating parts of the credit
transaction (such as the setting of overages) to third parties,
while at the same time profiting from the resulting