Fair lending is back with a giant thud!
In addition to the regulatory burdens imposed by the Dodd-Frank Act, financial institutions must now adjust to the potential of a new round of discrimination claims that are likely to be based on the effects that statistics suggest, rather than an actual intent to discriminate. Most recently, this was underscored by the U.S. Department of Justice’s (DOJ) settlement this month with Luther Burbank Savings (Burbank) to resolve discrimination claims under the FHA and ECOA. The DOJ alleged that Burbank’s general $400,000 minimum loan amount for single family mortgage loans had a disparate impact on African American and Hispanic borrowers that was not justified by business necessity or legitimate business considerations. As demonstrated in this case, the reluctance of institutions to litigate with the DOJ in these types of cases allows broad de facto discrimination liability principles to be established by the DOJ through settlements, rather than as a result of a fully developed case ruled on by a court.
This enforcement policy is made all the more treacherous to navigate with (i) financial institutions under pressure from regulators to strictly underwrite loans and (ii) pending qualified mortgage and risk retention regulations, which will tend to standardize mortgage lending products.
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