Fair Lending Litigation Following the Subprime Meltdown

VOLUME 28

NUMBER 9 SEPTEMBER 2009

FEATURES
Fair Lending Litigation Following the Subprime Meltdown . . . . . . . . . . . . . . . . . . 1
By John L. Ropiequet and Christopher S. Naveja

Hedge Funds: The Missing Link in Executive Pay Reform . . . . . . . . . . . . . . . . . . 10
By Robert C. Illig

THE MONITOR
Bank Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Securities/Section 20/Broker-Dealer . . . . . . . . . . . . . . 26 Futures/Derivatives/Swaps/Commodities . . . . . . . . . . 28 Court Developments . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Law & Business

Fair Lending Litigation Following the Subprime Meltdown
By John L. Ropiequet and Christopher S. Naveja

D

uring the late 1990s, the plaintiff ’s bar brought a number of large class action cases alleging racial discrimination under the Equal Credit Opportunity Act (ECOA)1 by various auto finance companies. These actions concluded only recently in 2007,2 more than a decade after the first of the cases was filed. In those cases, it was claimed that there was a disparate discriminatory impact on protected minorities. These cases have unfortunately run their course leaving many unanswered questions about what conduct constitutes actual racial discrimination under ECOA and what, if anything, finance companies as assignees should be doing to detect or even prevent discrimination. In light of the current economic climate, the plaintiff ’s class action bar, to no one’s surprise, has now turned its attention away from the auto finance industry and toward the mortgage industry. Claims based on allegations of racial discrimination that echo the auto finance cases have been brought under the ECOA on both an individual basis and a class action basis, with additional claims under the Fair Housing Act (FHA)3 and, occasionally, for mortgage fraud. The availability of expanded data under the Home Mortgage Disclosure Act (HMDA)4 is likely to further encourage this trend. Key Statutory Concepts of the ECOA The ECOA prohibits discrimination “with respect to any aspect of a credit transaction” based on age, race, color, religion, national origin, receipt of public assistance benefits, and the exercise of rights under the Consumer Credit Protection Act.5 While the ECOA borrows concepts and terminology from the Truth in
John L. Ropiequet is a partner in the Litigation Group of Arnstein & Lehr LLP, Chicago, where he has practiced since 1973, and is co-chair of its Consumer Finance Group. He may be contacted at (312) 876-7814 or [email protected]. Christopher S. Naveja is a partner in the Litigation Group of Arnstein & Lehr LLP, Chicago, where he has practiced since 1995, and is co-chair of its Consumer Finance Group. He may be contacted at (312) 876-7140 or [email protected]. Volume 28 • Number 9 • September 2009

