December 8, 2010
Justice Department Reaches Settlement with National Mortgage Lender to Resolve Allegations of Lending Discrimination
Settlement Provides $2 Million to African-American Borrowers Who Paid Higher Interest Rates
WASHINGTON – PrimeLending, a national mortgage lender with 168 offices in 32 states at the end of 2009, has agreed to pay $2 million to resolve allegations that it engaged in a pattern or practice of discrimination against African-American borrowers between 2006 and 2009.
The settlement was filed today in conjunction with a complaint made by the Justice Department in federal court in Dallas, where PrimeLending is headquartered. Brought under the federal Fair Housing Act and Equal Credit Opportunity Act, the complaint alleges African-American borrowers nationwide were charged higher prices on retail loans made through PrimeLending’s branch offices.
“Charging borrowers more to obtain a home loan based on their race is absolutely intolerable, but it is a practice that occurred all too often during the past decade and stripped a vast amount of wealth from communities of color,” said Thomas E. Perez, Assistant Attorney General in charge of the Justice Department’s Civil Rights Division. “We will be vigilant to ensure that this type of discriminatory practice does not continue in the current credit market. Vigorous enforcement of fair lending laws is a top priority, and we will continue aggressively to pursue compensation for the victims of such discrimination.”
“Illegal and unfair lending takes an immediate toll on families and communities. Moreover, its harm, if unchecked, damages economic opportunities for the next generation,” said John Trasviña, Assistant Secretary for Fair Housing and Equal Opportunity. “HUD joins the Department of Justice to take every step to ensure that all people are fairly served by lending institutions.”
“The Federal Reserve rigorously enforces the fair lending laws. There is no place for racial or other illegal discrimination in our credit markets,” said Elizabeth A. Duke, Member, Board of Governors of the Federal Reserve System. “We expect lenders that we supervise to be fully committed to fair lending and to have controls in place to prevent illegal discrimination.”
Between 2006 and 2009, PrimeLending charged African-American borrowers higher annual percentage rates of interest for prime fixed-rate home loans and for home loans guaranteed by the Federal Housing Administration and Department of Veterans Affairs than it charged to similarly-situated white borrowers. PrimeLending gave its employees wide discretion to increase their commissions by adding “overages” to loans, which increased the interest rates paid by borrowers. This policy had a disparate impact on African-American borrowers. The Justice Department for more than a decade has identified the charging of overages as a means by which lending discrimination can occur.
During the period when the discrimination occurred, PrimeLending was rapidly increasing its lending operations, becoming one of the nation’s 20 largest FHA lenders by 2009. PrimeLending did not have monitoring in place to ensure that it complied with the fair lending laws, even as it grew to originate more than $5.5 billion in loans per year.
This case resulted from a referral by the Board of Governors of the Federal Reserve to the Justice Department’s Civil Rights Division in 2009. PrimeLending’s owner, PlainsCapital Bank of Lubbock, Texas, is a member of the Federal Reserve System. PrimeLending cooperated fully with the Justice Department’s investigation into its lending practices and agreed to settle this matter without contested litigation.
In addition to paying $2 million to the victims of discrimination, the settlement requires PrimeLending to have in place loan pricing policies, monitoring and employee training that ensure discrimination does not occur in the future. It also incorporates provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and regulations recently enacted by the Federal Reserve that restrict loan officer compensation based on the terms or conditions of a particular transaction. PrimeLending began at the start of this year to implement policies to prevent discrimination, which include requiring employees to provide legitimate non-discriminatory reasons in order to adjust loan prices. These policies will be strengthened by generally banning overages beginning next spring.
The Civil Rights Division and other agencies involved in this matter are part of the Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. One of the task force’s key initiatives, led by the Department of Housing and Urban Development, the Department of Justice and the Federal Reserve Board, is to ensure that discrimination does not occur when borrowers receive FHA loans. For more information on the task force, visit www.stopfraud.gov.
A copy of the complaint and settlement order with PrimeLending, as well as additional information about fair lending enforcement by the Justice Department, can be obtained from the Justice Department website at www.justice.gov/fairhousing.