THE ATTORNEY GENERAL'S
2000 ANNUAL REPORT TO CONGRESS
PURSUANT TO THE
EQUAL CREDIT OPPORTUNITY ACT
AMENDMENTS OF 1976
SUBMITTED APRIL 2001
BY WILLIAM R. YEOMANS
ACTING ASSISTANT ATTORNEY GENERAL
CIVIL RIGHTS DIVISION
This report is submitted pursuant to Section 1691f of the Equal Credit Opportunity Act, as amended, regarding the activities of the Department of Justice under the statute. This report covers the 2000 calendar year.
There were a total of five fair lending referrals from the federal regulatory agencies during the year, fewer than in recent years (7 were received in 1999, 7 in 1998, and 25 in 1997). During 2000, two referrals were received from the Federal Reserve Board (FRB); one from the Federal Trade Commission (FTC); one from the Department of Housing and Urban Development (HUD); and one joint referral from the FTC and HUD. The two FRB referrals have been or are in the process of being returned to the FRB for administrative resolution. We filed a complaint and consent order in the joint referral and are currently investigating the allegations from the separate FTC and HUD referrals. These referrals are described (by agency) below:
Federal Reserve Board
The FRB made two referrals during the year. One concerned a bank which provided a .25% interest rate reduction on installment loans and credit cards to individuals age 50 and older. Regulation B would allow qualifying special purpose programs for those who are 62 or older. Upon notification of this unlawful practice, the bank adjusted the age requirements and made restitution to all persons injured by this practice. We returned the referral for administrative resolution since the policy has been changed and all aggrieved persons have been compensated.
The second referral involved a foreign-based bank with branch offices in the United States that engages in limited consumer installment and residential lending, primarily to its employees. The bank had a policy requiring the employee's non-applicant spouse to become personally obligated on the mortgage note even where the employee was individually qualified. The bank was required to correct its policy, conduct a search of applications received in the previous 24-month period to identify all spouses who had been improperly required to become personally obligated, and to release such spouses from those obligations. Accordingly, we are returning the referral for administrative resolution.
Federal Trade Commission
The FTC made two referrals this year. One involved allegations of racially discriminatory pricing, charging African Americans higher points and fees in connection with home mortgage loans. We reviewed the FTC's referral and determined that further investigation and analysis was necessary, which we expect to complete soon.
The second FTC referral was a joint referral with HUD. The FTC and HUD developed this case against Action Loan, a subprime lender and its president Gus Goldsmith. This case involved abusive lending practices including insurance packing, misrepresentation of fees and costs, improper disclosures, and increasing the amounts financed so as to increase the lender's profit on a loan. These practices were alleged to violate the Equal Credit Opportunity Act, Truth in Lending Act, Fair Credit Reporting Act, Credit Practices Act, and the Real Estate Settlement Procedures Act. The FTC and HUD negotiated a settlement that included injunctive provisions and nearly $400,000 in consumer redress. We filed the complaint and consent decree, United States v. Action Loan, on behalf of the FTC and HUD.
Department of Housing and Urban Development
In addition to the joint referral with the FTC, described above, HUD referred one pattern or practice case. It involved allegations that a subprime lender engaged in a pattern or practice or disparate treatment of African American borrowers in the pricing of loans. We are continuing to investigate these allegations.
The Office of the Comptroller of the Currency (OCC), the
Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS) have referred cases to us in previous years but did not refer any cases this year.
In addition to the joint FTC/HUD referral described above (which required no more than our approval and filing), we continued litigation of a consumer credit case filed in 1999, filed and settled a predatory lending case, and filed two significant amicus curiae briefs in 2000:
- During 2000, we continued active litigation of our suit against Associates National Bank (ANB), a case that had been filed in 1999, based on a referral from the OCC. Our suit alleged that ANB discriminated on the basis of national origin in one of its credit card programs by: (1) requiring higher credit scores for those applicants who applied on a Spanish-language application form; (2) offering lower credit limits to those Spanish-language applicants who were approved; and (3) failing to offer certain favorable credit promotions to Spanish-language account holders. ANB filed a motion for summary judgment contending, among other things, that its policy of excluding Hispanic designated accounts from its benefits programs is not covered by the ECOA. The case was active in discovery in 2000 and we opposed defendant's motion for summary judgment. Before the court ruled on this motion, however, the parties began negotiations at the end of the year after ANB was acquired by Citigroup, and a settlement was reached in early January 2001. ANB agreed to pay $1.5 million to several hundred individuals the United States identified as having been disadvantaged by the challenged practices.
- In March 2000, we filed a complaint and simultaneous settlement agreement involving allegations of discrimination by Delta Funding Corporation, a subprime mortgage lender, doing business primarily in Brooklyn and Queens, New York. The complaint resulted from a joint investigation between the Department of Justice, the United States Attorney's Office for the Eastern District of New York, HUD, and the FTC. Our complaint alleged that Delta violated the Fair Housing Act and Equal Credit Opportunity Act by making loans to African American females with higher broker fees than those for white males. We also alleged, on behalf of HUD that Delta violated the Real Estate Settlement Practices Act by allowing unreasonable broker fees, and, on behalf of the FTC, that Delta violated the Home Ownership and Equity Protection Act by engaging in asset-based lending.