Lending Act (TILA),6 which lenders are very familiar with, it must always be kept in mind that at base the ECOA is a civil rights law. Its major focus is on remedying discrimination in consumer credit transactions, not, like the TILA, on ensuring that disclosures are made so that consumers can make informed credit decisions. There are significant differences between the ECOA and the TILA. “Creditor” Under the TILA, there is an important distinction between the creditor and assignees of the creditor. A “creditor” is “the person to whom the debt arising from the consumer credit transaction is initially payable on the face of the evidence of indebtedness.”7 The TILA protects assignees of creditors from liability for any of the creditors’ violations of TILA disclosure requirements that are not “apparent on the face of the disclosure statement” in the evidence of indebtedness.8 This distinction has been the subject of numerous cases that hold that assignees are not subject to the same TILA liability as creditors, the well-known “assignee liability” defense.9 The ECOA has a broader definition of “creditor” than the TILA. Under the ECOA, there is no counterpart to the TILA requirement that the transaction with the creditor involve more than four installment payments.10 “Creditor” can also include an assignee since it is defined as “any person who regularly extends, renews, or continues credit; any person who regularly arranges for the extension, renewal, or continuation of credit; or any assignee of an original creditor who participates in the decision to extend, renew, or continue credit.”11 In contrast with the TILA, where an assignee is not liable for a creditor’s TILA violations that are not apparent on the face”of the document, even if it has knowledge of industry practices or actual knowledge of the violations,12 an assignee who participates in a discriminatory credit decision can be held liable under the ECOA:
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Creditor means a person who, in the ordinary course of business, regularly participates in a credit decision, including setting the terms of the credit. The term creditor includes a creditor’s assignee, transferee, or subrogee who so participates. For purposes of § 202.4(a) and (b), the term creditor also includes a person who, in the ordinary course of business, regularly refers applicants or prospective applicants to creditors, or selects or offers to select creditors to whom requests for credit may be made. A person is not a creditor regarding any violation of the [ECOA] or this regulation committed by another creditor unless the person knew or had reasonable notice of the act, policy, or practice that constituted the violation before becoming involved in the credit transaction. The term does not include a person whose only participation in a credit transaction involves honoring a credit card.13 Section 202.6 of Regulation B further provides that “a creditor may consider any information obtained, so long as the information is not used to discriminate against an applicant on a prohibited basis.”14 A footnote to this provision states that “the legislative history of the [ECOA] indicates that the Congress intended an ‘effects test’ concept . . . to be applicable to a creditor’s determination of creditworthiness.”15 The Federal Reserve Board (FRB) has adopted this standard, which allows suit on a disparate impact theory that requires no proof of discriminatory intent, as well as on a disparate treatment theory, which does require such proof, only with respect to § 202.6. ECOA liability therefore can extend to all parties that regularly participate in credit decisions, not just to the TILA creditor. In contrast to the protection given to assignees under § 1641(a) of the TILA,16 assignees may be found liable under the ECOA in a typical three-party transaction where, for example, an auto dealer that extends credit simultaneously arranges with a finance company to purchase the credit contract as soon as it is executed. Although the finance company’s ECOA liability should depend, under Regulation B, on whether it knew or had notice of the dealer’s discriminatory acts, policy, or practice, the cases have given little or no attention to this point. Indeed, it has been alleged that auto finance companies are on notice of discrimination by dealers because of publicity involving alleged discrimination by home mortgage
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lenders.17 This has led some courts to hold that auto finance companies are creditors within the meaning of the ECOA so long as the plaintiff pleads that they had knowledge or reasonable notice of discrimination by the TILA creditor.18 “Applicant” The ECOA provides a private right of action to any “aggrieved applicant.”19 “Applicant” is defined as “any person who applies to a creditor directly for an extension, renewal, or continuation of credit, or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit.”20 Regulation B further defines “applicant” as including “any person who is or may become contractually liable regarding an extension of credit.”21 The definition of “applicant” thus includes not only those who have obtained credit but also those who sought credit but did not obtain it. This definition provides more expansive liability than the TILA, since TILA liability depends on a transaction’s being consummated.22 Applicants who are denied credit on discriminatory grounds can therefore bring suit, although most private suits have been brought on behalf minorities who have received credit on allegedly discriminatory terms rather than those who have been denied credit. Remedies The ECOA allows actual damages to aggrieved applicants on an individual or a class basis.23 This differs from what can be awarded under the TILA, where a series of cases found that actual damages cannot be awarded in a class action because plaintiffs cannot demonstrate the necessary reliance on a class-wide basis.24 In lieu of the statutory damages available under the TILA, the ECOA allows for punitive damages. A punitive damages award in favor of an individual is capped at $10,000, while a class recovery cannot exceed the lesser of $500,000 or one percent of the net worth of the creditor,25 similar to the TILA cap on statutory damages in class actions.26 The ECOA states the factors that must be considered for a punitive damages award as the amount of any actual damages awarded, the frequency and persistence of failures of compliance by the creditor, the resources of the creditor, the number of persons adversely affected, and the extent to which the creditor’s failure to comply
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was intentional.27 Equitable and declaratory relief are also available,28 as well as attorney’s fees and costs.29 Previous Enforcement and Litigation Developments Prior to the mid-1990s, private ECOA litigation did not seek redress for racial discrimination; instead, it focused on failure to give “adverse action” notices to rejected applicants when credit was denied.30 The US Department of Justice (DOJ) filed a series of enforcement actions between 1994 and 1997 against mortgage lenders alleging that the lenders’ commission-driven pricing systems had discriminatory effects.31 Although one of the consent decrees involved a small civil penalty, the most important feature was setting up of funds to be distributed to aggrieved minority credit applicants. In United States v. Security State Bank,32 for example,the lender paid a $10,000 civil penalty to the government, but did not pay any government enforcement costs, and a $500,000 fund was set up to compensate a group of Hispanic borrowers in 300 incidents. In United States v. Northern Trust Co.,33 $566,500 was to be distributed to 60 Hispanic and African-American borrowers and another $133,500 was placed in a fund to compensate any additional victims who might be identified, with no civil penalty or enforcement costs. More than $20 million in financial relief was awarded to members of racial minorities through this series of settlements,34 and the DOJ has filed no racial discrimination cases against mortgage lenders for granting credit on a discriminatory basis since then.35 The public record in these cases contained nothing more than the DOJ complaint, the consent decree entered on the complaint, usually within days of filing the complaint, and a DOJ press release announcing the consent decree. The complaints typically referred to statistical evidence of disparate impact on minorities, and the consent decrees required the institutions to set up procedures to prevent disparate impact in the future.36 Since the DOJ cases were not contested, there are no court decisions to give any guidance to lenders on how to detect racial discrimination in their activities, what level of discriminatory impact on minority credit applicants crosses the line, or what they should do to correct their practices if they find discrimination. Private Auto Finance Litigation With the DOJ sitting on the sidelines, private litigants took up the torch, focusing on the auto finance
