Thank you, Nadine. It’s a pleasure to be with you all today to talk about the Civil Rights Division’s fair lending enforcement work.
Our mission in the Civil Rights Division is straightforward -- we seek to expand opportunity and access for all people – opportunity to learn, opportunity to live where one chooses, opportunity to move up the economic ladder, opportunity to realize one’s highest and best use.
Our mission is quite similar, in fact, to NCRC’s mission. We have a shared vision of vibrant, diverse communities where families can access credit and build wealth without facing illegal discriminatory barriers.
And as you all know too well, in the wake of the housing and foreclosure crisis, enforcing fair lending laws has become an even more critical piece of ensuring equal opportunity in this country. The ability to access credit free from discrimination is critical to achieving the American Dream.
In 2011, the Americans who hold that dream are increasingly diverse. Our country’s identity has long been defined by our willingness to embrace the new Americans who have come here because of the promise of opportunity. It is critical in the global economy of the 21st century that the talents and the potential of all Americans are not squandered by the forces of discrimination – intentional or not.
The 2010 Census numbers were just the latest reminder that, with each passing year, our nation becomes more diverse. In the last decade, the number of people who identify as Hispanic grew by more than 40 percent – so did the number of people who are Asian.
The more people that have access to the opportunities that will allow them to become invested members of their communities and grow their family’s wealth, the more we all benefit. Yet we continue to see persistent segregation and re-segregation in communities large and small across America. In recent years, the Census Bureau has studied segregation in metropolitan areas nationwide, and found that many major metro areas, despite their diverse populations, are a patchwork of segregated communities. The trend is troubling. Detroit, for example, went from being the fourth most segregated of 330 metro areas in 1980, to the most segregated in 2000.
Our diversity should be our greatest strength as a nation. But the persistent segregation or re-segregation of America has left communities vulnerable to exploitation by predatory lenders, and our concern is that now those same communities will be harmed by the current pernicious expansion of redlining.
When I was on the Montgomery County Council, we made a commitment to diversity and opportunity. We established an inclusionary zoning policy to generate affordable housing opportunities – the policy has generated a significant percentage of all affordable units built in the nation.
As a community, we recognized that equal opportunity isn’t just about individual rights – it’s about community prosperity and stability, and it’s about economic growth. It is in our interests as a nation to swing wide the door of opportunity.
President Obama and Attorney General Holder recognize that civil rights enforcement is about protecting individual rights and helping entire communities. Under their leadership, we have made fair lending a top priority for the Civil Rights Division.
This is not my first tour of duty in the Division. I spent much of my early career prosecuting hate crimes and police misconduct cases in the Division’s criminal section. I’ve seen firsthand the devastating impact of hate-fueled acts of violence.
But before I worked as a prosecutor, my first job at DOJ was in the Civil Rights Division’s Housing Section in 1986. What I learned then, and what I still see today, is that discrimination comes in many forms.
I’ve seen and continue to see blatant discrimination in rental housing, as with a case we brought in 2009 in Los Angeles where the owner of a number of apartment buildings was allegedly discriminating against African American and Hispanic tenants, choosing to rent mostly to Korean-American tenants instead.
I’ve seen and continue to see blatant racial steering, as with a recent case in Atlanta, where National Fair Housing Alliance testers were told by a real estate agent that the agent didn’t know where to show the tester houses because, quote, “I didn’t know if you were a Caucasian or not over the phone.”
I’ve seen insidious forms of housing discrimination as in a recent case in Shreveport, Louisiana where the Court found, after trial, that the owners of Camp Joy Marina had systematically excluded African-Americans from their property and had blocked the sale of a home there because they believed the prospective buyers were black.
I’ve seen and continue to see classic redlining cases – I saw it in the late 1990s, when Decatur Federal Savings and Loan Association failed to advertise or offer its products to black residents of the Atlanta area, and I saw it in 2009, when First United Security Bank in Alabama settled after we filed suit alleging that the bank failed to offer its lending products and services on an equal basis in areas that are majority African American.
That these challenges continue today is a reminder of how far we still have to go to achieve full equality of opportunity in this country. And as the entire nation recovers from a crisis that has touched every community – but that has devastated communities of color at far greater rates – it is critical that we are vigilant and aggressive in our efforts to enforce fair lending. Already, we have made progress.
We have worked to create the necessary infrastructure to expand and sustain our fair lending work, establishing a Fair Lending Unit in order to devote more resources to fair lending enforcement. More than 20 staff members – attorneys, economists and a mathematical statistician -- devote all or a significant portion of their time to lending cases and matters. In addition, the Division’s Special Counsel for Fair Lending, a new senior career position in the Office of the Assistant Attorney General, has worked to ensure that fair lending issues receive immediate attention and high priority. We are using every tool in our law enforcement arsenal to combat lending discrimination, including, but not limited to, disparate impact theory.
