Housing Section Documents
THE ATTORNEY GENERAL'S
2000 ANNUAL REPORT TO CONGRESS
PURSUANT TO THE
EQUAL CREDIT OPPORTUNITY ACT
AMENDMENTS OF 1976
SUBMITTED APRIL 2001
BY WILLIAM R. YEOMANS
ACTING ASSISTANT ATTORNEY GENERAL
CIVIL RIGHTS DIVISION
This report is submitted pursuant to Section 1691f of the
Equal Credit Opportunity Act, as amended, regarding the
activities of the Department of Justice under the statute. This
report covers the 2000 calendar year.
There were a total of five fair lending referrals from the
federal regulatory agencies during the year, fewer than in recent
years (7 were received in 1999, 7 in 1998, and 25 in 1997).
During 2000, two referrals were received from the Federal Reserve
Board (FRB); one from the Federal Trade Commission (FTC); one
from the Department of Housing and Urban Development (HUD); and
one joint referral from the FTC and HUD. The two FRB referrals
have been or are in the process of being returned to the FRB for
administrative resolution. We filed a complaint and consent
order in the joint referral and are currently investigating the
allegations from the separate FTC and HUD referrals. These
referrals are described (by agency) below:
Federal Reserve Board
The FRB made two referrals during the year. One concerned a
bank which provided a .25% interest rate reduction on installment
loans and credit cards to individuals age 50 and older.
Regulation B would allow qualifying special purpose programs for
those who are 62 or older. Upon notification of this unlawful
practice, the bank adjusted the age requirements and made
restitution to all persons injured by this practice. We returned
the referral for administrative resolution since the policy has
been changed and all aggrieved persons have been compensated.
The second referral involved a foreign-based bank with
branch offices in the United States that engages in limited
consumer installment and residential lending, primarily to its
employees. The bank had a policy requiring the employee's non-applicant spouse to become personally obligated on the mortgage
note even where the employee was individually qualified. The
bank was required to correct its policy, conduct a search of
applications received in the previous 24-month period to identify
all spouses who had been improperly required to become personally
obligated, and to release such spouses from those obligations.
Accordingly, we are returning the referral for administrative
resolution.
Federal Trade Commission
The FTC made two referrals this year. One involved
allegations of racially discriminatory pricing, charging African
Americans higher points and fees in connection with home mortgage
loans. We reviewed the FTC's referral and determined that
further investigation and analysis was necessary, which we expect
to complete soon.
The second FTC referral was a joint referral with HUD. The
FTC and HUD developed this case against Action Loan, a subprime
lender and its president Gus Goldsmith. This case involved
abusive lending practices including insurance packing,
misrepresentation of fees and costs, improper disclosures, and
increasing the amounts financed so as to increase the lender's
profit on a loan. These practices were alleged to violate the
Equal Credit Opportunity Act, Truth in Lending Act, Fair Credit
Reporting Act, Credit Practices Act, and the Real Estate
Settlement Procedures Act. The FTC and HUD negotiated a
settlement that included injunctive provisions and nearly
$400,000 in consumer redress. We filed the complaint and consent
decree, United States v. Action Loan, on behalf of the FTC and
HUD.
Department of Housing and Urban Development
In addition to the joint referral with the FTC, described
above, HUD referred one pattern or practice case. It involved
allegations that a subprime lender engaged in a pattern or
practice or disparate treatment of African American borrowers in
the pricing of loans. We are continuing to investigate these
allegations.
The Office of the Comptroller of the Currency (OCC), the
Federal Deposit Insurance Corporation (FDIC), and the Office of
Thrift Supervision (OTS) have referred cases to us in previous
years but did not refer any cases this year.
In addition to the joint FTC/HUD referral described above
(which required no more than our approval and filing), we
continued litigation of a consumer credit case filed in 1999,
filed and settled a predatory lending case, and filed two
significant amicus curiae briefs in 2000:
- During 2000, we continued active litigation of our suit
against Associates National Bank (ANB), a case that had been
filed in 1999, based on a referral from the OCC. Our suit
alleged that ANB discriminated on the basis of national origin in
one of its credit card programs by: (1) requiring higher credit
scores for those applicants who applied on a Spanish-language
application form; (2) offering lower credit limits to those
Spanish-language applicants who were approved; and (3) failing to
offer certain favorable credit promotions to Spanish-language
account holders. ANB filed a motion for summary judgment
contending, among other things, that its policy of excluding
Hispanic designated accounts from its benefits programs is not
covered by the ECOA. The case was active in discovery in 2000
and we opposed defendant's motion for summary judgment. Before
the court ruled on this motion, however, the parties began
negotiations at the end of the year after ANB was acquired by
Citigroup, and a settlement was reached in early January 2001.
ANB agreed to pay $1.5 million to several hundred individuals the
United States identified as having been disadvantaged by the
challenged practices.
- In March 2000, we filed a complaint and simultaneous
settlement agreement involving allegations of discrimination by
Delta Funding Corporation, a subprime mortgage lender, doing
business primarily in Brooklyn and Queens, New York. The
complaint resulted from a joint investigation between the
Department of Justice, the United States Attorney's Office for
the Eastern District of New York, HUD, and the FTC. Our
complaint alleged that Delta violated the Fair Housing Act and
Equal Credit Opportunity Act by making loans to African American
females with higher broker fees than those for white males. We
also alleged, on behalf of HUD that Delta violated the Real
Estate Settlement Practices Act by allowing unreasonable broker
fees, and, on behalf of the FTC, that Delta violated the Home
Ownership and Equity Protection Act by engaging in asset-based
lending.
