LA Asks Court to Revive Big Bank Predatory Lending Claims

LOS ANGELES (CN) - The city of Los Angeles urged the Ninth Circuit Wednesday to revive claims that the Bank of America and Wells Fargo discriminated against Latino and black borrowers by offering them more expensive home loans than similarly situated whites.

In 2013, the city filed two lawsuits under the Fair Housing Act claiming that the banks’ predatory lending practices led to disproportionate foreclosures in minority neighborhoods. City Attorney Mike Feuer said city property tax revenue plummeted in certain areas after the collapse of the housing market, leaving LA residents with the bill to police and maintain neighborhoods full of abandoned and foreclosed homes.

The estimated cost to the city was $1 billion, according to Feuer. He made similar legal claims against Citigroup and Chase.

But in May 2015, U.S. District Judge Percy Anderson ruled in favor of Bank of America, claiming the city had not adequately backed up its claims.

U.S. District Judge Otis Wright also ruled for Wells Fargo, finding the city's claims time-barred under the two-year statute of limitations.

At a Wednesday hearing at the William K. Nakamura Courthouse in Seattle, the city's attorney Robert Peck asked the Ninth Circuit to reverse the rulings.

Peck said Anderson had required the city to prove that individual loans were part of a continuing discriminatory housing practice that ended in foreclosures and damaged the city.

Anderson “required the city to show that the discriminatory loans were issued and went to foreclosure and cost the city money all within that two-year limitations period,” Peck said.

Anderson also told the city it could not “refer back to those loans that occurred before that period, and that the city essentially had to prove its entire case – liability, injury and damage with respect to the events – within that two-year period,” Peck said.

“That was wrong,” he added.

He said the bank had offered financial incentives to loan officers to issue higher-credit loans to minority borrowers. According to Peck, an expert for the city had testified that there was “no other explanation other than race” for the bank’s lending practices.

African-Americans were three times more likely than whites to receive a Federal Housing Administration loan than a “similarly creditworthy minority,” and Hispanics were two times more likely to receive them, he said.

FHA mortgage loans are government-backed loans that are typically offered to low-income borrowers, providing financial assistance so they can buy homes that would normally be out of reach.

“Does it make any difference that the government requires those added charges?" U.S. Circuit Judge Richard Paez asked of FHA loans.

Peck said that it did not.

“If a non-minority borrower goes into the same bank with the same credit profile, asks for the same kind of loan on a $200,000 house in the same neighborhood, and gets a conventional loan, then their costs are going to be less, and that is discrimination,” Peck said.

Bank of America attorney Thomas Hefferon asked the court to affirm the prior rulings. Echoing Judge Anderson's arguments, he said the city failed to offer evidence to show predatory lending practices within the two-year statute of limitations, before the financial crisis in 2008.

“The fundamental problem that the city of Los Angeles had is it simply didn't offer evidence with the summary judgment motion which was sufficient to show that it had stated a claim. And while their theories were basically the same – a continuing violation, for example – there was no evidence of what the conduct was prior to the time period,” he said.

He added that there was “absolutely zero” evidence of prior practices outside the limitations period.

“There was no evidence about what happened prior to the two years. And there was no evidence of injury. None at all. And as a result they were not aggrieved,” said Hefferon.

Peck noted that the claims in the Wells Fargo lawsuit were similar but with "a twist” because Judge Wright had said LA had to show the loans under the FHA were “inherently discriminatory.”

“We say that's the wrong question,” Peck said. “If you get an FHA loan when you qualify for a more favorable loan and those favorable loans are more frequently given out to non-minority borrowers, there is discrimination,” Peck said.

Paez sat with U.S. Circuit Judges Michael Hawkins and Ronald Gould on the panel. The court took the case under submission and did not indicate when it would rule.

Peck is with the Center for Constitutional Litigation in Washington, D.C. Hefferon is with D.C. firm Goodwin Proctor.

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