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industry.The plaintiff ’s bar argued that the commissiondriven pricing system described in the various DOJ actions had known discriminatory effects. They alleged that the DOJ actions put auto finance companies on notice that allowing auto dealers discretion to mark up the interest rates for their retail installment contracts above the finance companies’ buy rates resulted in a disparate impact on minorities. This was allegedly sufficient to bring the finance companies within the expanded definition of “creditor” under Regulation B.37 Thus, the auto finance companies’ alleged knowledge of what mortgage lenders allegedly were doing was claimed to be a reasonable substitute for knowledge of discriminatory conduct by auto dealers. The focus of this litigation was very different from the DOJ enforcement cases. For the most part, plaintiffs sought only declaratory and injunctive class relief under Rule 23(b)(2) since efforts to seek money damages under Rule 23(b)(3) resulted in rulings denying class certification.38 Although some cases were dismissed on motion, most cases eventually settled, resulting in substantial amounts of fees and expenses for class counsel, funding for financial education programs for consumers, and small amounts for the named plaintiffs.39 Unlike the substantial restitution given to victims of the alleged discrimination in the DOJ consent decree cases, the plaintiff classes in the auto finance cases received only prospective relief in the form of education programs, special offers to finance future automobile purchases, standard disclosures in future retail installment contracts, and a cap on the buy rate markup.40 As with the DOJ consent decrees, the settlement agreements in the auto finance class action cases again left lenders who were not parties to these cases with many unanswered questions. No findings were made about what constituted evidence of discrimination, and the court rulings were largely limited to finding that racial discrimination was adequately pleaded in the complaint. Indeed, there was even greater uncertainty about what might or might not constitute actionable discriminatory conduct than there was under the DOJ consent decree cases because the auto finance companies were claimed to be only derivatively responsible for the actions of numerous independent auto dealers rather than being responsible for their own discriminatory conduct.
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Collection and Disclosure of HMDA Data Given the current state of the economy and of the auto industry in particular, the plaintiff ’s bar has now focused on the mortgage industry. The current public availability of expanded data under the HMDA will likely only add fuel to the flames since it provides detailed statistical information about mortgage financing that is not collected or disclosed for the financing of auto purchases. Some of the current wave of fair lending litigation explicitly relies on HMDA data to establish the presence of discriminatory lending practices.41 Mortgage lenders have been required to collect and disclose data about the racial background of their borrowers since the HMDA was first enacted in 1975. The FRB expanded the types and amount of information that lenders would have to disclose and which it would make publicly available in summary form when it revised Regulation C in 2002. Under the revised regulations, this information includes the race, ethnicity, gender, geographic location, and income of their borrowers, plus the interest rates and fees for higher-priced loans, for all mortgage loans originated in 2004 and later.42 Although the FRB’s own researchers have cautioned that HMDA data is not sufficient by itself to establish violations of fair lending laws,43 consumer advocates have concluded otherwise.44 The evidence of potential discrimination that HMDA data suggests when it shows an apparent disparate impact for higher-cost loans among minority borrowers has and will prompt both enforcement action and private litigation. Current Enforcement and Litigation Developments Expanded HMDA data attracted the attention of the New York Attorney General’s office, which used it to identify lenders with price disparities across racial groups. The first result was a settlement with Countrywide Home Loans that was announced in December 2006. Attorney General Spitzer stated that the 2004 HMDA data and the state’s statistical analysis of the data for Countrywide’s loans in New York showed that African-American and Hispanic customers were more likely to receive higher-priced loans, even taking credit risk factors into account.45 In the settlement, Countrywide agreed to monitor pricing-related discretionary decisions by its own
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personnel and by independent mortgage brokers who referred customers to it, compensate African-American and Hispanic borrowers who had received certain types of loans, implement financial education programs for consumers and fair lending training for its personnel, and make more disclosures about its mortgage products and their features.46 This followed the example of the auto finance company settlements, but without fees to class counsel and cash payments to class representatives. The New York Attorney General’s office then sought to make similar investigations of the mortgage lending practices of several national banks. However, a coalition of the banks and their federal regulator, the Office of the Comptroller of the Currency (OCC), obtained injunctions prohibiting the Attorney General from proceeding with the investigation. The US District Court for the Southern District of New York held that the OCC had exclusive visitorial jurisdiction under the National Bank Act (NBA),47 so that it was the only body that could investigate alleged discriminatory lending practices by national banks.48 The Attorney General appealed, but the intervening decision of the US Supreme Court in Watters v. Wachovia Bank, N.A.49 indicated that the OCC’s authority would preempt action by a state attorney general. Relying on Watters, the Second Circuit held that “investigation and enforcement by state officials are just as much aspects of visitorial authority as registration and other forms of administrative supervision” and that the Attorney General’s attempts to investigate and enforce anti-discrimination laws against national banking associations were therefore preempted.50 However, the Supreme Court granted a writ of certiorari in January 2009 and, acting very quickly, reversed the Second Circuit’s decision in June 2009.51 The Supreme Court found that a state attorney general who acts to enforce state laws, like fair lending laws, that are not pre-empted by the NBA does not exercise any visitorial power to supervise the affairs of a federally chartered financial institution that would conflict with the authority granted to the OCC by the NBA.52 Accordingly, state law enforcement officials can initiate judicial action to enforce such laws, since that would not undermine the OCC’s visitorial powers.53 The Supreme Court found that the OCC’s regulation and interpretation, which barred state enforcement actions against national banks,
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was not justified by the NBA.54 However, the New York Attorney General’s original requests for information, which were made on his own executive authority, not through the issuance of a search warrant or other judicial process, would not constitute “an exercise of power of law enforcement ‘vested in the courts of justice,’” as permitted by the NBA, so the district court’s injunction against the requests was affirmed.55 Thus, state enforcement of fair lending laws against national banks has been given a green light by the Supreme Court, but only to the extent that state officials act through the courts in civil or criminal actions. It remains to be seen how active the New York Attorney General or other state attorneys general will become in this area or what evidence they will have to collect before they file actions in court. In particular, it will be an open question whether the courts will accept HMDA data by itself as a sufficient basis for state enforcement activities. Private Litigation Trends While the efforts of the New York Attorney General to investigate and regulate alleged discriminatory practices by national banks were put on hold pending the Supreme Court’s recent decision, private litigation has proceeded full bore. Fair lending cases began to be filed in 2007 in the US District Court for the Northern District of Illinois, long a hotbed for consumer finance litigation, and elsewhere alleging racial discrimination in violation of the ECOA and the FHA. As occurred in the auto finance class action cases, almost all of them have survived motions to dismiss to date.56 The first reported decision involved an individual claim rather than a class action claim. The plaintiff in Martinez v. Freedom Mortgage Team, Inc.,57 alleged both racial discrimination and mortgage fraud because the defendant broker submitted false information about him. The defendant argued that no ECOA or FHA racial discrimination claims were stated because plaintiff was not denied credit for discriminatory reasons. The court held that the allegation that the mortgage lender had paid and the mortgage broker had accepted higher yield spread premiums on loans made to minority borrowers “correlates with those minority borrowers having received loans on less favorable terms than their counterparts,” which was a recognized form of prohibited discrimination.58 Even if the lender actually used
