A claim that a mortgage lender refused under a uniform policy to consider a loan applicant’s public assistance benefits when evaluating the applicant for a home mortgage loan is, by itself, enough to describe a violation of the Equal Credit Opportunity Act and Reg. B—Equal Credit Opportunity (12 CFR Part 1002), according to the Consumer Financial Protection Bureau. The applicant would have raised a claim based on direct evidence of discrimination even without alleging “hostility or animus” on the part of the lender, the bureau argues in an amicus curiae brief filed in the U.S. Court of Appeals for the Fifth Circuit in Alexander v. Ameripro Funding, Inc.
The CFPB is supporting an appeal by individuals who filed mortgage loan applications with Ameripro Funding and Wells Fargo Bank. The applicants claim that the lenders refused to consider their Federal Housing Administration Section 8 benefits as part of their income, based partly on the lenders’ policies and partly on a belief that investors would not consider the benefits as income. As a result, the individuals had to buy smaller homes or homes in less desirable neighborhoods. Some of them also received less favorable loan terms.
The bureau’s brief addresses two issues:
- Is an allegation that a lender refused to consider public assistance income when evaluating an individual for a home loan all that is needed to describe discrimination under the ECOA and Reg. B?
- Does an individual who describes discrimination as a result of illegal disparate treatment also need to claim the lender acted with discriminatory intent?
Public assistance income. Direct evidence of discrimination is rare, according to the CFPB, so individuals complaining about discrimination ordinarily rely on a three-step test to show a prima facie case. Generally:
- the individual uses circumstantial evidence to show that challenged conduct caused discrimination;
- the company then may show a legitimate, nondiscriminatory reason for the conduct; and
- the individual then must show the company’s reason is a pretext.
However, this process is inapplicable when the individual can offer direct evidence of discrimination, the bureau says. In that case, the individual only needs to give the company fair notice of his claims to survive a motion to dismiss.
Alleging that the lenders refused to consider the applicants’ Section 8 benefits and that the refusal harmed the individuals’ ability to obtain credit on favorable terms gave the lenders fair notice, the CFPB argues. “A policy that is discriminatory on its face constitutes direct evidence of discrimination,” the bureau says. The district court judge was wrong to require the individuals to allege that the lenders explicitly said that public assistance could not be considered or caused their applications to be denied.
The fact that a loan applicant’s income comes in part from public assistance can be used as one part of determining creditworthiness, the bureau concedes. For example, a lender can consider whether the applicant will continue to be eligible for the benefits. But a lender cannot have a uniform policy of refusing to consider the benefit income at all.
Hostility or animus. Discriminatory intent—hostility or animus—is not part of a claim under the ECOA, the bureau also says, and the district court judge was wrong to require such allegations as part of the complaint. Direct evidence of a discriminatory intent certainly can be evidence of disparate treatment, but it is not necessary when there is direct evidence that a credit decision was made on a prohibited basis.
The case is No. 15-20710.
Attorneys: Tamra T. Moore for amicus curiae Consumer Financial Protection Bureau.
Companies: Amegy Bank National Association; Ameripro Funding, Inc.; Wells Fargo Bank, N.A.
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