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Predatory lending claims against big banks are back before courts

A dispute over a two-year statute of limitations brought the city of Los Angeles before the Ninth Circuit Court of Appeals this week. The city has accused Bank of America, Wells Fargo, Citigroup and Chase Bank of making discriminatory loans against Latino and African-American borrowers in the city. The loans those borrowers were offered were more expensive than loans offered to similarly-situated white people, and those more expensive loans, in turn, ended up in more foreclosures.

If true, that would violate the federal Fair Housing Act, and the city filed lawsuits under that law. The theory was that the extra foreclosures among minority homeowners led to a cascade of plummeting property values in minority areas. The big banks' behavior not only cost the city property tax revenue but also left it on the hook for policing and maintenance in the foreclosure-devastated areas. The total cost of foreclosure blight and unfair lending in this case? An estimated $1 billion.

According to the Courthouse News Service, however, the city failed to file its lawsuits within the two-year time limit under the Fair Housing Act. Moreover, a trial judge dismissed the city's suit against Bank of America, ruling that the city hadn't met its burden of proof.

The Ninth Circuit will now decide whether cases against Bank of America and Wells Fargo were wrongly dismissed by lower courts.

What are the big banks accused of doing, exactly?

Bank of America was apparently incentivizing its loan officers to send minority borrowers into loans through by the Federal Housing Administration, which are more expensive than traditional loans. Minorities were given FHA loans three times more often than similarly-situated whites, and the city believes there is no logical explanation for this except discrimination.

The city argued that its case against B of A is sound but that the two-year statute of limitations was calculated far too strictly by the trial judge for a reasonable case to be made. That judge claimed the city had to prove that all of the allegedly discriminatory lending and all of the damage to the city occurred within the two-year statutory period. That is not a traditional reading of a statute of limitations, which typically requires a lawsuit to be filed within a specified period of the harm being committed.

The Wells Fargo had similar facts, but the trial court had dismissed that case, in part, because Los Angeles had failed to prove the loans were "inherently discriminatory."

"We say that's the wrong question," said the city's lawyer. "If you get an FHA loan when you qualify for a more favorable loan and those favorable loans are more frequently given out to non-minority borrowers, there is discrimination."

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