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race-neutral factors in determining what amount of yield spread premium to pay the broker, it was enough to allege that the lender knew that offering a yield spread premium caused brokers to act in a discriminatory manner and that the lender targeted minorities for higher cost loans.59 There was a similar ruling in Ware v. Indymac Bank, F.S.B.,60 a class action case involving allegations of mortgage fraud and racial discrimination on behalf of all non-Caucasian individuals who had dealt with the defendant lender and broker. Plaintiffs sought to refinance their mortgage without supporting documentation. The broker allegedly falsified information about their employment, income, and assets to qualify plaintiffs for a higher loan amount and to increase the broker’s commission. The discrimination allegedly resulted from the lender’s paying and the broker’s receiving higher yield spread premiums on loans made to minority borrowers.The court held that “the making of an unnecessary costly loan,” not just the denial of a loan, was a proper basis for an ECOA claim.61 Defendants in several subsequent cases have argued that the Supreme Court’s decision in Smith v. City of Jackson,62 which considered disparate impact claims under the Age Discrimination in Employment Act63 and Title VII of the Civil Rights Act of 1964,64 barred a disparate-impact claim under both the ECOA and the FHA. To date, the courts have uniformly rejected this argument. For example, in Zamudio v. HSBC North America Holdings, Inc.,65 the lender argued that plaintiff ’s disparate impact claim under the ECOA and the FHA could not be sustained unless there were allegations of disparate treatment. The court found that “it is well established that a disparate impact claim is available under both the ECOA and FHA.”66 It rejected the argument that Smith barred a disparate impact claim under those statutes because Smith “does not reach so far as to prohibit disparate-impact claims under other statutes that do not contain the same language” as the statutes that the case involved and Smith did not “set forth a new test for determining whether a statute supports disparate-impact claims.”67 The result was the same in Ramirez v. GreenPoint Mortgage Funding 68 and Miller v. Countrywide Bank, N.A.69 In one widely watched case in the US District Court for the District of Columbia, Nat’l Community
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Reinvestment Coalition v. Accredited Home Lenders Holding Co.,70 the defendant’s principal argument on its motion to dismiss, based on Smith, was that the FHA did not recognize disparate impact claims. This argument, along with several others, failed to persuade the court to grant the motion. It held that both the legislative history of the FHA and agency interpretations of the FHA supported a disparate impact analysis.71 Furthermore, it noted that all eleven US Circuit Courts had held that “the FHA does provide for a disparate impact claim cause of action”72 and that the Ramirez and Zamudio courts both rejected the argument that Smith somehow impliedly “undermined” these decisions.73 Subsequently, the Smith argument was rejected out of hand in Hoffman v. Option One Mortgage Corp.74 and Guerra v. GMAC, LLC.75 Smith was turned against the defendants in Steele v. GE Money Bank,76 where the court relied on that case along with Hoffman as authority that established what the elements of disparate impact claims are under the ECOA and the FHA. While no class certification motions have been brought in these cases to date,77 each one easily survived a motion to dismiss since it is not technically difficult to allege a claim of racial discrimination, unlike the difficulties the plaintiff ’s bar often faces in trying to state a TILA claim. This closely parallels the history of the auto finance class action cases.78 It remains to be seen whether these cases will produce settlements with some benefits for the allegedly affected classes of minority borrowers and substantial benefits for their counsel, as the auto finance cases did, or whether they will be defended on their merits. Federal Enforcement Trends In 2007, 10 years after it settled the last of the class actions against mortgage lenders, the DOJ brought enforcement actions in United States v. Springfield Ford, Inc.,79 and United States v. Pacifico Ford, Inc.80 alleging that the defendant auto dealers discriminated by systematically charging higher finance charge markups, known as dealer reserves, on retail installment contracts with African-American customers. As with the mortgage finance enforcement actions, complaints and consent orders were entered enjoining the dealers from discriminating in terms or conditions for extending credit on the basis of race or color, particularly with respect to setting dealer reserves and APR interest rates.81
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The most significant feature of the consent decrees is the restriction on the dealers’ discretion in setting a dealer reserve. Like the limits set in the class action settlements in the auto finance cases, the amount that the dealers could mark up auto finance companies’ buy rates was capped at a certain level.82 However, these caps were not just upper limits. The consent decrees also required the dealers to prepare written guidelines to effectuate the caps so that their employees had to document the reasons for negotiating any dealer reserve on a transaction that was lower than the percentage point caps with good faith, competitive reasons for negotiating a lower figure.83 This is a significant change from the earlier auto finance class action settlements for two reasons. First, the auto dealerships that allegedly discriminated directly against car buyers were the targets of the enforcement actions, not auto finance companies that merely purchased contracts after dealers allegedly discriminated. Second, the DOJ essentially mandated the elimination of pricing discretion rather than confining it to the narrower range (up to 1.75 or 2.5 percentage points over the buy rate) that was permissible in the class action settlements in the absence of documented good cause, like meeting competition. The Federal Trade Commission (FTC) entered the picture for the first time in recent years with a consent decree against a mortgage lender in FTC v. Gateway Funding Diversified Mortgage Services, L.P.84 The FTC alleged that the lender had given its loan officers nearly unlimited discretion to add non-risk-related overages for higher interest rates and fees on a commission basis, which resulted in African-American and Hispanic borrowers being charged higher prices than non-minority borrowers in violation of the ECOA. It entered into a consent decree requiring the lender to stop discriminating and to set up a fair lending training program for its loan officers and a program to monitor their activities. A civil judgment in favor of the FTC in the amount of $2,900,000 was suspended, except for $200,000, because of the lender’s inability to pay the full amount.85 Conclusion In light of the current economic climate and the plaintiff ’s bar’s recent focus on mortgage finance, the ECOA presents fertile ground in which to sow new consumer
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claims of racial discrimination. Unfortunately, the prior decade of DOJ consent decrees in the mortgage finance industry and private settlements in the auto finance industry have provided little, if any, guidance to lenders on how to detect or combat actual discrimination or how to defend unfounded claims of discrimination. The models used to settle these cases have varied from the use of an accepted range of pricing discretion to the elimination of such discretion altogether. It remains to be seen whether the latter model will end up being required in future enforcement actions. The enhanced data collected and made available through the HMDA has provided both state agencies and private litigants additional fodder with which to cultivate claims of racial discrimination in connection with mortgage finance. While the FRB, the agency responsible for the collection and analysis of the data, does not believe that this data is sufficient on its own to support claims of discrimination, state agencies and consumer advocates concluded otherwise. Accordingly, lenders will be well served to document their credit related risk factors to assist them in defending future discrimination claims based only on HDMA or other statistical data. Notes
1. 15 U.S.C. § 1691, et seq. 2. One final case was concluded when a dismissal on statute of limitations grounds was affirmed in Archer v. Nissan Motor Acceptance Corp., 550 F.3d 506 (5th Cir. 2008). 3. 42 U.S.C. § 3601, et seq. 4. 12 U.S.C. § 2801, et seq. 5. 15 U.S.C. § 1691(a); 12 C.F.R. §§ 202.4, 202.2(m). 6. 15 U.S.C. § 1601, et seq. 7. 15 U.S.C. § 1602(f). See also 12 C.F.R. § 226.2(a)(17). 8. 15 U.S.C. § 1641(a). 9. See generally Mark E. Dapier, Eugene J. Kelley, Jr., John L. Ropiequet, and Christopher S. Naveja, “Assignee Liability Under the TILA: Is the Conduit Theory Really Dead?,” 54 Consumer Fin. L.Q. Rep. 242 (2000). 10. 12 C.F.R. § 226.2(a)(17). 11. 15 U.S.C. § 1691a(e) (emphasis supplied). This is sometimes referred to as the “multiple creditor rule,” which references multiple creditors while recognizing that a subsequent creditor who purchases a credit contract (e.g., an assignee) is not a “creditor” under the ECOA (though possibly a creditor for other purposes) unless the subsequent creditor participated in the transaction originating the credit contract. See also 12 C.F.R. § 202.2(1). Volume 28 • Number 9 • September 2009

