On September 29, 2022, the Justice Department announced a proposed consent order with Evolve Bank and Trust to resolve allegations of lending discrimination on the basis of race, sex, and national origin in the pricing of its residential mortgage loans from at least 2014 through 2019.
Headquartered in Memphis, Tennessee, Evolve Bank maintains mortgage lending offices and provides mortgage lending services in 15 states. Pursuant to the settlement, Evolve Bank must establish a settlement fund of $1.3 million to compensate affected borrowers, and must also pay a $50,000 civil penalty. By way of background, after opening an investigation, the Justice Department filed a complaint alleging violations of the Fair Housing Act and the Equal Credit Opportunity Act by Evolve Bank. The Justice Department alleged that Evolve Bank’s loan pricing resulted in Black, Hispanic and female borrowers paying more in their “discretionary pricing” components of home loans than White or male borrowers for reasons unrelated to their creditworthiness. This “discretionary pricing” component allegedly allowed Evolve Bank’s loan officers to set artificially high interest rates for reasons having nothing to do with the borrower’s credit qualifications or loan characteristics and then to offer discounts without any requirement for a loan officer to provide or document a justification.
The proposed consent order requires Evolve Bank, for a period of four years, to maintain policies that reduce loan officer discretion, employ a fair lending officer who will work in close consultation with the bank’s leadership, and provide fair lending training to its personnel.
The Department of Justice consent order with Evolve is just the latest of a series of consent orders that the CFPB and/or DOJ have entered into this year with banks and non-banks involving alleged discrimination in violation of the Fair Housing Act and/or Equal Credit Opportunity Act. As is typically the case, the DOJ had no evidence of direct discrimination against members of a protected class and relied instead on the disparate impact theory in alleging violations of these statutes. The major takeaway from recent matters is that redlining and the use of discretionary pricing are likely to continue to be matters that draw the attention of the DOJ and CFPB.