PHILADELPHIA (CN) – A federal judge threw out a $7 million settlement to a class action alleging discriminatory loan practices, citing class-certification issues that arose after the Supreme Court ruled on the Wal-Mart case.
The May 2008 lawsuit accused National City Bank of violating the Fair Housing Act by “placing minority mortgagors into higher-priced sub-prime loans because of their race.”
Clients said the bank’s “discretionary pricing policy” allowed loan officers to tack on higher fees to an otherwise objective financing rate, and that minorities got more expensive mortgages.
The suit cited an ACORN study that said black and Latino homeowners were 2.7 times and 2.3 times more likely than white people to receive subprime loans, respectively.
“Differences in economic status are not to blame,” the lawsuit states. “These racial disparities were found to persist even among borrowers of the same income level.”
The disparities “are not mere coincidences,” according to the complaint. “They are the result of a systematic and predatory policy of targeting minority borrowers for high cost loans.”
Homeowners also claimed that discriminatory credit-pricing policies “cause persons with identical or similar credit scores to pay differing amounts for obtaining credit. Such subjective loan pricing – which by design imposes differing finance charges on persons with the same or similar credit profiles – disparately impacts defendants’ minority borrowers.”
The class later named PNC Financial Services as a successor-in-interest to National City. Discovery began after the parties stipulated to dismissal of claims concerning mortgages from National City subsidiary First Franklin Corp. Those pending claims have been consolidated in California’s Northern District.
During discovery, National City produced data related to more than two million loans made from 2001 to 2008.
U.S. District Judge Eduardo Robreno said the data detailed all the loans made to white, Latino and black borrowers during that time period, and “included the annual percentage rate, the term of the loan … the interest rate for the loan, the borrower’s income, the borrower’s ethnicity and race, the borrower’s credit score, the borrower’s debt-to-income ratio” and a litany of other information.
After a May 2010 mediation session, parties agreed to a $7 million settlement for a class of more than 153,000 borrowers, which the judge granted conditional approval.
In addition to the $7 million payout, the proposed settlement required National City to provide a toll-free hotline where mortgagors could discuss loan modification and foreclosure avoidance with English- and Spanish-speaking consultants.
The deal also included a provision directing payment of $75,000 each to the National Council of La Raza and Neighborhood Housing Services of Chicago (NHSC) “for providing loss mitigation and/or foreclosure avoidance counseling services.”
In December 2010 fairness hearing, Robreno ordered briefing on some issues he found concerning.
He wanted to know what the differences were between the foreclosure avoidance program already provided by defendants and the ones set to be implemented by La Raza and NHSC, and how the two organizations were selected, including “any connections between counsel and the organizations, whether or not the organizations provide referrals for counsel, and why two organizations were selected instead of one.”
In the meantime, the U.S. Supreme Court issued a landmark reversal in Wal-Mart Stores. v. Dukes, a sex-discrimination case brought on behalf of 1.5 million current and former female Wal-Mart workers, accusing the company of favoring men over women with respect to pay and promotion.
Robreno said the parties had recognized Dukes – once of the largest civil rights class actions in American history – as “highly relevant” to the National City case. The five-justice majority had reversed certification of the class, finding that the plaintiffs had not sufficiently shown that they shared common questions of law and fact.
He agreed on Sept. 8 “under the Supreme Court’s recent precedent … the class fails to establish the requirement of commonality and typicality.”
In the National City case, “there were many loan officers that were involved in using discretion that created the alleged discrimination,” Robreno wrote.
“Thus, despite the regression analysis alleging an overall disparate impact [on minority mortgagors], the fact that each loan officer would likely proffer different reasoning for how she applied her discretion to loan applications further supports the conclusion that the issues involved in the case will differ based on which loan officer each plaintiff received her loan from,” the 18-page decision states.
“Applying Dukes, plaintiffs would likely have to show the disparate impact and analysis for each loan officer or at a minimum each group of loan officers working for a specific supervisor,” he wrote.
A telephone conference is set for Sept. 30.