The 11th U.S. Circuit Court of Appeals recently revived three lawsuits that were brought about by the City of Miami, accusing Wells Fargo & Co, Bank of America Corp., and Citigroup of discriminatory and predatory mortgage lending practices to minority borrowers.
The lawsuit, originally introduced to a lower court by the City of Miami on December 13, 2011, alleged that each bank in question had participated in a decade-long pattern of discriminatory lending by targeting blacks and Hispanics for predatory loans.
The court documents revealed that the city alleged that the banks “refused to extend credit to minority borrowers when compared to white borrowers,” then “when the bank did extend credit, it did so on predatory terms.”
The case was dismissed in July 2014 by U.S. District Judge William Dimitrouleas in Fort Lauderdale, Florida on the grounds that: "the city lacked statutory standing under the FHA because its alleged injuries fell outside the statute’s “zone of interests”; the city had not adequately pled that Wells Fargo’s conduct proximately caused the harm sustained by the city; and, the city had run afoul of the statute of limitations and could not employ the continuing violation doctrine."
Now, in a 3-0 vote, the Circuit Court said that the lower court made an error by dismissing the city's claims under the Fair Housing Act, according to court documents. In addition, the court found that the city does have constitutional standing to pursue its FHA claims.
"It is clear that the harm the city claims to have suffered has a sufficiently close connection to the conduct the statute prohibits," Circuit Judge Stanley Marcus wrote.
The City of Miami's lawsuit against the three banks alleged that their engagement in discriminatory lending in the residential housing market caused the city economic harm. The lawsuits say the conduct of the banks had a "disparate impact" on minority borrowers which resulted in a disproportionate number of foreclosures on properties owned by minorities and a disproportionate number of exploitative loans in minority neighborhoods. The City of Miami said this disproportionate number of foreclosures resulted in the city devoting more resources toward combating blight, thus negatively affecting the city's economy.
The city also alleged, "the bank targeted black and Latino customers in Miami for predatory loans that carried more risk, steeper fees, and higher costs than those offered to identically situated white customers, and created internal incentive structures that encouraged employees to provide these types of loans," Judge Marcus noted.
The predatory loans, as identified by the city, include: high-cost loans, subprime loans, interest-only loans, balloon payment loans, loans with prepayment penalties, negative amortization loans, no documentation loans, and adjustable rate mortgages with teaser rates.
The city's complaint accused all three banks of “redlining” and “reverse redlining." Redlining is the practice of refusing to extend mortgage credit to minority borrowers on equal terms as to non-minority borrowers, while reverse redlining is the practice of extending mortgage credit on exploitative terms to minority borrowers.
The 11th Circuit Court did not rule on the merits.