As a result of our infusion of resources, we currently have 60 open matters or investigations and five lawsuits authorized that are in pre-suit settlement negotiations.
No single case will capture the full range of discriminatory conduct occurring in the mortgage market, so the unit is targeting its enforcement actions to specific discriminatory lending practices, including:
- Discrimination in the underwriting or pricing of loans, such as discretionary mark‑ups and fees;
- Redlining through the failure to provide equal lending services to minority neighborhoods;
- Reverse redlining through the targeting of minority communities for predatory loans;
- Steering minority borrowers into less favorable loans; and
- Marital status, gender and age discrimination in lending.
Perhaps just as important as the unit’s creation are its efforts to strengthen our relationships with other federal regulatory agencies and state partners. These partnerships are critical to efficient and effective enforcement of federal fair lending laws, and have proven indispensible in our enforcement efforts.
In fact, in 2010, the Division received more referrals, 49, from regulatory agencies of matters involving a possible pattern or practice of discrimination, than it received in at least the last 20 years. Of those 49 referrals, 26 were based on race or national origin discrimination. To provide some perspective, from 2001 through 2008 the Division received a combined total of 30 referrals involving discrimination based on race or national origin.
These referrals can result in significant relief for victims. For example, last spring we reached a settlement with two subsidiaries of AIG in a case that resulted from a referral.
The complaint alleged that the defendants violated the Fair Housing Act and the Equal Credit Opportunity Act when they charged higher fees on thousands of wholesale loans to African-American borrowers nationwide from July 2003 until May 2006. The complaint further alleged that AIG FSB and WFI contracted with mortgage brokers to obtain mortgage applications that were underwritten and funded by the defendants, but that the lenders failed to supervise or monitor brokers in setting broker fees and that failure had a disparate impact on African American borrowers.
The $6.1 million settlement marked the Department’s largest monetary award to date for victims in a fair lending case. It also marked the first time the Justice Department has held a lender responsible for failing to monitor its brokers to ensure that borrowers are not charged higher fees because of their race. A case of this nature would not have been brought in the previous administration, because disparate impact claims were not allowed, even though every circuit in the country where the issue has been presented has determinate that disparate impact theory is viable.
Late last year, we filed a case and $2 million settlement that resulted from a referral from the Board of Governors of the Federal Reserve. The settlement resolved allegations that PrimeLending violated the Fair Housing Act and the Equal Credit Opportunity Act by charging African-American borrowers higher annual percentage rates of interest between 2006 and 2009 for prime fixed-rate home loans and for home loans guaranteed by the FHA and Department of Veterans Affairs than it charged to similarly-situated white borrowers.
In addition to efforts to address discrimination that occurred during the housing boom, we are remaining vigilant to address emerging areas of discrimination in the current market. As we continue to see a rise if FHA lending, t he Department, in collaboration with the Department of Housing and Urban Development and the Federal Reserve Board, has placed a special emphasis on ensuring that FHA-insured loans are available to all qualified borrowers on a non-discriminatory basis.
The President’s Financial Fraud Enforcement Task Force has been instrumental in fostering these enhanced collaborative efforts. The Task Force, chaired by the Attorney General, brings together an unprecedented number of federal agencies and state and local partners to share information and resources and ensure aggressive, coordinated enforcement.
And the Task Force’s accomplishments have been significant.
Last year the task force spearheaded Operation Stolen Dreams, the largest mortgage fraud sweep in history. For the first time, civil enforcement actions were part of the sweep, involving more than 400 civil fraud defendants and nearly $200 million in recoveries. The sweep included not just federal prosecution by U.S. Attorney’s Offices, but important participation by state attorneys general and district attorneys, and the use of bankruptcy actions and other enforcement means to confront fraud. These efforts demonstrate the value of imploding stovepipes to create broad coalitions to bear and using all the enforcement tools available.
I co-chair the Task Force’s Non-Discrimination Working Group, along with HUD, the Federal Reserve, and Illinois Attorney General Lisa Madigan. We’ve had plenty of meetings in Washington, but we’ve also gone into the community. We’ve seen firsthand the devastation of this crisis. Following a listening session in Chicago, we toured a diverse, south-side neighborhood that had worked so hard to revitalize over many years, but had seen their progress almost instantly eroded by predatory and discriminatory lending. We heard from community leaders like you about the heroic efforts to preserve and maintain their gains.
These community reinvestment efforts must be accompanied by tough enforcement. Illinois Attorney General Madigan recognizes the role her office must play in her state’s efforts to grapple with the fallout of the housing crisis. Last year she sued Countrywide and Wells Fargo for discriminatory lending. Dedicated partners like Lisa Madigan need the federal government to do our part – and we are working hard to be sure we are holding up our end of the bargain.
Already this year we have five cases where we have determined there has been a violation of law, and we are engaged in settlement negotiations to see if we can resolve the cases without litigation. We expect to see considerable progress in 2011.
