The CFPB has filed an amicus brief in the U.S. Court of Appeals for the Second Circuit in a private lawsuit brought by a group of eight Black and Hispanic plaintiffs who alleged that the named defendants, which included a bank and its affiliated mortgage company, violated the Equal Credit Opportunity Act (ECOA) and other laws by targeting Black and Hispanic borrowers and neighborhoods with predatory mortgage loans.

In Robert Saint-Jean et al. v. Emigrant Mortgage Co. et al., filed in a New York federal district court, the plaintiffs had obtained mortgage loans from the defendant mortgage company.  A jury found that the defendants violated the ECOA and awarded compensatory damages to six of the plaintiffs.  The jury did not award damages to two plaintiffs because they had released their claims pursuant to a waiver provision in a loan modification agreement.

Following the trial, both sides filed post-trial motions.  The defendants asked the court to overturn the liability verdict and damages award while the plaintiffs asked the court to find the waiver provision signed by two of the plaintiffs to be invalid.  In ruling on the motions, the district court upheld the jury verdict finding the defendants’ loans unlawful but ordered a new trial on damages.  The district court also concluded that the waiver provision was void because it violated public policy.  The second jury subsequently awarded compensatory damages and the court entered a final judgment.  The defendants thereafter filed an appeal with the Second Circuit from the final judgment.

To explain its interest as amicus, the CFPB states that “[a]s the agency primarily responsible for interpreting, implementing, and enforcing ECOA, the Bureau has an interest in safeguarding private litigants’ ability to exercise their statutory right to enforce ECOA and in advancing a proper understanding of ECOA’s legal standards.”

In its amicus brief, the CFPB makes the following primary arguments:

  • On appeal, the defendants argue that equitable tolling does not apply to the plaintiffs’ ECOA claims because they cannot establish that the defendants concealed the existence of the cause of action.  The CFPB argues that discriminatory targeting is “inherently self-concealing” because “to succeed, [discriminatory targeting] must remain concealed from the victims of the targeting.”  Moreover, according to the CFPB, “a victim of discriminatory targeting has no way of becoming aware, until meeting with counsel or other victims, of not only the predatory nature of the scheme but also its discriminatory nature.”  In response to the defendants’ argument that there was no “self-concealed” scheme because all of the credit terms were disclosed to the plaintiffs at closing, the CFPB argues that “this scheme is about more than loan terms; it is about [the defendants’] entire equity-stripping model behind the scenes—i.e., that [the defendants] targeted people with low credit scores and high equity in their homes for loans that were designed to fail.”  The CFPB also asserts that the defendants engaged in “affirmative concealment” through actions such as “burying predatory loan terms within large stacks of papers” and “rushing Plaintiffs to sign documents without reading them.”
  • The district court instructed the jury that the plaintiffs could prove an ECOA violation by showing either intentional discrimination or discriminatory effect.  The defendants argue on appeal that the jury instructions on intentional discrimination were erroneous for various reasons, including that they provided that the plaintiffs could prevail by showing that race was a “significant” factor in the defendants’ conduct rather than a “motivating” factor.  The CFPB argues that the jury was properly instructed because a plaintiff only needs to show that a protected characteristic was at least in part a motivating factor in the defendants’ conduct.  The defendants also argue that the court’s instructions on disparate impact were erroneous for reasons that included the court’s instruction to the jury that the plaintiffs could prevail by establishing that the defendants’ practices had a “substantial adverse impact” on Black or Hispanic borrowers rather than a “disproportionate impact.”  According to the defendants, the plaintiffs could not have shown a disproportionate impact because the majority of the alleged predatory loans were made to non-Hispanic white borrowers.  The CFPB argues that the relevant inquiry does not look at absolute numbers or whether a majority of victims are white and instead focuses on proportional statistics.  According to the CFPB, the plaintiffs satisfied the standard for disparate impact by showing that the proportion of the defendants’ alleged predatory loans in predominately minority neighborhoods was nearly double the proportion of such loans in white neighborhoods.
  • The CFPB argues that the district court was correct to find that the waivers contained in the loan modification agreement signed by two of the plaintiffs were void as against public policy.  According to the CFPB, “[t]he policies embodied in the ECOA and federal consumer financial protection laws would be undermined by upholding a waiver of civil rights claims in a loan modification agreement related to mortgages.”  Responding to the defendants’ argument that the waiver is consistent with the public policy interest in settling disputes, the CFPB argues that the loan modification was not “the type of voluntary settlement reached by compromise that courts hold in high regard” and instead “was part and parcel of [the defendants’] discriminatory scheme, allowing [the defendants]to continue collecting payments on the loan before finally instituting foreclosure proceedings.”