Thank you, Timothy [Burniston], for your kind words, for inviting me to speak and for bringing us all together as we reflect on our country’s challenges and opportunities in fair lending. I also want to thank my colleagues in attendance from our Housing and Civil Enforcement Section – Chief Steve Rosenbaum and Deputy Chief Jon Seward – for joining us today and for the engaged, innovative leadership they bring to this vital work.
I am delighted to see such a diverse group of stakeholders from every segment of the lending community. Your presence here reflects that while each of us may bring different perspectives, we share a common dedication to advance the fundamental principle of fair and equal access to credit. In particular, I want to acknowledge the compliance professionals in attendance. Your role in promoting non-discriminatory policies and procedures within your institutions is a powerful force to ensure fair lending in the nation. I commend your work, and I urge you to remain vigilant about the complex compliance challenges we continue to encounter.
As head of the Civil Rights Division at the Department of Justice, I have the privilege of working alongside a dedicated team of colleagues to enforce the law in pursuit of equal opportunity and equal justice for all. Our mission is to make the promising ideals of justice a tangible reality for everyone in America.
I’ve been in this role for one year, and let’s just say it has been a rather intense and active year for us. Partly driven by tragedy and partly by broad community mobilization, civil rights issues are once again at the center of our most pressing national debates. One major catalyst has been the conversation around policing and criminal justice reform. High-profile incidents across the country have thrust us into a national dialogue over the use of excessive force, racial profiling and stereotyping, officer and public safety and a festering lack of trust between police departments and the communities they serve, particularly low-income communities of color.
But underneath so much of the unrest that we’ve seen in Ferguson, Missouri; Baltimore; New York; and cities across America lies a foundation of systemic inequalities and discriminatory biases, built up over decades, not days.
To break down barriers to opportunity we must protect the rights of people to borrow money without bias or discrimination. Discrimination is a multiplying force. It can have a devastating domino effect on a person’s future economic prospects. And that is why equal access to credit is a fundamental part of our work. Credit provides the means for families to own a home, to buy cars so they can get to work and to increase their earnings so they can invest in their own future. And credit enables people to uplift their lives and build a brighter future.
For these reasons, the division has prioritized – and, under my leadership, will continue to prioritize – enforcement of our fair lending laws. Today, I’ll highlight the legal strategies and tactics we’re employing in the Civil Rights Division to enforce fair lending laws and combat discrimination – particularly against some of our most vulnerable communities – across several sectors of our economy.
This past year, our Housing and Civil Enforcement Section brought a record number of fair lending enforcement actions. Since 2010, through our settlement agreements, we’ve now obtained more than $1.3 billion in relief for individual victims and impacted communities. We focus on all potentially discriminatory action by creditors and all forms of lending – from personal and car loans, to credit cards and mortgages.
In the division, we utilize a set of three powerful tools to combat lending discrimination. First, statutes such as the Fair Housing Act, the Equal Credit Opportunity Act and the Servicemembers Civil Relief Act authorize the Justice Department to bring lawsuits in order to ensure a level playing field for borrowers.
Second, we rely on federal court decisions that cement the bedrock principles of fair lending enforcement. In this year’s Inclusive Communities decision, for example, the Supreme Court sided with the Justice Department’s argument that the Fair Housing Act – a critical law passed in the wake of Dr. Martin Luther King’s death – authorizes disparate impact claims.
Third, we work in partnership with our sister agencies, including the Consumer Financial Protection Bureau (CFPB), the Department of Housing and Urban Development, the Federal Trade Commission, U.S. Attorney’s Offices, state attorneys general and, of course, bank regulatory agencies. The close cooperation we share with our federal and state partners enables us to expand our capacity to root out and purge discriminatory lending practices. These tools have helped the division continue with its steadfast, robust and impactful record of fair lending enforcement.
• Since 2010, we have settled more than 40 suits alleging discrimination in mortgage lending, including pricing discrimination, steering and redlining. As of last month, we had 25 open fair lending investigations and five authorized fair lending lawsuits.
• And we aren’t slowing down. With a renewed focus on systemic discrimination, our Housing and Civil Enforcement Section has filed more pattern or practice cases this past fiscal year than it has in any other year during the last two decades.
• As part of our $1.3 billion in relief for individual borrowers and impacted communities, defendants have had to pay significant amounts of money to compensate victims and to adopt proactive measures such as funding financial literacy programs. To give just a few examples, defendants have agreed to settle for $60 million in the Sallie Mae case, $27 million in the Hudson City Savings Bank settlement and $25 million in the case against American Honda Finance Corporation.
These figures convey to the industry a clear and consistent message: this administration will vigorously enforce our civil rights laws to eliminate lending discrimination, and skirting fair lending laws will come at a significant cost.
