Financial Services Law Developments: FYI: DOJ Announces $21MM Loan Pricing Discrimination Settlement

Saturday, June 2, 2012

FYI: DOJ Announces $21MM Loan Pricing Discrimination Settlement

The U.S. Department of Justice announced a $21 Million discriminatory pricing settlement with the mortgage lending subsidiary of the nation's 11th-largest commercial bank. The settlement also requires the company to continue the anti-discrimination policies and practices it already adopted prior to the settlement. The settlement was reached without contested litigation and without any factual findings or adjudications, and is subject to court approval.

A copy of the consent order is available at:

http://www.justice.gov/iso/opa/resources/313201253116253830420.pdf

A copy of the complaint is available at:

http://www.justice.gov/iso/opa/resources/656201261104918372098.pdf

The DOJ's complaint alleges violations of the Fair Housing Act and Equal Credit Opportunity Act in connection with alleged higher fees and interest rates, allegedly not based on borrower risk, for more than 20,000 African-American and Hispanic borrowers. The allegations involve loans made to African-American borrowers between 2005 and 2008 through more than 200 retail offices directly operated by the company, as well as loans made to African-American and Hispanic borrowers between 2005 and 2009 through the company's national network of mortgage brokers.

The DOJ challenged the company's past practice of allowing its loan officers and mortgage brokers to vary a loan's interest rate and other fees from the price it set based on the borrower's objective credit-related factors. This subjective and unguided pricing discretion allegedly resulted in African-American and Hispanic borrowers paying more.

The company changed its practices prior to the settlement, by substantially reducing the discretion of its loan officers and mortgage brokers to vary a loan's interest rate and other fees from the price it set based on the borrower's objective credit-related factors, and by requiring the reasons for variations to be documented and reviewed by a supervisor. According to the DOJ, "[t]hose policies, operating in concert with rules imposed by the Federal Reserve in April 2011 and incorporated into the settlement, restrict compensating loan officers and mortgage brokers based on the terms or conditions of a particular loan."

The settlement requires the company to maintain these policies for at least the next three years, to monitor its lending for signs of discrimination, and to provide monitoring reports to the United States.

The proceeds of the settlement will be used to compensate the alleged victims identified by the DOJ, through an independent administrator.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
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Chicago, Illinois 60602
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The Editor's Bio

Ralph T. Wutscher
Maurice Wutscher LLP
20 N. Clark Street, 33rd Floor
Chicago, Illinois 60602
Direct: (312) 493-0874
RWutscher@MauriceWutscher.com
https://www.MauriceWutscher.com/

Ralph Wutscher's practice focuses primarily on representing depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, distressed asset buyers and sellers, loss mitigation companies, automobile and other personal property secured lenders and finance companies, credit card and other unsecured lenders, and other consumer financial services providers. He represents the consumer lending industry as a litigator, and as regulatory compliance counsel.

Ralph has substantial experience in defending private consumer finance lawsuits, including cases ranging from large interstate putative class actions to localized single-asset cases, as well as in responding to regulatory investigations and other governmental proceedings. His litigation successes include not only victories at the trial court level, but also on appeal, and in various jurisdictions. He has successfully defended numerous putative class actions asserting violations of a wide range of federal and state consumer protection statutes. He is frequently consulted to assist other law firms in developing or improving litigation strategies in cases filed around the country.

Ralph also has substantial experience in counseling clients regarding their compliance with federal laws, and with state and local laws primarily of the Midwestern United States. For example, he regularly provides assistance in connection with portfolio or program audits, consumer lending disclosure issues, the design and implementation of marketing and advertising campaigns, licensing and reporting issues, compliance with usury laws and other limitations on pricing, compliance with state and local “predatory lending” laws, drafting or obtaining opinion letters on a single- or multi-state basis, interstate branching and loan production office licensing, evaluations and modifications of new or existing products and procedures, debt collection and servicing practices, proper methods of responding to consumer inquiries and furnishing consumer information, as well as proposed or existing arrangements with settlement service providers and other vendors, and the implementation of procedural or other operational changes following developments in the law.

Ralph is a member of the Governing Committee of the Conference on Consumer Finance Law. He is also the immediate past Chair of the Preemption and Federalism Subcommittee for the ABA's Consumer Financial Services Committee. He served on the Law Committee for the former National Home Equity Mortgage Association, and completed two terms as Co-Chair of the Consumer Credit Committee of the Chicago Bar Association.

Ralph received his Juris Doctor from the University of Illinois College of Law, and his undergraduate degree from the University of California at Los Angeles (UCLA). He is a member of the national Mortgage Bankers Association, the American Bankers Association, the Conference on Consumer Finance Law, DBA International, the ACA International Members Attorney Program, as well as the American and Chicago Bar Associations.

Ralph is admitted to practice in Illinois, as well as in the United States Court of Appeals for the Seventh Circuit, the United States District Courts for the Northern and Southern Districts of Illinois, and the United States District Court for the Eastern District of Wisconsin, and has been admitted pro hac vice in various jurisdictions around the country.