The Equal Credit Opportunity Act: A Fair-Lending Tool for the Justice Department and You, Too
The Department of Justice (DOJ) ended 2011 with a bang, reaching an enormous $335 million fair-lending settlement with Countrywide Financial Corporation and its subsidiaries. The record-setting settlement secures relief for more than 200,000 African American and Hispanic borrowers who were more often steered into subprime mortgage loans or were charged higher fees than were white borrowers with similar credit profiles. The proposed consent order of December 21 resolves DOJ’s claims that Countrywide’s lending practices during the housing boom of 2004–2008 violated both the Fair Housing Act and the Equal Credit Opportunity Act.
The Equal Credit Opportunity Act (ECOA) prohibits discrimination in every phase of a credit transaction such as a mortgage loan. When creditors discriminate on the basis of race, ethnicity, marital status, or another protected class, they subject themselves to civil liability for actual and punitive damages. Private citizens can bring ECOA claims, as can several authorized government agencies such as the Department of Justice and the new Consumer Financial Protection Bureau. ECOA has been on the books since 1974, but its enforcement has been minimal. The foreclosure crisis and its disproportionate impact on minority groups, however, have renewed public interest in fair-lending laws such as ECOA—and given DOJ’s landmark discrimination settlement, this revived focus has come none-too-soon.
ECOA is valuable for more than just compensating victims of discriminatory lending, as was accomplished by DOJ. Many people who were unfairly steered into subprime mortgages ultimately found themselves facing foreclosure. In the current issue of Clearinghouse Review: Journal of Poverty Law and Policy, Jennifer D. Newton and Tamara St. Hilaire of Florida Legal Services explain how advocates can use ECOA to challenge and prevent such foreclosures. The authors explain that borrowers, depending on where they live, may file a lawsuit under ECOA to prevent a foreclosure or, if a foreclosure case is already underway, may countersue under ECOA or use it as a defense against the foreclosure action. Plaintiffs may prove discrimination with direct evidence of discriminatory intent. Most courts also allow plaintiffs to meet their burden of proof with circumstantial evidence of disparate treatment or impact.
When courts allow disparate impact claims under ECOA, they look to fair housing discrimination cases for guidance. The U.S. Supreme Court will also be looking at disparate impact claims under the Fair Housing Act (FHA) later this year when it decides Magner v. Gallagher, which is scheduled for oral argument on February 29. Specifically, the Court will decide whether disparate impact claims are cognizable at all under FHA and, if so, how they should be analyzed. The outcome of Magner will likely affect how courts view disparate impact claims brought under ECOA as well.
In the meantime, the Justice Department will be appointing an independent administrator to identify victims of Countrywide’s discriminatory lending who are entitled to compensation as a result of the settlement. Those who believe they were discriminated against by Countrywide and have questions about the settlement may contact the Department at countrywide.settlement@usdoj.
