Lieff Cabraser Civil Justice Blog
predatory bank lending

Supreme Court Clears Way for Cities to Sue Major Banks Over Discriminatory Lending Practices

On Monday May 1, 2017, the U.S. Supreme Court ruled that cities have standing to sue major banks over the kinds of discriminatory lending practices that caused significant harm to low-income neighborhoods through and after the foreclosure crisis and the 2008 recession. Until now, the banks claimed that while forbidding racial discrimination, the Fair Housing Act protected only individuals who suffered discrimination, not entire cities.

But in its 5-3 vote, the Supreme Court held that cities can be an “aggrieved person” who can sue over the impact of housing discrimination on the city’s finances. The Court then sent the case back to the Court of Appeals for further proceedings on causation. Justice Stephen G. Breyer cited 1970s-era rulings that interpreted the civil right laws broadly, including by allowing city officials to sue real estate agents who were turning away black and Latino home buyers.

As noted by the Los Angeles Times, this decision “gives city leaders a potentially powerful weapon against lenders, including those who were accused of predatory practices that triggered the foreclosure crisis after 2008.” The decision cleared the way for the city of Miami to sue Bank of America over allegations that the bank “intentionally targeted predatory practices at African-American and Latino neighborhoods,” which in turn led to foreclosures and vacancies that sharply reduced property tax revenues and caused a cascade of harm to cities well beyond the originally targeted neighborhoods.

Commenting on the matter, legal expert Kenneth Jost observed that the city of Miami can now try to use the Fair Housing Act “to try to recover damages from BofA and Wells Fargo for financial losses the city blames on the banks’ policies of targeting predatory mortgage loans to African American and Latino customers.” As Jost writes,

“The nation’s big banks got by mostly scot-free for the harm they did to the nation’s economy and in particular the housing market leading up to the Great Recession of 2007-08. But the Supreme Court cleared the way last week [May 1] for the nation’s cities to hold the banks at least somewhat accountable for the particular harm they did to minority homebuyers and the boarded-up minority neighborhoods left behind after waves of foreclosures.”

Acknowledging that Miami’s ultimate victory remains to be won, Jost points out that the racial discrimination cited in the case “was both more subtle and more pervasive than was practiced in the bad old days” of 1968 when the Fair Housing Act was first enacted. “The banks’ practices [consisted of] of steering minority homebuyers to mortgages with less favorable terms than those offered to white customers. The banks made money on the loans and then ended up with the houses by foreclosing on the properties when the would-be homeowners, predictably, defaulted on the lender-friendly mortgages.”

Jost’s essay is available for reading on the Jost on Justice blog.

For further information on the City of Miami’s case against Bank of America and Wells Fargo and other similar cases, visit UnfairBankLending.com.