Beyond monetary relief, we also strive to break down structural barriers to opportunity by instituting proactive protections and systemic community reforms. Whether mandating that a bank open a branch in a neighborhood neglected for years or requiring an auto lender to limit the discretion of its dealers, we recognize the value of resolutions that extend beyond the distribution of dollars.
Critical to our enforcement efforts is our strong collaboration with industry leaders. Preventing lending discrimination is essential to advancing equal credit opportunity for all borrowers. And that prevention must start with banks and lending institutions. Many of the financial institutions represented here today have followed best practices for establishing proactive compliance. These practices include:
• Adopting sound non-discriminatory lending policies and procedures, while critically reviewing those already in place;
• Establishing internal controls that catch potentially discriminatory effects of your practices;
• Recognizing the discretionary practices that you authorize your brokers and dealers to engage in; and
• Taking steps to remedy any discrimination you uncover.
As I emphasized last year, the division believes that fair lending is critical to supporting a sound and stable banking industry. The settlements that we seek do not ask lenders to engage in risky lending or ignore the creditworthiness of potential borrowers. The law sets a simple but clear demand: provide equal access to credit. In doing so, lenders hold the power to lift up disenfranchised communities while simultaneously supporting the economic health of our country.
Despite our collective work, and our belief that race and national origin should never determine the ability of qualified borrowers to access credit, we know that discriminatory lending practices persist. The practice of redlining for prime loans continues to be a major focus of our fair lending enforcement efforts. Our litigation in the Hudson City case is an important example. Two months ago, we joined with the CFPB to reach a $27 million settlement with Hudson City Savings Bank, resolving allegations that it engaged in a pattern or practice of redlining predominantly black and Hispanic neighborhoods in its mortgage lending practices. This resolution marked the Justice Department’s largest residential mortgage redlining settlement ever.
Our complaint alleged that from at least 2009 to 2013, the Hudson City Savings Bank violated fair lending laws by failing to provide equal access to credit in predominantly minority neighborhoods in New York, New Jersey, Connecticut and Pennsylvania. This included limiting the number of branches and loan officers and limiting the time spent working with mortgage brokers in communities with large minority populations. We developed a map that starkly demonstrated the discriminatory behavior and its effect to exclude credit from neighborhoods with large concentrations of minority residents.
Under the terms of our proposed settlement, Hudson City Savings Bank will invest $25 million in a loan subsidy fund to increase credit extended to majority-minority neighborhoods; invest $2 million in financial education and community outreach programs; and open two new full-service branches. The bank will also develop a robust set of internal controls to ensure fair lending compliance and provide training to both employees and senior bank leadership, including its board of directors. Lastly, Hudson City Savings Bank will pay a $5.5 million civil penalty to the CFPB. These robust remedial measures will compensate victims and finally open up the credit pipeline to qualified black and Hispanic borrowers.
The division also continues to focus on reverse redlining cases, where lenders intentionally target minority borrowers with unfair and predatory credit practices. In March, a federal court approved our proposed consent order in the Auto Fare case that we brought against the owners of two “buy here, pay here” used-car dealerships in North Carolina. Our lawsuit alleged that the dealerships raised their sales prices, down payments and interest rates to disproportionately high levels compared to those of other subprime used-car dealers. Because the dealerships didn’t comprehensively assess the customers’ creditworthiness or ability to repay, customers suffered rates of default and repossession far higher than industry norms. The dealerships also engaged in repossessions even when customers had not defaulted.
We reached a settlement that requires the dealerships to implement a variety of practices to ensure that they no longer implement predatory loan terms and repossession practices. Highlights from the settlement include: limiting projected monthly payments to no more than 25 percent of a borrower’s income; ensuring interest rates remain at least five percentage points below the state’s rate cap; and mandating a lower interest rate for borrowers who can document a lower credit risk. Through our consent order, we’ve demonstrated the measures lenders can take to prevent reverse redlining. And while compliance actions will vary across different lenders, we provide a series of specific policies and practices to promote responsible lending.
In addition to the Auto Fare case, the division has achieved numerous and significant settlements in the context of auto lending. Since our joint $98 million settlement with Ally Financial and Ally Bank that I discussed last year, we’ve continued our aggressive and dynamic enforcement efforts. In 2015 alone, the Civil Rights Division reached settlements in three cases – with Evergreen Bank Group, American Honda Finance Corporation and Fifth Third Bank – and obtained more than $43 million in victim compensation and other relief. I know that Steve Rosenbaum will go into more detail on our auto lending cases during the colloquium, but I do want to highlight one settlement in particular.
This July, the division and the CFPB achieved a groundbreaking settlement to resolve a lawsuit alleging that American Honda Finance Corporation – the nation’s ninth-largest auto lender – engaged in a pattern or practice of discrimination against black, Hispanic and Asian borrowers. Of particular importance in the settlement, Honda agreed to significantly limit the discretion of car dealers to charge interest rate markups on Honda loans. The settlement provides $24 million in compensation for alleged victims of past discrimination, and Honda will pay $1 million to fund a financial education program that seeks to benefit black, Hispanic and Asian populations.
