U.S. Supreme Court Hears City’s Case Against Predatory Lending.

 
When banks lenders charge more to people of color, who is hurt? The individual, obviously, but what about the city? The U.S. Supreme Court has taken up the question and will soon decide whether a city has the authority to sue for predatory lending under the Fair Housing Act.

When a bank or mortgage company charges a person more interest because of their race, it violates the Fair Housing Act’s ban on discriminatory lending. That person has a right to sue. But what happens when it isn’t just one person? What if a bank’s lending practices hurt an entire city? Who can file that lawsuit?

The City of Miami, Florida claimed the right to sue for predatory lending under the Fair Housing Act. Its lawsuits against Wells Fargo & Co and Bank of America Corp claim that the banks’ discriminatory loan policies directly hurt the city by negatively affecting housing values and tax revenue.

Predatory Lending Practices Used by Banks

The city’s complaints say by using redlining and “reverse redlining” the banks interfered with the city’s interest in economic recovery. “Redlining” denies loans in a particular geographic area based on that area’s high concentration of racial minorities. In “reverse redlining” cases, the banks approved minority homebuyers’ loans, but charged them more in fees and interest than their white counterparts.

Does a City Have Standing to Sue?

The question before the U.S. Supreme Court who can stand up against redlining in court. This is a legal technicality called “standing.” To have standing to sue, the person or entity needs to be directly harmed by the violation of the law. The Supreme Court justices have been asked to decide if the city has claimed direct enough harm from the banks’ predatory lending practices to file suit.

All of the debate came to a head on Tuesday, November 8, 2016, at the oral argument. Justice Kagan seemed receptive to the city’s claims saying:

“[The Fair Housing Act was a] distinctive kind of anti-discrimination statute, which really is focusing on community harms. … Here the cities are standing up and saying, ‘Every time you do this redlining and this reverse redlining, essentially a community is becoming blighted.’ And who better than the city to recognize that interest and to assert it?”

But Chief Justice Roberts and Justice Kennedy seemed to disagree, calling the city’s injury “derivative” to the homeowners’. The entire bench also seemed concerned that a broad decision could open the door for a lot of lawsuits over indirect damages. The outcome of this case is far from clear, but if the Justices agree the city has the power to sue for predatory lending, it could be a powerful tool for borrowers’ rights in the future.

Dani K. Liblang is a consumer protection attorney at The Liblang Law Firm, PC, in Birmingham, Michigan. If you have been the victim of predatory lending, contact The Liblang Law Firm, PC, today for a free consultation.