Fair Lending

 In April, we told you about the Civil Rights Division’s increased efforts to combat lending discrimination with the establishment of a new Fair Lending Unit, and about strengthened partnerships with other federal agencies to more effectively enforce fair lending laws.  In recent months, these efforts have yielded a record number of fair lending enforcement actions. Since the beginning of May, the department has resolved or filed seven fair lending actions that protect individuals from unfair or discriminatory lending practices, more than the department has ever filed in such a short time period. The cases cover a variety of types of discrimination, and aim to remedy discrimination against a number of different communities. Below are some highlights of our recent work. Several of the cases have involved allegations of discrimination based on race or national origin:

• On May 5, the Civil Rights Division announced a fair lending settlement with Citizens Republic Bancorp Inc. and Citizens Bank of Flint, Michigan, to resolve allegations of redlining. The division’s lawsuit, which was dismissed in light of the settlement, alleged that the bank failed to offer credit in African-American communities in the Detroit area on an equal basis with white communities. The bank agreed to open a loan production office in an African-American neighborhood in Detroit and invest approximately $3.6 million in Wayne County, Michigan.
• On June 16, the division reached a fair lending settlement with Midwest BankCentre of St. Louis County, Missouri, to resolve allegations of redlining. The suit alleged that the bank failed to offer credit in African-American communities of the St. Louis area on an equal basis with white communities. The bank agreed to open a branch in an African-American neighborhood in St. Louis and invest approximately $1.45 million in those neighborhoods.
• On June 17, the division settled another recent fair lending case against Nixon State Bank in Nixon, Texas, in which the lender was alleged to have charged higher prices on unsecured consumer loans made to Hispanic borrowers through the bank’s branch offices.  As part of the settlement agreement, the bank agreed to establish uniform pricing policies to ensure non-discrimination, and to pay nearly $100,000 to Hispanic victims of discrimination.

Another recent case alleges discrimination against women on maternity leave:

• On July 5, the division filed suit against the Mortgage Guaranty Insurance Corporation (MGIC), the nation’s largest mortgage insurance company, and two of its underwriters, alleging that MGIC required women on paid maternity leave to return to work before the company would insure their mortgages. Most mortgage lenders require applicants seeking to borrow more than 80 percent of their home’s value to obtain mortgage insurance, meaning MGIC’s denials to women on maternity leave could cost those women the opportunity to obtain a home loan.

The division has also taken aggressive action to protect our members of the military against unfair lending practices.  

• On May 26, the division announced two multi-million dollar settlements under Servicemembers Civil Relief Act (SCRA) resolving allegations that servicers unlawfully foreclosed on servicemembers.  Both servicers also agreed to enact new policies and take other corrective action to ensure that in the future they fully comply with the (SCRA).
  • Bank of America/Countrywide agreed to pay a minimum of $20 million to resolve allegations that it unlawfully foreclosed on approximately 160 servicemembers. This is the largest SCRA settlement ever reached by the department.  
  • Saxon Mortgage Services Inc., a subsidiary of Morgan Stanley, will pay a minimum of $2.35 million to resolve a lawsuit alleging that Saxon foreclosed on approximately 17 servicemembers.
  • On May 26, the division also resolved allegations that Bank of America charged servicemembers interest in excess of 6 percent on credit card debt, in violation of the SCRA.

The Fair Lending Unit works closely with the banking regulatory agencies, the Federal Trade Commission, and HUD, receiving from them fair lending referrals where the agency believes there is a pattern or practice of discrimination. In 2010, the division received 49 referrals from partner agencies, more than it had received in a single year in at least 20 years. Critics of our increased enforcement efforts believe we must choose between vigorous enforcement of fair lending laws and a strong, sound climate for lending.  This is a false choice. The truth is that fair lending enforcement is essential for a well functioning market where borrowers can access credit based on their qualifications and not be denied opportunity because of their race, national origin or gender.  In fact, the department’s enforcement efforts support sound lending practices.  The department’s fair lending settlement agreements repeatedly refer to the extension of credit to “qualified applicants” only. The department makes clear that no provision in the agreements require banks to make any unsafe or unsound loan.  As we recover from our nation’s housing crisis, we all have a shared interest in ensuring that communities are rebuilt in a sustainable way that allows them to flourish not only in the near term, but for generations to come.  This can only happen if all qualified homebuyers can access safe, sustainable credit, free from discrimination, on the same basis as their peers as is required by law. The Justice Department will unapologetically continue to ensure they can do so by vigorously enforcing fair lending laws.