RC11Hancock.FairLendingLitigationPFHMBAPresentation

8/3/2019 RC11Hancock.FairLendingLitigationPFHMBAPresentation

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Litigation Concerns for theCompliance Professional,

Including Fair Lending and Other ClaimsRegulatory Compliance Conference 2011

September 26, 20111:30 pm

Paul F. HancockK&L Gates LLP200 S. Biscayne Boulevard, 39th floorMiami, Florida 33131(305) [email protected]


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Subtitle: Click View then Master then Slide Master to editTitle: Click View then Master then Slide Master to edit

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Overview

Key Issues:

State AG initiatives

Fair lending enforcement by state and federal

agencies

Recent trends

Future after Wal-Mart v. Dukes


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Major Issues

State Attorneys General

Multi-State Investigation of Loan Servicing:Led by Iowa AG

October 13, 2010 - Joint Statement of the MortgageForeclosure Multistate Group

All 50 states plus banking commissioners

Executive Committee:

- Arizona - California - Colorado

- Connecticut - Florida - Illinois

- Iowa - New York - North Carolina

- Ohio - Texas - Washington

- Bank regulators of: Maryland

New York

Pennsylvania


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Major Issues

Multi-State Investigation of Loan Servicing (cont.)

Actions of Multi-State Group Meetings with loan servicers Meetings with advocacy groups Coordination with federal agencies

Involvement of Department of Justice Role of regulators Role of CFPB

Authority For Action?

States CFPB Federal agencies

OCC and other regulators


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Major Issues

Fair Lending - Enforcement

Department of Justice

HUD

FTC

State Attorneys General

Other State Agencies

Private Litigants


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Major Issues

Fair Lending - Major Issues

Steering

Retail Pricing

Wholesale (Broker) Pricing

Redlining

Reverse Redlining

Underwriting

Disability / Maternity

Marketing

Servicing


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Major Issues

State AG fair lending enforcement

Enforcement conducted by state attorneys general, bankingdepartments and state agencies

Source of state fair lending enforcement authority

State antidiscrimination statutes State mortgage banking statutes with antidiscrimination provisions

Recent enforcement:Litigation by Illinois AG under disparate impact theory

Lawsuit against Bank of America (June 29, 2010) alleging companysteered African-American and Hispanic borrowers into subprimemortgages and charged them higher prices

Lawsuit against Wells Fargo (July 31, 2009) alleging company putAfrican-American and Hispanic borrowers into high-cost subprime

loans while whites received lower-cost loans.


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Major Issues

Federal Enforcement

Department of Justice

Fair lending is a priority Fair lending is stated priority of Assistant Attorney

General for Civil Rights Tom Perez Fair Lending Task Force established January 2010 60+ open investigations in 2010

Referrals from regulatory agencies Majority are from FDIC FRB, OCC and OTS also make referrals DOJ returned 28 of 49 referrals in 2010 and early 2011


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Major Issues

Federal Enforcement

DOJ Settlement with AIG (March 4, 2010)

Issue: Are lenders liable for the discriminatory conductof brokers?

Allegations: Higher total broker fees to minorities were aresult of the policy and practice of allowing unsupervisedand subjective discretion by brokers in the setting ofdirect fees and cannot be fully explained by factors unrelatedto race or justified by business needs.


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Major Issues

DOJ Settlement with AIG (March 4, 2010) (cont.)

Settlement is Controversial

Confirms agency belief that lenders should be liable for brokerconduct, absent any statutory or common law precedent

Disregards Meyer v. Holleyvicarious liability standard

Lender expected to pay restitution to borrowers for fees chargedand retained by third parties

Lenders monitoring wholesale price differences across borrowergroups find it difficult or impossible to prevent disparities

Disparities can arise solely because of brokers differingpricing policies

Holds one creditor liable for actions of another creditor despiteECOA provision


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Major Issues

More recent federal enforcement

Pricing

DOJ Auto Lending Case, U.S. v. Nara Bank

Dismissed for failure to state a claim of discrimination againstnon-Asians based on statistical analysis (May 28, 2010)

DOJ Settlement with PrimeLending (December 8, 2010)

Resolved allegations of pricing discrimination against African-Americans

FTC Settlement with Golden Empire Mortgage (Sept. 20, 2010)

