The U.S. Court of Appeals for the Seventh Circuit recently held that a lender’s decision to decline a loan to prospective borrowers on the basis of their failure to provide information pertaining to their Social Security disability benefits was proper, holding that the borrowers failed to allege that they were treated differently than other applicants for loans.
In so ruling, the Seventh Circuit rejected the borrowers’ contentions that the bank’s demand for Social Security disability benefits information violated the Fair Housing act, the Americans with Disabilities Act, and the Rehabilitation Act.
A copy of the opinion is available at: Link to Opinion
The prospective borrowers (“borrowers”) applied for a purchase-money mortgage loan that would be repaid through the disability benefits they receive from the Social Security Administration. The lender asked the borrowers for information from their physicians, or the Social Security Administration, to verify that the benefits would last for at least three years.
After the borrowers failed to provide the requested information, the lender declined to make the loan. An administrative complaint and negotiations followed, but by the time the lender decided to advance the money, the owner of the subject property had pulled out of the prospective transaction.
The borrowers brought suit against the lender, alleging that the lender’s demand for information violated the Fair Housing Act, the Americans with Disabilities Act, and the Rehabilitation Act. The district court eventually dismissed the suit on the pleadings, ruling that the borrowers had not set forth a plausible complaint of discrimination.
As you may recall, section 805(a) of the Fair Housing Act, 42 U.S.C. §3605(a), makes it unlawful for anyone in the residential real-estate business "to discriminate against any person in making available such a transaction ... because of ... handicap". Additionally, the Rehabilitation Act, 29 U.S.C. §794, says that "[n]o otherwise qualified individual with a disability ... shall, solely by reason of her or his disability, be excluded from the participation in ... or be subjected to discrimination under any program or activity receiving Federal financial assistance". Similarly, Title III of the Americans with Disabilities Act, 42 U.S.C. §12182(a) provides that "[n]o individual shall be discriminated against on the basis of disability in the full and equal enjoyment of" places of public accommodation.
The Court noted that none of these statutes expressly forbids asking applicants for information that will be used to apply the same standards that govern non-disabled persons.
The borrowers argued that that the lender’s request for either the nature of the disability or probability that the paying agency will continue the benefits was improper under the aforementioned federal statutes.
The Seventh Circuit held that, although it does not take much to allege discrimination, see Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002); Swanson v. Citibank, N.A., 614 F.3d 400 (7th Cir. 2010), one essential allegation is that someone else has been treated differently.
In order to determine whether the lender unlawfully discriminated against the borrowers in the instant matter, the Appellate Court looked to the lender’s policies and procedures, and found that the lender apparently asks everyone who applies for a loan to provide good reason for it to think that the applicant’s current income will continue.
Moreover, review of the lender’s operation manuals and documents received by the lender from several federal agencies indicated that the lender was advised to collect information from any applicant who relies on governmental-assistance programs for repayment. See HUD Handbook 4155.1 §§ 4.D.1.a, 4.D.2.k, 4.E.3.c.
Here, the Seventh Circuit held that the borrowers did not sufficiently allege that they had been treated worse than other applicants for loans. In so ruling, the Seventh Circuit held that none of the federal statutes cited by the borrowers forbids asking applicants for information that will be used to apply the same standards that govern non-disabled persons.
Thus, the Appellate Court affirmed the trial court’s dismissal.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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Chicago, Illinois 60602
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