20 Jan JPMorgan Settles US DOJ Mortgage Discrimination Lawsuit for $55M

JPMorgan Chase agreed to a $55 million-dollar settlement with the U.S. Justice Department concerning allegations that it discriminated against minority borrowers by allowing mortgage brokers to charge them more for home loans.

In United States of America v. JPMorgan Chase Bank, NA, No. 1: 17- cv- 00347 (S.D.N.Y. Jan. 18, 2017), the U.S. Justice Department accused JP Morgan of willfully violating the U.S. Fair Housing Act, 42 U.S.C. §§ 3601-3619 (FHA), and the Equal Credit Opportunity Act, 15 U.S.C. §§ 1691-1691f (ECOA), between 2006 and 2009, demonstrating “reckless disregard” for the rights of at least 53,000 African-American and Hispanic borrowers.

FHA and ECOA, among other federal laws, prohibit financial institutions from discriminating on the basis of race or ethnicity in their lending practices.  Charging higher prices for loans on the basis of race or ethnicity, including charging higher fees and annual percentage rates of interest, is one of the discriminatory lending practices prohibited by the FHA and the ECOA.

According to the complaint, the alleged discrimination involved so-called wholesale loans that were made through mortgage brokers JPMorgan used to help originate loans.  Even though JPMorgan did not originate the loans at issue, the complaint said that the bank gave mortgage brokers some discretion in setting the rates and fees on loans, citing a “causal connection” between the bank’s price discretion policies and the racial disparities among the mortgages.  Chase allegedly allowed brokers to change rates charged for loans from those initially set based on objective credit-related factors.

As a result of that discretion, the complaint alleged minorities were charged more for home loans than white borrowers with the same credit profile.  This resulted in minorities paying tens of millions of dollars in additional mortgage costs.

For example, an African-American taking out a $191,100 loan on average paid $1,126 more over the first five years of the loan than a white borrower.  A Hispanic borrower with a $236,800 loan paid on average $968 more over the same period than a non-Hispanic white borrower, the complaint said.

Chase allegedly encouraged the racial discrimination because it did not require mortgage brokers to document the reasons for changing rates and failed to address racial discrimination. The complaint alleged JP Morgan Chase regularly monitored between 2006 and 2009 for race and national origin disparities that existed in the total compensation it charged on wholesale mortgage loans, so it knew or should have known that race and national origin disparities in the total compensation it charged existed throughout that period on a national level, as well as in multiple regional markets.

Elizabeth Seymour, a JPMorgan spokeswoman, stated the bank “agreed to settle these legacy allegations that relate to pricing set by independent brokers” and “denies any wrongdoing and remains “committed to providing equal access to credit.”  The bank first disclosed the lawsuit in a quarterly filing in 2015.

A spokeswoman for U.S. Attorney Preet Bharara had no immediate comment.  The settlement concludes a nearly seven-year federal inquiry into possible discriminatory mortgage practices by JPMorgan, the nation’s largest bank.

JPMorgan however is not the first major national bank to face such charges. For example, Wells Fargo agreed to pay $175 million in 2012 to settle similar accusations.  The Justice Department has been pursuing a number of banks over alleged discrimination, and from 2010 to 2014, the agency’s Civil Rights Division obtained more than $1.4 billion in relief under fair housing laws.

Cities around the country, including Miami, Baltimore and Los Angeles, also have filed lawsuits claiming that major banks targeted minorities for high-cost loans that often ended in foreclosures.