The settlement agreement, which applies to the lender's operations nationwide, requires Delta to refuse to fund loans with discriminatory or unearned broker fees and to insure that loans are not made to persons who cannot afford the payments. The settlement includes monetary relief of up to $12 million to be paid to victims under a previous agreement between Delta, the New York State Banking Department, and the New York State Attorney General.
- In March 2000, we filed an amicus curiae brief in support of the plaintiffs in Hargraves v. Capital City Mortgage Corp (D.D.C.). The plaintiffs in this predatory lending case alleged that the mortgage company targeted minorities for loans that were designed to fail, due to unfair payment terms and income levels of the borrowers that would not sustain the loan payments. The plaintiffs alleged that defendants' lending practices violated several federal laws, including the Fair Housing Act and the Equal Credit Opportunity Act by engaging in a pattern or practice of targeting African American communities, a practice known as "reverse redlining," for abusive or predatory lending practices. The defendants filed a motion for summary judgment on the grounds that reverse redlining does not violate either law because they have provided credit to African Americans, and on the same terms that they would provide to whites.
Our amicus brief supported the view that lending practices designed to induce minorities into loans destined to fail could violate the fair lending laws. Our brief argued that by targeting minorities for predatory loans, a lender discriminates in the terms and conditions of home financing, even if it makes all or most of its loans in minority areas. The fact that a lender does business only in minority neighborhoods does not shield its business from scrutiny under federal fair lending laws. In addition, racially targeted loans that are designed to fail make housing unavailable because of race since the borrowers are likely to lose their homes through foreclosure. In September 2000, the judge denied defendants' motion for summary judgment recognizing that reverse redlining may violate the Fair Housing Act and Equal Credit Opportunities Act.
- In August 2000, we filed an amicus curiae brief in support of plaintiffs in Cason v. Nissan Motor Acceptance Corporation (M.D.Tenn). In this case, plaintiffs alleged that defendant's practice of permitting Nissan dealers to set finance charges at their discretion resulted in African Americans paying higher finance charges, and that these higher charges could not be explained by non-discriminatory factors. In our amicus brief, we argued that a lender has a non-delegable duty to comply with the Equal Credit Opportunity Act, and, thus, is liable under ECOA for discriminatory pricing in loans that it approves and funds. We further argued that plaintiffs do not need to prove that defendant was on notice regarding the alleged discrimination, but that, in any case, plaintiffs have offered evidence that defendant was on notice. The court subsequently denied summary judgement for the defendants.
In a related case, Coleman v. General Motors Acceptance Corporation (M.D. Tenn), which raised the same issue of a lender's liability under ECOA for discriminatory pricing in loans it approves and funds, plaintiffs submitted our amicus brief filed in the Cason case. The court denied summary judgment for the defendants.
We initiated our first investigation into the business lending practices of one of the largest originators of small business loans. The lender's disproportionately low market share of loans in majority black census tracts, where nearly 20,000 small businesses are located, raised fair lending concerns. We are attempting to determine whether the lender discouraged applicants from majority-black tracts and whether it applied disparate underwriting standards based on race or the racial composition of the neighborhood where the businesses were located.
We have also initiated investigations into automobile lending practices. We are attempting to determine whether lenders discriminate by allowing dealers discretion to charge higher finance charges unrelated to non-discriminatory factors.
We continue to investigate the FTC referral involving allegations of racially discriminatory pricing in connection with home mortgage loans. We also continued to pursue a bank investigation begun in 1998 where we are attempting to determine whether the bank's high rejection rate (both absolutely and in comparison to whites) of minority applicants for home improvement loans may involve unlawful discrimination.
We are continuing to develop investigations of subprime lenders that disproportionately target high priced loan products to minority and elderly borrowers residing in the nation's central cities. Our central concern in these investigations is possible price discrimination based on race, ethnicity, sex, or age. However, each of these lenders may also be engaging in deceptive sales practices. We are seeking to determine whether such practices, if they exist, are being made to fall more heavily on borrowers who are protected by the fair lending laws. We are also developing investigations involving prime lenders who have redlined areas based on the racial composition of the area thereby creating a conducive market for subprime and predatory lenders. We are concerned that a number of borrowers obtaining higher priced, and sometimes predatory loans, may qualify for lower priced prime loans.
- OTHER ACTIVITIES
We participated in a series of meetings, convened by the Federal Reserve Board, with HUD, the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), the Federal Trade Commission (FTC), and the National Credit Union Association, to discuss predatory lending issues and make recommendations to the respective regulatory agencies as to the actions, whether joint or individual, that can be take to address abuses under existing law. This group worked on the development of a policy statement on the currently available enforcement options and the manner in which the participating agencies intend to utilize them.
We also participated in the National Economic Council's (NEC) interagency working group, which included HUD, Treasury and DOJ, to address predatory lending issues. The group focused on: (1) pulling together available data on the scope and nature of the problem; (2) reviewing legislative proposals to inform the Administration's position on these alternatives; and (3) providing input to a report prepared by the HUD/Treasury Task Force on recommendations to address predatory lending issues. The Task Force held a series of meetings around the country on predatory lending and published a report.
During the year, Section and Division representatives continued an active program of speaking to lenders and lending associations throughout the country on our enforcement policies and expectations. We also continued to assist the bank regulatory agencies by providing assistance in training of field examiners on the investigative techniques we have been using. > >