While the current crisis necessitates that much of our focus will be on mortgage lending, the unit will address discrimination in all areas of lending, including unsecured consumer lending, auto lending, and credit cards. For example, the Division filed a lawsuit against a bank and two auto dealerships in Los Angeles, alleging that they violated ECOA by charging non-Asian American customers higher interest rate mark-ups. One of the three defendants, Nara Bank, agreed in a settlement to pay $410,000 to resolve the allegations. As credit markets have tightened, these other facets of fair lending enforcement have become even more important.
We’ve also seen in the news lately stories involving members of our nation’s military, and their families, facing illegal foreclosures and fees. The Division has authority to enforce the Servicemembers Civil Relief Act, and currently has ongoing investigations into Chase and other lenders, as well as authorized lawsuits against lenders, for overcharging and foreclosing against the homes of Servicemembers without court orders. We are committed to fulfilling our duty to protect the rights of the men and women in our armed forces.
Meanwhile, as we continue to ramp up the volume of our work, we are acutely aware that the victims of fair lending abuses are not just the individuals homeowners or borrowers who have been harmed. The damage is felt far beyond the walls of a single home – renters can find themselves suddenly evicted; neighborhoods can suffer from depressed property values, blight and vandalism; entire communities can feel the pain of declining tax revenues and destabilized neighborhoods.
I know that everyone in this room has been pondering the vast damage of the recent crisis and what it means to provide “make-whole” relief. We are examining ways to use our enforcement authority in creative ways that provide such relief.
Not all of our cases will be against lenders that are responsible for community-wide harm. However, when we bring a lawsuit against a lender whose conduct has caused harm to a community, whether it is a single neighborhood or a dozen cities, we must look for opportunities to make people and communities whole.
Litigation can be transformative in providing equal access to credit in communities that have been ravaged by foreclosures, and we are using it to pursue a robust fair lending agenda. But as enforcers of fair lending laws, we must be creative in how we use the tools available to leverage resources.
Our starting point will be to require the lender to fully compensate borrowers for the harm that they suffered and, to the greatest extent possible, to remedy other harms, such as requiring lenders to repair damage to borrowers’ credit scores. In addition, going forward, we will require the lender to provide equal access to credit on fair and appropriate terms.
But this will not be enough to reverse the damage done to communities. In this regard, as we litigate fair lending cases with an eye toward making communities whole, there are a number of principles that we will follow in our settlements and litigation:
- We will require lenders to invest in the community that they’ve harmed.
- By way of example, in the fall of 2009 the Division reached a settlement with First United Security Bank in Alabama to resolve allegations of a pattern or practice of discrimination based on race, including redlining.
- As part of our settlement, the bank agreed to open a new branch in an African-American neighborhood, to invest $500,000 in a special financing program for African American borrowers and businesses and to spend more than $100,000 on outreach to potential customers and consumer financial education.
- We will require transparency and accountability. The Justice Department will continue its practice of building accountability into agreements by requiring data collection and record keeping. But we will also now focus on setting benchmarks to measure progress, and requiring transparency so that communities can monitor the progress being made.
- We will use all our traditional fair housing tools to prevent segregation and re-segregation of communities. We will continue to use our testing resources to prevent steering and discrimination. Furthermore, we will work with our government partners to ensure that housing programs designed to revitalize these communities affirmatively further fair housing.
- And finally, we will support innovative and creative solutions by working with federal, state and local partners.
Communities around the country are already taking innovative actions to rebuild and reinvest in the wake of the housing crisis.
Cuyahoga County, OH, is one such innovator -- the county is seizing control of the problem of foreclosed properties by establishing a land bank so the community will have a say in the disposition of foreclosed properties.
We potentially could collaborate with officials setting up projects like the one in Cuyahoga County. The lender is a key player as the holder of REO properties. We could therefore explore the possibility of fair lending settlements that require lenders to work in conjunction with community partners to assure that foreclosed properties do not add greater burdens on communities already distressed by unfair lending. We can encourage a more holistic approach to lending that looks beyond merely credit score when determining a borrower’s ability to pay.
Communities serve as laboratories of innovation. Our partnerships with communities, and with you, are critical to informing our efforts, and to ensuring innovative ideas become the cornerstone of our efforts to rebuild communities.
As we continue to emerge from the recession, it is critical that we not only look for ways to hold those who discriminated in the past accountable. We must also find ways to repair some of the damage done to families and to communities. We must use the power of the law to encourage innovative strategies for rebuilding, and be sure that decades of investment have not been permanently lost.
We’ve heard the President talk about “winning the future.” Rebuilding and sustaining strong, diverse communities will be a critical component of our nation’s future success. When more of our neighbors and neighborhoods thrive, we all reap the rewards. It is in everyone’s interest to ensure our lending markets are free of discrimination, and that individuals, families and communities can access the tools they need to prosper.
I am grateful for the work that you all do on behalf of your communities, and I thank you for inviting me to speak today.