Monday, May 15, 2017

Supreme Court Allows City of Miami Case against Bank of America et al. Case to Go Forward

The City of Miami sued Bank of America and Wells Fargo under the Fair Housing Act ("FHA") seeking damages. The FHA forbids bars discrimination in the sale, rental and financing of housing. The City claimed the lenders' discriminated against minority borrowers by giving them loans with excessively high interest rates, unjustified fees, teaser low-rate loans that overstated refinancing opportunities, large prepayment penalties, and upon default, the lenders refused to refinance or modify the loans. 

But the City of Miami did not file suit on behalf of the minority borrowers. The City claimed that because of  the lenders discriminatory lending practices, the City itself  was entitled to damages. The City said the increased foreclosures of minority borrowers caused the City problems such as a drop in property tax revenues and increased demand for city services like police and fire protection, and therefore the City was entitled to compensation from the lenders. 

The lower court said the City of Miami only had to show the the problems it experienced were a foreseeable result of the lenders allegedly discriminatory acts.

The Supreme Court overruled the lower court and said the City of Miami would have to show the lender's acts were the proximate cause of the City's alleged injuries. Showing the City's problems were proximately caused by the lender's acts is a higher standard than merely saying the problems were a foreseeable result of the lender's acts.

This case brings up a lot of the current issues pre-financial crisis lending, such as the responsibility of lenders for allegedly shoddy or discriminatory lending practices. On the other hand, it is hard to imagine that the sole reason for Miami's troubles was the banks and not, for example, the economy, or that the City pursued unsuccessful policies. A good summary of the case and some thoughts on the law are here.

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