FAIR LENDING FIGHT: Battling Redlining

FAIR LENDING FIGHT: Battling Redlining

  During the years of the Financial Crash (2007-2012), one could read in the press about something called “predatory lending,” or “lending discrimination,” or “disparate treatment,” or “disparate impact.” These concepts and legal doctrines were important because they spoke to the fact that persons of color were treated deceptively or unfairly, or tended to receive subprime loans, or loans that they could not repay, or were preyed upon by certain lenders. The end result was that minority borrowers were much more likely to have their homes foreclosed upon than were Caucasian borrowers.

   Central to the effects of the Financial Crash upon minority borrowers, in particular, was the belief among certain lenders that they could do whatever they wanted with regard to minority borrowers.

   A recent ruling from Pennsylvania points to the continued need for vigilance with regard to lending discrimination. The US Department of Justice and the Consumer Financial Protection Bureau sued Trident Mortgage for redlining practices against borrowers of color in the Philadelphia area. Consumer Financial Protection Bureau v. Trident Mortgage Company LP, Case No. 2:22-cv-02936, U.S. District Court for the Eastern District of Pennsylvania.

   In its press release of July 27, 2022, announcing the settlement with Trident Mortgage, the Department of Justice stated that:

“Redlining is an illegal practice in which lenders avoid providing credit services to individuals living in communities of color because of the race, color, or national origin of residents of those communities. The complaint in federal court today alleges that from at least 2015 to 2019, Trident failed to provide mortgage lending services to neighborhoods of color in the Philadelphia Metropolitan area, that its offices were concentrated in majority-white neighborhoods, and that its loan officers did not serve the credit needs of neighborhoods of color. The complaint also alleges that loan officers and other employees sent and received work e-mails containing racial slurs and referring to communities of color as ‘ghetto.’ ”

   The director of the Consumer Financial Protection Bureau, Rohit Chopra, stated the importance of fighting discrimination, when he said, in connection with the Trident settlement, “With housing costs so high, it is critical that illegal discrimination does not put homeownership even further out of reach.”

   The Department of Justice, in commenting on the consent order, stated that the Truth in Lending Laws and other anti-discrimination laws must continue to be enforced. 15 USC §§1601, et seq (Truth in Lending Act); 15 USC §1691 (Equal Credit Opportunity Act); 15 USC §1681 et seq. (Fair Credit Reporting Act). Courts will have an important role, looking to the letter of the anti-discrimination laws, their intent, and to the reality on the ground, rather than finding excuses to look the other way, and blame the victim, simply because confronting reality may be uncomfortable or inconvenient.

Warning: These Posts Does Not Constitute Legal Advice; Please Consult An Attorney

STANDING: Mortgage Liability

STANDING: Mortgage Liability

STANDING (Mortgage Liability): Bankruptcy Court erred in ruling that Debtor had no standing to challenge Nationstar in the latter’s claim under her Deed of Trust. She showed constitutional & prudential standing through demonstrating (1) injury in fact (2) causation and (3) redressability as to her interest in the note, for the purpose of her adversary action against Nationstar. (In re Baroni [Ch.11], CA 9 BAP, filed 11/10/2015 [argued and submitted at Malibu, CA])

TRUTH IN LENDING: The Fair Credit Reporting Act

TRUTH IN LENDING: The Fair Credit Reporting Act

The Fair Credit Reporting Act, 15 U.S.C. Secs. 1681–1681x, is part of the Federal Consumer Protection Act. It is intended to protect consumers by assuring the accuracy of a consumer’s credit information held and disclosed by the credit reporting agencies. The statute allows a consumer to challenge information in his/her report that is allegedly inaccurate, and requires the credit reporting agencies to investigate alleged inaccuracies, and make corrections, if necessary.

Trust in Comments: Court Holds Loan to Trust to be “Consumer Loan,”​ Protected by Fair Lending Laws

Trust in Comments: Court Holds Loan to Trust to be “Consumer Loan,”​ Protected by Fair Lending Laws

When representing clients, attorneys rely on the words of the law (a “statute”) and ask the court to implement the plain, obvious meaning of its words. When it comes to federal statutes, however, it is easy to overlook the “comments” by the lawyers for the Congressional committees that draft the statutes, or the agencies which implement them.

In a recent unanimous 9th Circuit decision by the Honorable Mary M. Schroeder, the comments to a consumer lending statute were critical to holding a bank accountable.

In Gilliam v. Levine, Case No. 18-56373 (9th Circuit, 2020), the court recounts that the borrower obtained a loan as trustee for a family trust. The purpose of the loan was to make home repairs. the home itself was the sole asset of the trust. Another family member, who occupied the home, with the trust beneficiary.

The home, i.e., the asset of the family trust, secured the loan. 

The borrower later discovered that the due date for the final loan payment was 1 year earlier than she had been led to believe. The borrower was alarmed, and sued to cancel (rescind) the loan under federal law, Truth in Lending Act (TILA), 15 U.S.C. § 1601, et seq., and the Real Estate Settlement Practices Act (RESPA), 12 U.S.C. § 2601. The borrower also asserted a claim under California’s Fair Lending Law [Rosenthal Act], 1788.1(b) of California’s Rosenthal Act, California Civil Code §§ 1788.1(b). 

This relief is only available where the borrower is a consumer. 15 U.S.C. § 1635(i)(4); 12 U.S.C. § 2606(a); Cal. Civ. Code § 1788.2(e). The trial court, Hon. Philip Gutierrez, concluded that because the loan went to the trust, it was not a consumer loan. The trial court dismissed the case.

The 9th Circuit reversed the trial judge. The appellate court noted federal Consumer Financial Protection Bureau’s Official Staff Commentary to Regulation Z (mortgage loans), which suggested the opposite result in this case. The Commentary, for example, stated that “[c]redit extended for consumer purposes to certain trusts is considered to be credit extended to a natural person rather than credit extended to an organization.” 12 C.F.R. pt.1026, Supp. 1, § 1026.3 Comment 3(a)-10.

The “certain trusts” that fall under the rubric of “natural persons,” entitled to protection for loans made to benefit a natural person, and not an organization, include the trust in this case, which was formed for tax or estate planning purposes [which benefit people]. As a result, where individuals invest assets in the trust, the regulation thus effectuates TILA’s definition of consumer credit transactions. 12 C.F.R. pt.1026, Supp. 1, § 1026.3 Comment 3(a)-10.

The trust in question was “primarily for personal, family, or household purposes.” 15 U.S.C. § 1602(i). The borrower was the aunt (as Trustee); the niece was the beneficiary; and the trust property was a private home. As a result, the loan was a “consumer credit transaction,” which was subject to the Fair Lending Laws. And the Comment makes the point: Look to the substance of the transaction. Here it was to benefit a consumer, not a company. 12 C.F.R. pt. 1026, Supp. 1, and § 1026.3 Comment 3(a)-10.i.

For as much as it has been vilified by certain political interests, the CFPB remains in force, and fortunately, it remains a source of protection for consumers. It will be interesting to see if the case if appealed to the Supreme Court (quite likely), and whether it will be upheld.

WARNING: THIS POST DOES NOT CONSTITUTE LEGAL ADVICE; PLEASE CONSULT AN ATTORNEY

#law  #fairlending  #mortgages  #truthinlending  #codeoffederalregulations  #courts

 

Pin It on Pinterest

Call Now ButtonCall Now