12. See, e.g., Walker v. Wallace Auto Sales, Inc., 155 F.3d 927, 935936 (7th Cir. 1998). 13. 12 C.F.R. § 202.2(1) (emphasis supplied). 14. 12 C.F.R. § 202.6. 15. 12 C.F.R. § 202.6(a), n.2. 16. 15 U.S.C. § 1641(a). 17. See, e.g., Rodriguez v. Ford Motor Credit Co., No. 01 C 8526 (N.D. Ill. 2001), Complaint at ¶¶ 20, 27, 29, 31-32. 18. See, e.g., Smith v. Chrysler Financial Co., 2003 U.S. Dist. LEXIS 1798 at *11-14 (D.N.J. Jan. 15, 2003); Jones v. Ford Motor Credit Co., 2002 U.S. Dist. LEXIS 1098 at *9 (S.D.N.Y. Jan. 22, 2002); Osborne v. Bank of America, N.A., 234 F. Supp. 2d 804, 808 (M.D. Tenn. 2002). 19. 15 U.S.C. § 1691e(a). 20. 15 U.S.C. § 1691a(b) (2003). 21. 12 C.F.R. § 202.2(e) (2002). 22. 15 U.S.C. § 1638(b); 12 C.F.R. § 226.17(b). 23. 15 U.S.C. § 1691e(a). 24. See, e.g., Peters v. Jim Lupient Oldsmobile Co., 220 F.3d 915, 917 (8th Cir. 2000). See generally Eugene J. Kelley, Jr. and John L. Ropiequet, “Actual Damages Under the TILA: Collapsing Class Actions,” 55 Consumer Fin. L.Q. Rep. 200 (2001). 25. 15 U.S.C. § 1691e(b). 26. 15 U.S.C. § 1640(a)(2)(B). 27. 15 U.S.C. § 1691e(b). 28. 15 U.S.C. § 1691e(c). 29. 15 U.S.C. § 1691e(d). 30. See, e.g., Cartwright v. American Savings & Loan Ass’n, 880 F.2d 912 (7th Cir. 1989); Jochum v. Pico Credit Corp. of Westbank, 730 F.2d 1041 (5th Cir. 1984). 31. The first of these was United States v. First Nat’l Bank of Vicksburg, No. 94 CV 6 (S.D. Miss. Jan. 21, 1994). The DOJ complaint may be found at http://www.usdoj.gov/crt/housing/ documents/ vicksburgcomp.php. The consent decree may be found at http://www.usdoj.gov/crt/housing/documents/ vicksburgsettle.php. The last was United States v. First Nat’l Bank of Dona Ana County, No. 97 CV 96 (D.N.M. Jan. 28, 1997). The DOJ press release announcing the consent decree may be found at www. usdoj.gov/opa/pr/1997/january97/036cr.html. 32. United States v. Security State Bank, No. 95 CV 996 (W.D. Tex. Oct. 18, 1995). The DOJ press release announcing the consent decree may be found at http://www.usdoj.gov/opa/pr/Pre_96/ October96/541.txt.html. 33. United States v. Northern Trust Co., No. 95 CV 3239 (N.D. Ill. Jun. 7, 1995). The DOJ press release announcing the consent decree may be found at http://www.usdoj.gov/opa/pr/Pre_96/ June95/306.txt.html. 34. Id. 35. The DOJ’s more recent fair lending activities have largely been limited to claims of “redlining,” in which financial institutions are claimed to deny credit in areas with large minority populations, rather than granting credit in a discriminatory manner. Banking & Financial Services Policy Report • 7

