Wednesday, December 22, 2010

FYI: DOJ Sues Mortgage Lender for Discrimination Based on Discretionary Pricing, With 0.05%-0.14% APR Difference

PrimeLending reportedly agreed to pay $2 million to resolve Justice Department allegations that it engaged in disparate impact discrimination against African-American borrowers between 2006 and 2009, by virtue of a discretionary pricing policy.  A copy of the complaint is attached, but a copy of the settlement agreement is not yet available in the court's online records. 


The DOJ's complaint alleges African-American borrowers nationwide were charged higher prices on retail loans made through PrimeLending's branch offices, in violation of the federal Fair Housing Act and Equal Credit Opportunity Act.


Between 2006 and 2009, PrimeLending allegedly charged African-American borrowers higher annual percentage rates of interest for prime fixed-rate home loans and for home loans guaranteed by the Federal Housing Administration and Department of Veterans Affairs than it charged to similarly-situated white borrowers.   PrimeLending gave its employees wide discretion to increase their commissions by adding "overages" to loans, which increased the interest rates paid by borrowers.   This policy allegedly had a disparate impact on African-American borrowers.


In each year between 2006 and 2009, PrimeLending allegedly charges African-American borrowers APRs of 11 to 14 basis points (0.11% to 0.14%) higher than similarly situated Caucasian borrowers on conforming loans.


In each year between 2006 and 2009, PrimeLending allegedly charges African-American borrowers APRs of 5 to 11 basis points (0.05% to 0.11%) higher than similarly situated Caucasian borrowers on FHA and VA loans.


PrimeLending allegedly did not have monitoring in place to ensure that it complied with the fair lending laws, compensation for its loan officer employees was allegedly based in part in their ability to charge overages and avoid accepting underages, it allegedly did not establish objective criteria to be followed by employees in charging overages or accepting underages, it allegedly did not require employees to document the reasons for overages and underages, and it allegedly did not offer detailed fair lending training to its employees.


This case resulted from a referral by the Board of Governors of the Federal Reserve to the Justice Department's Civil Rights Division in 2009.   PrimeLending's owner, PlainsCapital Bank of Lubbock, Texas, is a member of the Federal Reserve System.   PrimeLending reportedly cooperated fully with the Justice Department's investigation into its lending practices, and agreed to settle this matter without contested litigation.


In addition to paying $2 million to the victims of discrimination, the settlement reportedly requires PrimeLending to have in place loan pricing policies, monitoring and employee training that ensure discrimination does not occur in the future.   It also incorporates provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and regulations recently enacted by the Federal Reserve that restrict loan officer compensation based on the terms or conditions of a particular transaction. 


PrimeLending reportedly began at the start of this year to implement policies to prevent discrimination, which include requiring employees to provide legitimate non-discriminatory reasons in order to adjust loan prices.  Following the settlement, these policies will be reportedly strengthened by generally banning overages beginning next spring.    

Let me know if you have any questions.  Thanks.


Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874



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