Alert January 07, 2014

CFPB and DOJ Take Enforcement Action Against Bank Alleging Violations of ECOA

The CFPB and DOJ announced that the filing of a joint complaint in the United States District Court for the Western District of Pennsylvania against a bank as successor in interest to a mortgage lender for violations of the Equal Credit Opportunity Act. ECOA and its implementing regulation, Regulation B, generally prohibits creditors from discriminating against loan applicants on the basis of characteristics such as race and national origin. According to the complaint, the mortgage lender allegedly charged higher prices on mortgage loans to African American and Hispanic borrowers than similarly creditworthy white borrowers between 2002 and 2008. The agencies further alleged that between 2002 and 2008, the mortgage lender gave its loan officers and brokers wide discretion to set borrowers’ rates and fees, and compensated these officers and brokers from the higher prices paid by consumers. There was no objective criteria, guidelines, instructions or procedures in place, according to the agencies. The agencies’ enforcement action is based on statistical analyses demonstrating that the practice had a discriminatory effect on over 76,000 African-American and Hispanic borrowers between 2002 and 2008; showing that on average African-American and Hispanic borrowers paid approximately $159 and $125, respectively, more than similarly-situated white borrowers. The proposed consent order requires the mortgage lender’s successor in interest to pay the $35 million in restitution to consumers. This follows a recent enforcement action against a bank holding company and its bank for violations of ECOA, in which the CFPB used similar statistical analyses to show the discriminatory effect of indirect auto lending market up practices (see December 23, 2013 Alert).