Supreme Court: Fair Housing Act Allows City to File Discrimination Suit Against Bank

The Supreme Court finds a city can sue a bank engaging in predatory lending practices.

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, as well as the types of mortgage discrimination are prohibited under the FHA, how to spots the signs of lending discrimination, and what to do if you are experiencing it.

Real Estate Transactions and the Fair Housing Act

The federal Fair Housing Act (FHA) 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 is 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). This means a lender cannot consider these factors when determining whether to:

  • refuse to make or refinance a mortgage loan
  • refuse to give information about loans, or
  • provide different terms or loan conditions (for instance, a higher interest rate or additional fees).

Learn more about the FHA and other laws that protect people from credit discrimination in Laws That Prohibit Credit Discrimination.

Background of the Bank of America v. Miami Suit

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 African-American and Latino 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 did not offer them to similarly situated white, non-Latino 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:

  • adversely impacted the racial composition of the city
  • hindered the city’s goals to assure racial integration and desegregation
  • impaired the city's interest in promoting fair housing and securing the benefits of an integrated community, and
  • disproportionately caused foreclosures and vacancies in minority communities.

The Banks’ Response to the Suit

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 has been injured by a discriminatory practice can sue those who have violated the statute. Wells Fargo and Bank of America argued that the city of Miami was not 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.)

The U.S. Supreme Court’s Decision

Ultimately, the court determined that Miami had been injured by the banks’ discriminatory practices and, therefore, 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 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.

However, this 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.

Effect of Bank of America Corp. v. City of Miami

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 may be reluctant to sue banks under the FHA, if you encounter mortgage discrimination, you might want to file a suit against a lender.

Spotting the Signs of Lending Discrimination

Lending discrimination isn’t always apparent. Some subtle signs that you might be experiencing mortgage discrimination are:

  • The bank treats you differently in person than on the phone.
  • The lender discourages you from applying for credit.
  • The bank won’t give you a loan even though you qualify for it.
  • The lender offers you a loan with a high interest rate when you qualify for a lower rate.

What You Can Do About Lending Discrimination

If a bank 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 creditor the following questions:

  • What factors did you use to base your decision?
  • What are the reasons for your decision?
  • How do the terms you offered me compare with the terms you’ve given other borrowers?

Hiring an Attorney

If you think you’re experiencing mortgage discrimination, you might want to speak with a lawyer experienced with the FHA. You can also file a complaint with the Consumer Financial Protection Bureau or the U.S. Department of Housing and Urban Development (HUD).

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