See, e.g., consent decrees in United States v. Nationwide Nevada, LLC, No. 2:08-cv-1309 (D. Nev. Sept. 30, 2008); United States v. Centier Bank, No. 2:06-CV-344 (N.D. Ind. Oct. 16, 2006); United States v. First American Bank, No. 04 C 4585 (N.D. Ill. Jul. 19, 2004). 36. See, e.g., Complaint in First Nat’l of Vicksburg, supra n.32, at ¶¶ 9-12, and Consent Decree at ¶¶ 2-5, 10. 37. See, e.g., Wise v. Union Acceptance Corp., No. IP02-0104, 2002 U.S. Dist. LEXIS 23335 (S.D. Ind. Nov. 19, 2002), Complaint at ¶¶ 44-45; Rodriguez v. Ford Motor Credit Co., No. 01 C 8526, 2002 U.S. Dist. LEXIS 7280 (N.D. Ill. April 19, 2002), Complaint at ¶¶ 18-19. 38. See John L. Ropiequet and Nathan O. Lundby, “APR Split Class Actions Under the ECOA: The End of History?,” 61 Consumer L.Q. Rep. 49, 55-56 (2007) (APR Split Class Actions). 39. The auto finance class action settlements resulted in payment of more than $70 million in fees and expenses to class counsel and more than $800,000 to class representatives, plus more than $10 million to fund consumer education programs. See id. at 57, 59-60. 40. See id. 41. See, e.g., Taylor v. Accredited Home Lenders, 580 F. Supp. 2d 1062 (S.D. Cal. 2008); Miller v. Countrywide Bank, N.A., 571 F. Supp. 2d 251 (D. Mass. 2008). 42. 12 C.F.R. § 203.4(a). See Robert B. Avery, Glenn B. Canner & Robert E. Cook, “New Information Reported Under HMDA and Its Application in Fair Lending Enforcement,” 91 Fed. Res. Bull. 344, 344-45 (2005), available at http://www.federalreserve. gov/pubs/bulletins/2005/summer05_hmda.pdf. 43. See, e.g., id. at 345; Robert B. Avery, Kenneth P. Brevoort & Glenn B. Canner, “Higher-Priced Home Lending in the 2005 HMDA Data,” 92 Fed. Res. Bull. A123, A126-27 (2006), available at http://www.federalreserve.gov/pubs/bulletin/2006/hmda/ bull06hmda.pdf. 44. See, e.g., Debbie Gruenstein Bocian, Keith S. Earnst & Wei Li, Center for Responsible Lending, “Unfair Lending: The Effect of Race and Ethnicity on the Price of Subprime Mortgages” at 3-5 (May 31, 2006), available at www.responsiblelending.org/pdfs/ rr011-Unfair_Lending-0506.pdf; Alan J. Fishbein & Patrick Woodall, Consumer Federation of America,“Subprime Locations: Patterns of Geographic Disparity in Subprime Lending” at 4 (Sep. 5, 2006), available at http://www.consumerfed.org/pdfs/. SubprimeLocationsStudy090506.pdf. 45. See Press Release, Office of the NY State Attorney General, “Countrywide Agrees to New Measures to Combat Racial and Ethnic Disparities in Mortgage Loan Pricing” (Dec. 5, 2006), available at http://www.oag.state.ny.us/press/2006/dec/dec05a_ 06.html. 46. Id. 47. 12 U.S.C. § 1, et seq. 48. OCC v. Spitzer, 396 F. Supp. 2d 383, 391 (S.D.N.Y. 2005), aff’d sub nom., Clearing House Ass’n, L.L.C. v. Cuomo, 510 F.3d 105 (2d Cir. 2007), cert. granted,—U.S.—, 129 S. Ct. 987, 173 L. Ed. 2d 171, rev’d, —U.S.—, 129 S. Ct. 2710, 174 L. Ed. 2d 8 • Banking & Financial Services Policy Report

