In the case of Bank of America Corp. v. City of Miami, 137 S. Ct. 1296 (2017), the U.S. Supreme Court decided that cities can sue banks over Fair Housing Act (FHA) violations if they target minorities for risky, costly mortgages and the city suffered harm by these actions.
Read on to learn more about this case, what types of mortgage discrimination the FHA prohibits, other laws that prohibit credit discrimination, how to spot the signs of lending discrimination, and what to do if you're experiencing it.
The federal Fair Housing Act (FHA) (42 U.S.C. §§ 3601 and following) makes it illegal to discriminate in residential real estate transactions. The law covers loans made to buy, construct, improve, repair, or maintain your home, or if you use your home as security (collateral) for the loan.
The FHA prohibits lending discrimination based on race, color, national origin, religion, sex, disability, or familial status. (42 U.S.C. § 3605). So, a lender can't consider these factors when determining whether to:
The FHA doesn't, however, prohibit discrimination based on age or public assistance status.
In Bank of America Corp. v. City of Miami, the City of Miami filed a lawsuit against Wells Fargo and Bank of America, claiming a violation of the FHA. The causes of action in the complaint alleged that these banks had engaged in racially discriminatory lending practices by intentionally targeting Black and Latinx neighborhoods and residents for particular types of predatory loans. Specifically, the predatory loans offered by the banks had very high-interest rates, unjustified fees, teaser interest rates (and overstated refinancing opportunities), and significant prepayment penalties.
The suit stated that Wells Fargo and Bank of America made these risky, costly mortgages to minority customers but didn't offer them to similarly situated white, non-Latinx customers. The suit also asserted that the banks' discriminatory mortgage lending practices led to a disproportionate number of mortgage defaults by minority borrowers in certain neighborhoods. Then, after the borrowers fell behind on mortgage payments, the banks refused to provide refinancing or modifications to make the loans more affordable.
The City of Miami further alleged that the banks' discriminatory practices:
The banks' primary defense was that the City of Miami lacked standing to file this type of case. ("Standing" is the right to file a lawsuit or make a particular legal claim. Only a person or entity that has suffered actual injury has standing to sue in court.)
Under the FHA, only someone who's been injured by a discriminatory practice can sue those who've violated the statute. Wells Fargo and Bank of America argued that the city of Miami wasn't injured and that the suit was really about public rights, not an individual injury to a particular plaintiff (Miami).
The banks also argued that the connection between the FHA violations and the harm the city claimed to have suffered were too far apart to entitle Miami to win the suit. That is, the banks argued there was no proximate cause. ("Proximate cause" is defined as the immediate reason that something happened that caused harm to another person.)
Ultimately, the court determined that Miami had been injured by the banks' discriminatory practices. So, it was allowed to file suit under the FHA.
In its decision, the U.S. Supreme Court acknowledged that the banks' discriminatory lending practices led to widespread foreclosures and vacancies in the city's minority communities. This glut of foreclosures and vacancies forced Miami to spend more on municipal services. For instance, additional police, fire, and building and code enforcement services were needed to remedy the blight and unsafe conditions that the foreclosures and vacancies generated. Also, the decreased value of the foreclosed homes and surrounding neighborhoods led to lower property taxes, which reduced the city's revenue.
But this decision wasn't a straightforward win for the City of Miami. The Court concluded that, even though the bank's practices injured Miami, there must be a direct connection between the violation and the injury for the city to recover monetary damages. The Court sent the case back to the lower court to determine whether there was a sufficient link between the banks' lending practices and the city's economic injuries to hold the banks responsible.
Because the case was sent back to the lower court to look at the issue of causation, some cities might decide it isn't worth the effort to start a court battle over mortgage discrimination if there's no guarantee that the bank will have to pay restitution.
Even though some cities could be reluctant to sue banks under the FHA, you might want to file a suit against a lender if you encounter mortgage discrimination.
The Equal Credit Opportunity Act (ECOA) and the FHA are the primary federal laws prohibiting credit discrimination. The ECOA prohibits creditors from discriminating against individuals in credit transactions because of the person's race, color, national origin, sex, marital status, religion, age, or public assistance status. (Again, the FHA prohibits discrimination in the residential real estate and mortgage context.)
The ECOA (15 U.S.C. §§ 1691 and following) and Regulation B (12 C.F.R. §§ 1002 and following), which implements the ECOA, prohibit discrimination in any part of most credit transactions, including:
The ECOA makes it unlawful for any creditor to discriminate against any applicant with respect to any aspect of a credit transaction because of:
In general, under ECOA, lenders can't deny loan applications or charge higher costs, like a higher interest rate or higher fees, for any of the reasons listed above. The ECOA also requires creditors to give you certain notices if you're granted or denied credit, or granted credit on different terms from what you requested. These notices might be combined with required notices under the FCRA.
Other federal laws, like the Community Reinvestment Act (12 U.S.C § 2901 and following), and some state laws can be used to fight against discrimination by creditors and lenders. Check with a local consumer protection attorney to find out if your state has a law barring credit discrimination.
Lending discrimination isn't always apparent. Some subtle signs that you might be experiencing mortgage or credit discrimination are:
If a creditor or lender offers you a mortgage loan or other form of credit with terms that are worse than you expected and you suspect it could be due to discrimination, you should ask the following questions:
Sometimes the creditor or lender will include this information in a notice it gives you with its credit or lending decision. Review any notices you receive carefully to see if information about the decision is missing.
If you're harmed by a creditor or lender's violation of the ECOA, you may sue them. If you're successful, the court may award regular damages, up to $10,000 in punitive damages, and attorneys' fees. If the credit discrimination relates to housing, you can bring a lawsuit based on violations of the FHA, which also provides for damages and attorneys' fees if you win. So, if you believe your rights have been violated under the ECOA or FHA, consider talking to an attorney.
You may also complain to the creditor or lender, your state attorney general, the Consumer Financial Protection Bureau (for financial institutions), or the Federal Trade Commission (for creditors that are not financial institutions, like car dealers). If the discrimination is related to housing, contact the Department of Housing and Urban Development at 800-669-9777 or file a complaint at HUD.gov.