November 3, 2016
Private: Predatory Lending and the Fair Housing Act Before the Supreme Court
Ajmel Quereshi, Bank of America Corp. v. City of Miami, Fair Housing Act, predatory lending, Wells Fargo & Co. v. City of Miami
by Ajmel Quereshi, Assistant Counsel at the NAACP Legal Defense and Educational Fund
On Election Day, the Supreme Court will hear argument in a highly consequential case about lending discrimination and the subprime mortgage crisis. In this case, the City of Miami is trying to hold Wells Fargo and Bank of America accountable for well-documented deceptive, predatory lending practices. However, the banks, in an attempt to evade liability, are arguing that cities cannot seek relief from them for violations of the Fair Housing Act.
Wells Fargo has, of course, recently been in the news for secretly creating as many as 2 million unauthorized loan accounts in response to the company’s loan quotas, prompting investigations by the Department of Justice and even a Saturday Night Live sketch. But the misconduct at issue in the case before the Supreme Court runs far deeper than that: as has been well-documented, several regional and national banks targeted African American communities for deceptive, predatory loans in the lead up to the financial crisis of 2008. One of the most common types of loans used was the predatory subprime mortgage. Subprime mortgages were directed at communities that had been historically denied credit and included hidden fees, undisclosed costs, and masked terms that resulted in ballooning interest rates.
In the run-up to the financial crisis, these deceptive and predatory loans proliferated exponentially. In the five years between 1994 and 1999, the subprime mortgage market expanded from $35 billion to $160 billion, and by 2007, totaled approximately $650 billion, roughly 25 percent of the overall mortgage market. A strong undercurrent of prejudice was unmistakable in these predatory lending practices. By 2008, 55 percent of African American mortgage holders nationwide had high-risk, subprime loans, compared with only 17 percent of white mortgage holders. According to a loan officer’s affidavit, lenders used racial slurs in characterizing subprime loans to African Americans, who they referred to as “mud people” receiving “ghetto loans.”
Accordingly, when these predatory loans all came crashing down, the damage was predictably severe for communities of color. High-risk subprime loans originated between 1999 and 2007 cost borrowers of color collectively between $164 billion and $213 billion. Between 2005 and 2009, a staggering two-thirds of median household wealth in communities of color was wiped out. Waves of foreclosures pushed families out of their homes, causing lasting damage to neighborhoods and livelihoods, depressing property values, and suppressing tax revenues. In cities like Miami, the damage and harm was compounded: reduced tax revenue reduced basic services available to residents. The lost tax revenue also negatively impacted municipal efforts to combat housing discrimination and foster integration.
Incredibly, despite this well-documented record of malfeasance, banks have largely escaped responsibility for their predatory actions by placing procedural hurdles in the way of homeowners seeking relief. For example, in many cases, victims did not discover that they had been offered a predatory loan until after the predatory terms kicked in and their home was foreclosed upon. Banks have sought to dismiss case after case on the grounds that it was too late to seek relief given the strict time limitations on claims under the Fair Housing Act. (Although, it is entirely reasonable for a person to know they have suffered legal actionable harms only once they actually suffered harm.) The net result is that very few cases about discriminatory lending practices, whether brought by individuals or groups, have had their day in court.
Amidst this vacuum of accountability, the City of Miami has sought to fill the gap by seeking relief for various violations of the Fair Housing Act. However, Wells Fargo and Bank of America, the defendants in this case, are again attempting to create a procedural barrier to relief for victims. The banks’ primary argument – that cities are not authorized to seek relief under the law – not only conflicts with the law’s language, but runs counter to over 40 years of precedent from the Supreme Court. Make no mistake, denial of relief uniquely harms cities, in addition to individuals, by diminishing tax revenue, reducing the resources available for law enforcement and fire departments, as well as other vital services. If accepted, the banks’ argument would once again deny relief to victims of these loans.
Although the court below wisely rejected the banks’ arguments, their arguments are now before the Supreme Court and threaten to curtail one of the few remaining avenues of relief for cities and homeowners across the country injured by predatory practices. The Court, in making its decision, must recognize our history of housing discrimination and homeownership inequity, as well as the severe human consequences were it to accept the banks’ argument and reverse course.
While voting may be the ultimate expression of participation in a democracy, elections in and of themselves don’t guarantee justice for a democracy’s residents. As the nation heads to the polls, the Court must recognize that democracy also means having the opportunity to seek relief for illegal, predatory practices.