The settlement agreement, which applies to the lender's
operations nationwide, requires Delta to refuse to fund loans
with discriminatory or unearned broker fees and to insure that
loans are not made to persons who cannot afford the payments.
The settlement includes monetary relief of up to $12 million to
be paid to victims under a previous agreement between Delta, the
New York State Banking Department, and the New York State
Attorney General.
- In March 2000, we filed an amicus curiae brief in
support of the plaintiffs in Hargraves v. Capital City Mortgage
Corp (D.D.C.). The plaintiffs in this predatory lending case
alleged that the mortgage company targeted minorities for loans
that were designed to fail, due to unfair payment terms and
income levels of the borrowers that would not sustain the loan
payments. The plaintiffs alleged that defendants' lending
practices violated several federal laws, including the Fair
Housing Act and the Equal Credit Opportunity Act by engaging in a
pattern or practice of targeting African American communities, a
practice known as "reverse redlining," for abusive or predatory
lending practices. The defendants filed a motion for summary
judgment on the grounds that reverse redlining does not violate
either law because they have provided credit to African
Americans, and on the same terms that they would provide to
whites.
Our amicus brief supported the view that lending practices
designed to induce minorities into loans destined to fail could
violate the fair lending laws. Our brief argued that by
targeting minorities for predatory loans, a lender discriminates
in the terms and conditions of home financing, even if it makes
all or most of its loans in minority areas. The fact that a
lender does business only in minority neighborhoods does not
shield its business from scrutiny under federal fair lending
laws. In addition, racially targeted loans that are designed to
fail make housing unavailable because of race since the borrowers
are likely to lose their homes through foreclosure. In September
2000, the judge denied defendants' motion for summary judgment
recognizing that reverse redlining may violate the Fair Housing
Act and Equal Credit Opportunities Act.
- In August 2000, we filed an amicus curiae brief in
support of plaintiffs in Cason v. Nissan Motor Acceptance
Corporation (M.D.Tenn). In this case, plaintiffs alleged that
defendant's practice of permitting Nissan dealers to set finance
charges at their discretion resulted in African Americans paying
higher finance charges, and that these higher charges could
not be explained by non-discriminatory factors. In our amicus
brief, we argued that a lender has a non-delegable duty to comply
with the Equal Credit Opportunity Act, and, thus, is liable under
ECOA for discriminatory pricing in loans that it approves and
funds. We further argued that plaintiffs do not need to prove
that defendant was on notice regarding the alleged
discrimination, but that, in any case, plaintiffs have offered
evidence that defendant was on notice. The court subsequently
denied summary judgement for the defendants.
In a related case, Coleman v. General Motors Acceptance
Corporation (M.D. Tenn), which raised the same issue of a
lender's liability under ECOA for discriminatory pricing in loans
it approves and funds, plaintiffs submitted our amicus brief
filed in the Cason case. The court denied summary judgment for
the defendants.
We initiated our first investigation into the business
lending practices of one of the largest originators of small
business loans. The lender's disproportionately low market share
of loans in majority black census tracts, where nearly 20,000
small businesses are located, raised fair lending concerns. We
are attempting to determine whether the lender discouraged
applicants from majority-black tracts and whether it applied
disparate underwriting standards based on race or the racial
composition of the neighborhood where the businesses were
located.
We have also initiated investigations into automobile
lending practices. We are attempting to determine whether
lenders discriminate by allowing dealers discretion to charge
higher finance charges unrelated to non-discriminatory factors.
We continue to investigate the FTC referral involving
allegations of racially discriminatory pricing in connection with
home mortgage loans. We also continued to pursue a bank
investigation begun in 1998 where we are attempting to determine
whether the bank's high rejection rate (both absolutely and in
comparison to whites) of minority applicants for home improvement
loans may involve unlawful discrimination.
We are continuing to develop investigations of subprime
lenders that disproportionately target high priced loan products
to minority and elderly borrowers residing in the nation's
central cities. Our central concern in these investigations is
possible price discrimination based on race, ethnicity, sex, or
age. However, each of these lenders may also be engaging in
deceptive sales practices. We are seeking to determine whether
such practices, if they exist, are being made to fall more
heavily on borrowers who are protected by the fair lending laws.
We are also developing investigations involving prime lenders who
have redlined areas based on the racial composition of the area
thereby creating a conducive market for subprime and predatory
lenders. We are concerned that a number of borrowers obtaining
higher priced, and sometimes predatory loans, may qualify for
lower priced prime loans.
We participated in a series of meetings, convened by the
Federal Reserve Board, with HUD, the Office of the Comptroller of
the Currency (OCC), the Office of Thrift Supervision (OTS), the
Federal Trade Commission (FTC), and the National Credit Union
Association, to discuss predatory lending issues and make
recommendations to the respective regulatory agencies as to the
actions, whether joint or individual, that can be take to address
abuses under existing law. This group worked on the development
of a policy statement on the currently available enforcement
options and the manner in which the participating agencies intend
to utilize them.
We also participated in the National Economic Council's
(NEC) interagency working group, which included HUD, Treasury and
DOJ, to address predatory lending issues. The group focused on:
(1) pulling together available data on the scope and nature of
the problem; (2) reviewing legislative proposals to inform the
Administration's position on these alternatives; and (3)
providing input to a report prepared by the HUD/Treasury Task
Force on recommendations to address predatory lending issues.
The Task Force held a series of meetings around the country on
predatory lending and published a report.
During the year, Section and Division representatives
continued an active program of speaking to lenders and lending
associations throughout the country on our enforcement policies
and expectations. We also continued to assist the bank
regulatory agencies by providing assistance in training of field
examiners on the investigative techniques we have been using.