464 (2009). See also Clearing House Ass’n, L.L.C. v. Spitzer, 394 F. Supp. 620, 631 (S.D.N.Y. 2005), aff’d, 510 F.3d 105 (2d Cir. 2007), cert. granted, —U.S.—, 129 S. Ct. 987, 173 L. Ed. 2d 171, rev’d, —U.S.—, 129 S. Ct. 2710, 174 L. Ed. 2d 464 (2009) (NBA does not allow attorney general to investigate mortgage lending practices of national banks either for the state or for affected citizens of the state). 49. Watters v. Wachovia Bank, N.A., 550 U.S. 1,127 S. Ct. 1559, 167 L. Ed. 389 (2007). 50. Clearing House Ass’n, 510 F.3d at 116-117. 51. Cuomo v. Clearing House Ass’n, L.L.C., —U.S.— 129 S. Ct. 2710, 174 L. Ed. 2d 464 (2009). 52. Id. at 2716-2717. 53. Id. at 2718. 54. Id. at 2719-2720, citing 12 C.F.R. § 7.4000(a)(1); 69 Fed. Reg. 1896 (2004). 55. Id. at 2721-2722, citing 12 U.S.C. § 484(A). 56. In the only reported decision to date granting a motion to dismiss, Tribett v. BNC Mortgage, Inc., 2008 U.S. Dist. LEXIS 3573 (N.D. Ill. Jan. 17, 2008), the court found the allegations of the complaint too vague but granted leave to amend since the arguments in plaintiffs’ briefs could state a viable claim for racial discrimination if incorporated into an amended complaint. Id. at *9. 57. Martinez v. Freedom Mortgage Team, Inc., 527 F. Supp. 2d 827 (N.D. Ill. 2007). 58. Id. at 834. 59. Id. at 835. “Targeting” of minorities for higher cost loans, sometimes called “reverse redlining,” was recently recognized as an actionable claim under the FHA at the appellate level for the first time by the Eleventh Circuit in an unpublished opinion. See Steed v. Everhome Mortgage Co., 308 Fed. Appx. 364, 369-370 (11th Cir. 2009). 60. Ware v. Indymac Bank, F.S.B., 534 F. Supp. 2d 835 (N.D. Ill. 2008). 61. Id. at 840. 62. Smith v. City of Jackson, 544 U.S. 228 (2005). 63. 29 U.S.C. § 621, et seq. 64. 42 U.S.C. § 2000e, et seq. 65. Zamudio v. HSBC North America Holdings, Inc., 2008 U.S. Dist. LEXIS 13952 (N.D. Ill. Feb. 20, 2008). 66. Id. at *4. 67. Id. at *5. 68. Ramirez v. GreenPoint Mortgage Funding, 2008 WL 20510018 (N.D. Cal. May 13, 2008). 69. Miller v. Countrywide Bank, N.A., 571 F. Supp. 2d 251 (D. Mass. 2008). This case has been made part of a multidistrict proceeding against Countrywide Bank and transferred to the Western District of Kentucky as MDL 1974 (JPML Aug. 7, 2008). 70. Nat’l Community Reinvestment Coalition v. Accredited Home Lenders Holding Co., 573 F. Supp. 2d 70 (D.D.C. 2008). 71. Id. at 77-78. 72. Id. at 78-79 (citing cases). Volume 28 • Number 9 • September 2009