Resolved allegations of pricing discrimination against Hispanics

DOJ Settlement with Nixon State Bank (June 17, 2011)

Resolved allegations of pricing discrimination of unsecured consumer

loans on the basis of national origin


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Major Issues


Redlining

DOJ Lawsuit Against Citizens Bank (May 5, 2011)

Allegations of redlining in Detroit area

Record of servicing African-American neighborhoods of Flintand Saginaw

DOJ focused on applications, not originations

Deceptive allegations as to branches

Misapplication of Regulation BB DOJs proposed settlement rejected by Court as extortion

Led to out of court settlement, no injunction


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Major Issues


Redlining

DOJ Lawsuit Against Midwest BankCentre (June 28, 2011)

Allegations of redlining in St. Louis area

$1.45 million settlement Required to open a branch in a majority-black census tract

in St. Louis county

Required to conduct a credit needs assessment, including

an evaluation of the need for alternative credit products forborrowers whose credit may have been damaged by thesubprime lending practices.


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Major Issues


Redlining

DOJ Investigations

Continued focus on alleged redlining

What is the proper method of analysis? Forced expansion of CRA assessment areas

Predetermined racial/ethnic quotas

Use of statistics and disparate impact, despite intentional

nature of redlining Targeting lender with greatest success in lending to

minority areas

Potential focus on private mortgage companies


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Major Issues

Significant Decisions

Supreme Court decision Wal-Mart v. Dukes(June 20, 2011)

Most significant civil rights decision in many years Sexual discrimination in employment based on disparate

impact

Challenge to discretionary decision-making under authority ofWatson In Watson, a plurality opinion, the Supreme Court held that a

disparate impact analysis may be applied to allegedlydiscriminatory subjective or discretionary employment practices

Also noted that statistics could be used to establish disparities


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Major Issues


Supreme Court decision Wal-Mart v. Dukes(June 20, 2011)

Court found commonality lacking and denied class certification No policy identified The only corporate policy that the plaintiffs

evidence convincingly establishes is Wal-Marts policy ofallowingdiscretionby local supervisors over employment matters. On its face, of

course, that is just the opposite of a uniform employment practice . . . it is apolicy against havinguniform employment practices.

This is a very common and presumptively reasonable way of

doing business one that [] should itself raise no inference ofdiscriminatory conduct.

Plaintiffs failed to answer the crucial question, Why was Idisfavored?

Statistical regression analysis insufficient Merely proving that thediscretionary system has produced a racial or sexual disparity is notenough.

Whats left of Watson?


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Major Issues


Applying Wal-Mart v. Dukes(June 20, 2011) to fair lending

Should have major impact on types of cases beingpresented by private litigants and government agencies

In Re Wells Fargo Residential Mortgage Lending DiscriminationLitigation, (N.D. Cal. Sept. 6, 2011).

Plaintiffs claimed that discretionary pricing policy allowing broker

discretion had disparate impact on minorities.

Plaintiffs relied on statistical regression to show impact but didnot prove common mode of exercising discretion.

Relying on Dukes, court denied class certification: Wherepersons who are afforded discretion exercise that discretion

differently, commonality is not established.


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Major Issues


Impact of Wal-Mart v. Dukes(June 20, 2011) on fair lending

Broader application than just class certification analysis According to Supreme Court, proof of commonality necessarily overlaps

withmerits contention that [defendant] engages in a pattern or practice

of discrimination.

Questions the use of statistics as sole proof of pattern or practice ofdiscrimination, based on a discretionary pricing policy where

persons exercise discretion differently

Actions brought pre-Dukesmight not survive today

Private litigation based on the impact of a Discretionary Pricing Policy(e.g., Garcia v. Countrywide(C.D. Cal.), Ramirez v. GreenPoint Mortgage(N.D. Cal.)

Federal enforcement pattern or practice of discrimination actions relying

on statistical regressions to prove disparity

Could the government have prevailed against AIG in light of Wal-Mart?


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Conclusion

Reasonable to expect continued aggressive enforcement

Greater challenge to lenders when proposed lawsuits donot properly reflect facts or proper legal standard

More contested litigation

More pushback from trade groups and Congress

Lenders should continue to make compliance a top priority

And simply hope that you are not targeted

Documents

RC11Hancock.FairLendingLitigationPFHMBAPresentation