The settlement also requires Honda to improve its monitoring and compliance systems. The Civil Rights Division and the CFPB provided Honda with the flexibility to experiment with different approaches toward reducing discrimination. We did not impose a one size fits all mandate. As demonstrated by our consent orders with Evergreen and Fifth Third Bank, we want to work collaboratively with auto lenders to develop models that provide both fair lending for borrowers and fair compensation for dealers.
I’d also like to discuss another fair lending priority – our work to enforce the Servicemembers Civil Relief Act (SCRA) on behalf of those in the military. The law shields service members from illegal foreclosures and permits them to lower their interest rate on debt incurred before military service to 6 percent. We, as a nation, cannot allow the men and women who defend our freedom with extraordinary personal sacrifice to return to civilian life only to find their debt burden skyrocketing, their homes foreclosed or their cars repossessed.
Last year, I reported that the Civil Rights Division reached a $60 million dollar settlement with Sallie Mae for failing to reduce interest rates on pre-service student loans to 6 percent. This year, I am proud to report that money is being distributed to 77,000 service members, and our groundbreaking settlement triggered systemic changes to the student loan industry. For example, the Department of Education now requires the servicers of federally-owned and federally-guaranteed student loans to proactively use the Defense Manpower Data Center and identify service members entitled to the 6 percent benefit, rather than waiting for these service members to send in their orders. This new system is designed to minimize administrative burdens on service members and enable more of them to obtain the SCRA benefits they deserve.
In recent months, we’ve also announced that as a result of our landmark settlements with five of the nation’s largest mortgage servicers, a total of more than 2,400 service members and their co-borrowers are eligible to receive more than $311 million.
In addition, the division has continued to sue lenders for improper auto repossessions against service members. In February, as a result of the Justice Department’s first ever lawsuit focusing exclusively on service members’ auto repossession rights, we reached a settlement with Santander Consumer USA to provide more than $9 million in compensation to service members. Our complaint alleged that Santander repossessed more than 1,100 motor vehicles without obtaining a court order. In addition to paying the compensation, Santander must also repair the credit of all affected service members, pay civil penalties and adopt specific practices in its repossession process to comply with the SCRA.
The Civil Rights Division’s successful enforcement efforts in this area have been strengthened by our partnership with the CFPB and, in particular, with Holly Petraeus and her outstanding staff at the Office of Servicemember Affairs. We will continue to work with our agency partners to ensure that those who answer our nation’s call to duty receive the financial and consumer protections they rightfully deserve.
Throughout the past year, we’ve continued our aggressive oversight of the consent orders entered into since 2010. We’ve worked closely with defendant lenders and settlement administrators to ensure they’ve used the most effective standards to identify, locate and communicate with victims of the alleged discrimination.
In 2014, more than $500 million recovered through the division’s settlements was disbursed to hundreds of thousands of victims of alleged discrimination. This includes distribution of 91 percent of the $335 million settlement in the Countrywide Financial case and distribution of 98 percent of the $184 million settlement in the Wells Fargo case. These figures demonstrate our commitment to ensure that victims of past alleged discrimination receive compensation in a timely manner.
As part of our compliance efforts, we’ve also devoted significant resources to hold defendants accountable to settlement terms. Many of our settlements require lenders to implement revised lending policies and practices to ensure that the past alleged discrimination does not recur. This past year, the Civil Rights Division engaged in a rigorous review of many defendant lenders’ new policies and programs to determine whether past inadequacies have been corrected and to identify any new potential fair lending concerns. With the division’s guidance, these lenders continue to enhance their business practices to the benefit of their institution and the consumers they serve.
In closing, I want to thank you, once again, for the opportunity to join you this morning. While I’ve only covered a snapshot of the Civil Rights Division’s work, the cases we’ve investigated and the settlements we’ve reached reflect critical trends that play out across the country. And while these challenges unquestionably present new complexities each year, looking around the room at such a distinguished group of advocates and industry leaders, I am confident we are up to the task – so long as we continue to share best practices and find the common ground to collaborate with one another in pursuit of equal opportunity for all. Fair lending is grounded in the simple, but powerful truth, that while there are no guaranteed equal outcomes, we do strive as a nation to ensure an equal shot at opportunity.
As we continue this vital work to advance fair lending, let us remember that barriers to equal access to credit – whether they take the form of discriminating against people of color or violating the legal protections of our service members – are not only challenges for some people or some communities. They are national challenges that impact all of us. And we, as Americans, must solve them together to break down barriers to opportunity; to help people invest in their own futures on a level playing field; and to bring our nation ever closer to its founding ideal of a union whose people strive each day to make it more perfect, more just and more fair.
Thank you very much.