73. Id. 74. Hoffman v. Option One Mortgage Corp., 589 F. Supp. 2d 1009, 1010-1011(N.D. Ill. 2008). 75. Guerra v. GMAC, LLC, 2009 U.S. Dist. LEXIS 13776 at *8-10 & n.3 (E.D. Pa. Feb. 20, 2009) (citing numerous cases permitting disparate impact claims under the ECOA and the FHA). 76. Steele v. GE Money Bank, 2009 U.S. Dist. LEXIS 11536 at *914 (N.D. Ill. Feb. 17, 2009). 77. Some cases have settled for undisclosed amounts, without a settlement agreement being entered on the record, shortly after motions to dismiss were denied. See, e.g., Martinez, No. 07 C 3442 (N.D. Ill. Apr. 30, 2008) (unpublished order); Ware, No. 07 C 1982 (N.D. Ill. Jul. 28, 2008) (unpublished order). 78. See APR Split Class Actions, supra n.40, at 53-54. 79. United States v. Springfield Ford, Inc., No. 07 C 3469 (E.D. Pa. Sep. 17, 2007). 80. United States v. Pacifico Ford, Inc., No. 07 C 3470 (E.D. Pa. Sep. 17, 2007).

81. See Press Release, “Justice Department Reaches Settlement With Two Philadelphia Car Dealerships Regarding Alleged Race Discrimination in Auto Lending,” http://www.usdoj.gov/ opa/pr/2007/august/07CRT639.html. Pennsylvania also recovered its enforcement costs from the dealerships. See Press Release, “Attorney General Corbett Announces $55,000 Settlement with Two Philadelphia Car Dealerships For Alleged Racial Discrimination Practices,” http://www.attorneygeneral. gov/press/aspx?id=2830. 82. Nos. 07 C 3469, 3470 (E.D. Pa. Sep. 17, 2007), Consent Orders at ¶ 6. The levels were 2.5 percentage points for credit contracts with a term of 60 months or less or 2.0 percentage points for more than 60 months. 83. Id. at ¶ 7. 84. FTC v. Gateway Funding Diversified Mortgage Services, L.P., No. 08 C 5805 (E.D. Pa. Dec. 17, 2008). 85. Id., Consent Decree at ¶ VI.A. The FTC press release announcing the consent decree is available at http://www.ftc.gov/ opa/2008/12/gateway.shtm.

Volume 28 • Number 9 • September 2009

Banking & Financial Services Policy Report • 9

“Fair Lending Litigation Following the Subprime Meltdown,” Banking and Financial Services Policy Report (Vol. 28 No. 9 September 2009) This document is republished with permission.