The CFPB and Justice Department filed a joint complaint last week in a Texas federal district court against Colony Ridge Development, LLC and three related entities (collectively, “Colony Ridge”) in which the agencies allege that Colony Ridge engaged in discriminatory targeting of Hispanic consumers with predatory financing and other unlawful conduct.  In remarks given at a press conference about the complaint, Assistant Attorney General Kristen Clarke described the lawsuit as “the first predatory mortgage lending case brought by the Justice Department.”  

Assistant Attorney General Clarke also indicated that the lawsuit is a part of the Justice Department’s “Combating Redlining Initiative.”  She stated:

[The lawsuit] underscores why equal access to credit on fair terms is so important. Indeed, redlining is one of the major reasons that homeownership scams still have a foothold in our economy today.  It leaves vulnerable communities devoid of real credit options, and a perfect target for reverse redlining scams that zero in on these communities with predatory loan products.  Through today’s action, the Justice Department is making clear that it is equally determined to stamp out predatory lenders who take advantage of the conditions created by redlining as it is to prevent illegal redlining in the first place.

According to the complaint, Colony Ridge, a Texas-based land developer, has developed more than 40,000 lots spread across six residential subdivisions in Liberty County, Texas.  Colony Ridge extends credit to consumers to purchase the lots.  The facts alleged in the complaint include the following:

• Colony Ridge advertises almost exclusively in Spanish.  In its advertising, Colony Ridge features cultural markers associated with Latin America such as national flags of Latin American countries and regional music and promotes the “American Dream of homeownership.”
• Colony Ridge falsely represents in advertising that lots were sold with water, sewer, and electrical infrastructure already in place.  It only discloses that lots may not have this infrastructure until after applicants have paid a non-refundable deposit and makes that disclosure only in English.
• Colony Ridge employees fail to inform buyers of flood risk despite repeated past flooding of lots or falsely tell buyers that the lots have not flooded.
• Colony Ridge’s interest rates are significantly higher than prevailing rates.  Colony Ridge’s interest rates are not based on an individualized assessment of risk related to a consumer’s actual likelihood of repaying the loan.  Colony Ridge does not assess borrowers’ ability to repay before extending credit, requiring only self-reported (but unverified) gross income and a nominal down payment.
• From September 2019 through September 2022, Colony Ridge initiated foreclosures on at least 30% of seller-financed lots within just three years of the purchase date, with most credit  failures occurring even sooner.
• Foreclosure and property deed records indicate that Colony Ridge flipped at least 40% of all the properties it sold between September 2019 and September 2022, selling approximately 8,237 properties twice, 3,267 properties three times, and 2,067 properties four or more times in three years.

The complaint alleges that Colony Ridge:

• Engaged in unlawful discrimination against applicants in violation of the Equal Credit Opportunity Act and Regulation B, including by targeting Hispanic applicants on the basis of race or national origin with predatory seller financing.
• Engaged in unlawful discrimination against applicants in violation of the Fair Housing Act, including by targeting Hispanic applicants on the basis of race or national origin with predatory seller financing and exploiting applicants’ limited English proficiency.
• Engaged in conduct that violated the Interstate Land Sales Full Disclosure Act (ILSA) and Regulations K and J by: selling lots without filing an initial Statement of Record with the CFPB and paying the required fee; failing to provide purchasers with a printed Property Report in advance of signing a contract or agreement; displaying advertising and promotional materials to prospective purchasers that were inconsistent with the information required to be disclosed in the Property Report (i.e., that the lots were subject to periodic flooding); making misrepresentations or omitting material facts about the lots (i.e. representing they were sold with the infrastructure necessary to connect water, sewer, and electrical services pre-installed and omitting estimates of the costs required to connect those services); and failing to file an Annual Report of Activity with the CFPB and paying the required fee.
• Engaged in deceptive acts or practices in violation of the Consumer Financial Protection Act by misrepresenting that lots were sold with the infrastructure necessary to connect water, sewer, and electrical services pre-installed and violated the CFPA based on the ECOA and ILSA violations.

The Count of the complaint alleging violations of the ECOA is alleged jointly by the CFPB and Justice Department.  The Count alleging violations of the FHA is alleged only by the Justice Department and the Counts alleging violations of the CFPA and ILSA are alleged only by the CFPB.

Director Chopra also appeared with Attorney General Clarke at the press conference about the complaint.  According to the complaint, Colony Ridge extensively used social media to promote sales of the lots.  In his remarks, Director Chopra stated that the CFPB is “closely watching how fraud is trafficked on large platforms like TikTok, Facebook, and YouTube using behavioral targeting” and that it is “fully prepared to use longstanding laws on the books to crack down on this fraud.”  He commented that the lawsuit represented the CFPB’s first federal court action to enforce the ILSA. 

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