The Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ) have filed a joint complaint against National City Bank for charging higher prices on mortgage loans to African-American and Hispanic borrowers than similarly creditworthy white borrowers between the years 2002 and 2008. The agencies also filed a proposed order to settle the complaint that requires National City Bank, through its successor PNC Bank, to pay $35 million in restitution to harmed African-American and Hispanic borrowers.
“Borrowers should never have to pay more for a mortgage loan because of their race or national origin,” said CFPB Director Richard Cordray. “Today’s enforcement action puts money back in the pockets of harmed consumers and makes clear that we will hold lenders accountable for the effects of their discriminatory practices.”
“This settlement will provide deserved relief to thousands of African-American and Hispanic borrowers who suffered discrimination at the hands of National City Bank,” said Attorney General Eric Holder. “As alleged, the bank charged borrowers higher rates not based on their creditworthiness, but based on their race and national origin. This alleged conduct resulted in increased loan prices for minority borrowers. This case marks the Justice Department’s latest step to protect Americans from discriminatory lending practices, and shows we will always fight to hold accountable those who take advantage of consumers for financial gain.”
National City Bank originated mortgage loans directly to consumers in its retail offices, as well as through independent mortgage brokers. Between 2002 and 2008, National City made over one million mortgage loans through its retail channel and over 600,000 loans through independent brokers. PNC acquired National City at the end of 2008.
The Equal Credit Opportunity Act (ECOA) prohibits creditors from discriminating against loan applicants in credit transactions on the basis of characteristics such as race and national origin. In the complaint, the CFPB and DOJ allege that National City Bank violated the ECOA by charging African-American and Hispanic borrowers higher mortgage prices than similarly creditworthy white borrowers. The DOJ also alleges that National City violated the Fair Housing Act, which similarly prohibits discrimination in residential mortgage lending.
The CFPB and DOJ’s joint investigation began in 2011. The agencies allege that National City Bank’s discretionary pricing and compensation policies caused the discriminatory pricing differences. National City gave its loan officers and brokers the discretion to set borrowers’ rates and fees. National City then compensated the officers and brokers from extra costs paid by consumers. Over 76,000 African-American and Hispanic borrowers paid higher costs because of this discriminatory pricing and compensation scheme.
Today’s action marks the first joint lawsuit brought in federal court by the CFPB and the DOJ to enforce federal fair lending laws. On December 6, 2012, the CFPB and the DOJ signed an agreement that has facilitated strong coordination between the two agencies on fair lending enforcement, including the pursuit of joint investigations such as this one.
Enforcement Action
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and the ECOA authorize the CFPB to take action against creditors engaging in illegal discrimination. The consent order, which is subject to court approval, requires that PNC Bank, as the successor to National City Bank, pay restitution. Specifically, the order requires:
►$35 million to be paid to a settlement fund. That settlement fund will go to allegedly affected African-American and Hispanic borrowers who obtained mortgage loans from National City between 2002 and 2008.
►Funds to be distributed through a settlement administrator. The CFPB and the DOJ will identify victims by looking at loan data. A settlement administrator will contact consumers if necessary, distribute the funds, and ensure that impacted borrowers receive compensation.
►The settlement administrator be accessible. The settlement administrator will set up various cost-free ways for consumers to contact it with any questions about potential payments. The CFPB will release a Consumer Advisory with contact information for the settlement administrator once that person is chosen.
The consent order terms take into account a number of factors, including the age of the loans, that National City Bank no longer exists, and that PNC does not employ National City’s mortgage origination policies.
