Justice Department Reaches Settlement with Luther Burbank Savings to Resolve Allegations of Lending Discrimination in California
Settlement Provides $2 Million to Remedy Effects of Minimum Loan Amount Policy
The Justice Department announced today that Luther Burbank Savings will invest $2 million in California communities and take other steps as part of a settlement to resolve allegations that it engaged in a pattern or practice of discrimination on the basis of race and national origin.
The settlement, which is subject to court approval, was filed in conjunction with the Justice Department’s complaint in the U.S. District Court for the Central District of California. The complaint alleges that from 2006 through mid-2011, Luther enforced a $400,000 minimum loan amount policy for its wholesale single-family residential mortgage loan program. The department alleges that this policy or practice had a disparate impact on the basis of race and national origin
“Today’s settlement demonstrates that the Justice Department is committed to addressing a wide range of abuses in the credit market,” said Thomas E. Perez, Assistant Attorney General for the Civil Rights Division. “It is critical that lenders have policies in place to ensure that they don’t discriminate in their lending programs. We commend Luther Burbank Savings for revising its policies and working with the Justice Department to reach an appropriate resolution in this case.”
The complaint alleges that from 2006 through 2010, Luther Burbank Savings, a prime lender, originated very few single-family residential mortgage loans to African-American or Hispanic borrowers or in majority-minority tracts throughout California. In the greater Los Angeles area, for example, only 5.8 percent of Luther’s single-family residential mortgage loans were made to African-American and Hispanic borrowers during this time period, compared to 31.8 percent of such loans made to African-American and Hispanic borrowers by comparable prime lenders.
Similarly, only 5.2 percent of Luther’s single-family residential loans in the greater Los Angeles area were made in majority-minority census tracts (areas with a non-white population greater than 50 percent) during this time period, compared to 41.7 percent of such loans made in these tracts by comparable prime lenders. The complaint alleges that Luther continued its $400,000 minimum loan amount policy despite its knowledge that its low level of lending to African-American and Hispanic borrowers, and in majority-minority census tracts, was attributable to the policy.
“Discriminatory lending practices against minorities threaten the American dream of homeownership,” said U.S. Attorney André Birotte Jr. “The Department of Justice will not allow financial institutions to have in place residential lending practices that illegally impact minority communities.”
Under the settlement, Luther will invest $1.1 million in a special financing program to increase the residential mortgage credit that the bank extends to qualified borrowers seeking loans of $400,000 or less in California. The bank also will invest $450,000 in partnerships with community-based organizations that provide credit and financial services to minorities in the affected areas; spend $300,000 for outreach to potential customers and promotion of its products and services; spend $150,000 on consumer education programs; and conduct fair lending training for employees. Luther also is prohibited from establishing or implementing a $400,000 minimum loan amount policy. Since June 2011, the bank has operated with a $20,000 minimum loan amount policy for single-family residential mortgage loans.
The lawsuit originated from a 2010 referral by the Office of Thrift Supervision to the Justice Department’s Civil Rights Division. Luther is now subject to the regulatory authority of the Office of the Comptroller of the Currency. The lawsuit was developed and filed by the Fair Lending Unit of the Housing and Civil Enforcement Section in the Justice Department’s Civil Right Division. Since the Fair Lending Unit was established in February 2010, it has filed or resolved 21 lending matters under the Fair Housing Act, the Equal Credit Opportunity Act and the Servicemembers Civil Relief Act. The finalized settlements in 18 of these matters provide for a minimum of $370 million in monetary relief, including compensation for more than 200,000 individual borrowers.
Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. The task force has established financial fraud coordinators in every U.S. attorney’s office around the country to help make these broad mandates a reality on the ground. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov
A copy of the complaint and proposed settlement order, as well as additional information about fair lending enforcement by the Justice Department, can be obtained from the Justice Department website at www.justice.gov/fairhousing .