On Friday, March 13, 2009, the NAACP sued HSBC and Wells Fargo alleging that these lenders forced African Americans into subprime mortgages while whites with identical qualifications got loans on more favorable terms (the “NAACP Lawsuits”). The original complaints in the NAACP Lawsuits are available at http://www.naacp.org.
Such claims are commonly referred to as “reverse redlining.” Redlining is the practice of denying credit to specific geographic areas based on the income, race, or ethnicity of its residents. Reverse-redlining, on the other hand, occurs where a lender unlawfully discriminates by extending credit to a neighborhood or class of people on terms less favorable than would have been extended to people outside the particular class at issue.
The NAACP Lawsuits allege that HSBC and Wells Fargo violated the Fair Housing Act, 42 USC § 3601, the Equal Credit Opportunity Act, 15 USC § 1691, and the Civil Rights Act, 42 USC §§ 1981, 1982. Specifically, the NAACP Lawsuits allege that HSBC and Wells Fargo “engaged in institutionalized, systematic racism” in connection with the sale of residential mortgage loans to members of the NAACP. The NAACP Lawsuits further allege that the “pervasiveness of this discrimination has been documented in numerous empirical studies that all confirm that African Americans are substantially more likely to receive higher-rate residential mortgage loans than Caucasian borrowers with the same qualifications.” The NAACP Lawsuits do not seek an award of damages. Instead, the complaints seek various injunctive and declaratory relief barring HSBC and Wells Fargo from continuing their alleged “predatory behavior.”
Counsel for lenders should be aware of claims based on discriminatory lending practices under federal law and, frequently, parallel state law equivalents. At the outset of any litigation, counsel for lenders should analyze the lender’s sales policies and procedures manuals and the lenders’ HMDA data. HMDA, or the Home Mortgage Disclosure Act of 1975, requires financial institutions to maintain and annually disclose data about home purchases, home purchase pre-approvals, home improvement, and refinance applications involving 1 to 4 unit and multifamily dwellings. HMDA was passed to identify discriminatory lending practices by, among other things, requiring lenders to keep records concerning the race of their customers and applicants and the lending decisions they make.
John E. Matter Jr.