Bank to Pay $1.3 Million to Settle Discriminatory Pricing Practices
The DOJ recently entered into a consent order with a Tennessee bank to resolve allegations of unfair lending practices. In a complaint filed on September 29, 2022, the DOJ alleged that the bank’s pricing policies and practices violated the Fair Housing Act, 42 U.S.C. § 3605(a), and its implementing regulations, and the Equal Credit Opportunity Act. As part of the settlement, the bank will pay $1.3 million in consumer relief and $50,000 in civil money penalties.
On April 9, 2019, the DOJ opened an investigation into the bank following several referrals from the Federal Reserve about the bank’s pricing policies and practices. Following this investigation, the DOJ found that the bank had engaged in discriminatory loan pricing policies and practices between 2014 and 2019 that led to Black, Hispanic, and female borrowers paying more for home loans.
Under these policies, loan officers had broad discretion to present borrowers with an artificially high interest rate, as opposed to borrowers’ par rate, which is the rate based on the creditworthiness of a borrower and the characteristics of that borrower’s loan. Additionally, loan officers had broad discretion to offer borrowers concessions and discounts on the loan price, and to set the amount and types of those concessions and discounts. The decision to offer concessions and discounts was not based on creditworthiness, loan characteristics, or other non-discriminatory factors, and loan officers were not required to document or explain their use of discretion. For most of this period, the bank lacked corporate controls and oversight to regulate these practices.
A statistical analysis of the mortgage loans originated between 2014 and 2019 showed that the bank charged Black, Hispanic, and female borrowers more basis points than their counterparts. On average, Black borrowers were charged 13 to 19 basis points more in discretionary pricing compared to white borrowers; Hispanic borrowers were charged 18 to 25 basis points more in discretionary pricing compared to white borrowers; and individual female borrowers were charged 14 to 21 basis points in discretionary pricing compared to individual male borrowers.
As part of the settlement, the bank’s recently-created Fair Lender Committee and Fair Lender Officer will be required to provide quarterly updates to its Board of Directors regarding fair lending compliance. Additionally, the bank will have to submit for the DOJ’s approval a Mortgage Lending Pricing Plan aimed at limiting the discretion of loan officers in selecting interest rates, offering discounts, and charging fees to applicants and borrowers.
