New York Bank Sued for Fair Housing, Lending Violations

Manatt, Phelps & Phillips, LLP

Why it matters

New York banks are continuing to face lawsuits over alleged discriminatory lending practices. In September 2014, the state’s Attorney General, Eric T. Schneiderman, filed a “redlining” suit against Evans Bank, N.A., and its holding company, Evans Bancorp, Inc. (collectively, “Evans”), alleging that Evans systematically denied its residential mortgage lending products and services to African Americans in the Buffalo metropolitan area. The latest suit, filed by a nonprofit civil rights organization, the Fair Housing Justice Center (FHJC), alleges discriminatory lending practices against M&T Bank Corporation. The Complaint, filed in federal court on February 3, 2015, avers that FHJC hired nine testers of different racial backgrounds to visit the bank over a two-year period to inquire about obtaining a mortgage as a first-time homebuyer. The FHJC and its testers (the Plaintiffs) claim that the bank’s loan officers engaged in allegedly discriminatory lending practices such as steering testers to certain neighborhoods based on demographics and offering different loan terms and conditions based on national origin or race. The suit seeks broad injunctive relief to halt alleged violations of the Fair Housing Act and state and local human rights laws, as well as money damages.

Detailed discussion

Beginning in 2013, the FHJC launched a two-year investigation into the lending practices of M&T Bank, which the group claims is the 17th-largest commercial bank in the United States.

Based on the experiences of nine testers of different racial and ethnic backgrounds, the FHJC filed suit against the bank in the United States District Court for the Southern District of New York, alleging violations of the Fair Housing Act and the New York State and New York City Human Rights Laws.

According to the Complaint, M&T Bank “uses neighborhood racial demographics to limit the availability of one of its home mortgages, a loan product for first-time homebuyers with advantageous terms such as a lower payment.” The FHJC Complaint alleges that the bank’s loan officers promoted the bank’s first-time homebuyer program (called “Get Started”) with nonwhite testers, but discouraged white testers from applying under the program, instead recommending a conventional loan with less favorable terms. According to the Complaint, the bank intended the “Get Started” program to provide advantageous mortgage terms, such as a low down payment and the ability to finance closing costs, to borrowers in low-moderate income (LMI) areas that are part of a community revitalization effort or in neighborhoods with a majority of minority residents (i.e., greater than 50 percent). The FHJC claims that the racial aspects of the program criteria were concealed by the bank on its website and in its disclosures to first-time home buyers.

The FHJC conducted its investigation by sending female African-American, Hispanic, South Asian, and white testers to M&T Bank’s Park Avenue loan office to inquire about obtaining a mortgage to purchase a single-family home or condominium apartment. Each of the testers presented herself as married with no children and a first-time homebuyer.

While the nonwhite testers were presented with the option of applying for a mortgage through M&T’s Get Started program, limited to homes in “majority minority” neighborhoods or in LMI areas, white testers were discouraged from applying for the product, the Complaint alleged.

In one alleged instance, a loan officer told a white tester that she would need to buy a home in an area “more than 50% minority” if she wanted a loan under the Get Started program, which the loan officer “ ‘highly doubt[ed]’ [the white tester] would want to do.” Consistent with her recommendation, the loan officer allegedly provided the white tester with home price and loan amount details only for a conventional loan product, and did not offer the favorable terms of the Get Started program.

The Complaint also alleges that the bank’s loan officers applied different loan qualification standards to testers on the basis of race and ethnicity. In one such allegation, a loan officer told a Hispanic tester that she would qualify for a home price $100,000 less than that offered to a white tester, and a loan amount $125,000 less, even though the Hispanic tester had a higher annual income, more cash, and a better credit score than the white tester. In another alleged instance, a loan officer told an African-American tester that she was not yet ready to purchase a condominium or co-op because she had not saved enough, while she offered home price and loan amount details to a white tester who had reported a lower household income and cash savings amount, and encouraged the white tester to purchase immediately.

The Plaintiffs further allege that the bank used racial and ethnic criteria to steer testers toward or away from certain neighborhoods. In one such example, a loan officer allegedly encouraged an African-American tester to consider neighborhoods in Queens with a predominantly minority population, while a white tester was steered toward considering a neighborhood with less than a 5 percent African-American population.

According to the Complaint, M&T Bank’s actions violated the Fair Housing Act, New York State Human Rights Law, and the New York City Human Rights Law. The Plaintiffs seek broad injunctive relief to halt the allegedly discriminatory practices as well as money damages, including punitives.

To read the complaint in Fair Housing Justice Center v. M&T Bank Corp., click here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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