Cook County has standing to bring a legal action against banks for alleged racially discriminatory and predatory lending practices, meaning one of the country’s largest lenders will need to continue to mount its defense against the lawsuit in court, a federal judge has ruled.
In an opinion issued Sept. 30 in federal court in Chicago, U.S. District Judge John Z. Lee brushed aside arguments advanced by British bank HSBC Holdings Plc in its bid to derail Cook County’s lawsuit brought under the federal Fair Housing Act to hold the lender responsible for its role in allegedly exacerbating a blight of home loan foreclosures in the county.
Lee said he believes case law indicates the county can not only substantiate an injury to its residents, but also to the county government itself from the lender’s alleged actions, and, just as importantly, the county has to this point established its interests in bringing the lawsuit fall within the scope of the Fair Housing Act’s so-called “zone of interests – meaning the county should be allowed to press ahead with its case.
“It (the County) has alleged a rather straightforward FHA claim: Defendants (HSBC and its affiliates) targeting minority borrowers for predatory home mortgage loans and imposed higher costs and servicing fees on them as compared to similarly situated nonminority borrowers,” Lee wrote. “These discriminatory actions increased the minority borrowers’ risk of default and foreclosure, resulting in a rash of foreclosures in the county, which in turn caused economic and noneconomic injury to the County.”
The county’s case against HSBC comes as one of several similar actions filed virtually simultaneously against some of the biggest names in the U.S. home mortgage lending market, including Bank of America and Wells Fargo.
The cases center on similar allegations of predatory lending practices, including “reverse redlining” – essentially giving minority borrowers home loans, but at terms more onerous than those granted to white borrowers with similar financial standing. The complaints also alleged the lenders engaged in “upselling,” or pushing otherwise qualified minority borrowers into more expensive loans than they otherwise could have or would have obtained, had the borrowers been white.
The result of such practices, Cook County alleged, was a wave of foreclosures in the late 2000s, as the loans “strip equity” from minority borrowers, who then fail to make the more expensive monthly payments and slip into default. Those foreclosures then hurt the surrounding communities by leaving homes vacant and dropping local home values, depressing the local tax base even as demand for local governmental services either stays constant or increases to deal with the fallout from the vacant homes and falling home values.
In court documents, for instance, Cook County has argued each foreclosure cost it around $34,000 in lost tax revenue and increased demand for services. That translated into potentially billions of dollars in costs to the local communities, the county asserts.
In this case, the judge noted HSBC did not attempt to “seriously dispute” the link between mass foreclosures and the problems alleged by Cook County.
However, the lender attempted to argue the problems could not be directly linked back to specific practices employed by HSBC or specific loans issued by the bank. Further, HSBC argued the county cannot bring the action, because it is not a “person aggrieved” under the zone of interests test applied by the courts to the FHA.
Earlier this year, in the county’s FHA case against Wells Fargo, U.S. District Judge Gary Feinerman ruled in favor of Wells Fargo, determining the county does not, in fact, pass that zone of interests test.
In his decision, Lee noted Feinerman’s decision, but said a ruling from the Eleventh Circuit Court of Appeals in Atlanta should hold greater sway. In that decision, the appellate judges found federal law should “clear as a bell” grant local governments standing to bring actions for discriminatory lending practices under the FHA.
Lee further said HSBC has attempted too soon to argue over whether the county has raised specific enough examples to support its contentions HSBC’s alleged practices should be held responsible for the fallout from the foreclosure crisis in the county. Such arguments, he said, are better left for later stages in the proceedings, and not when considering a motion to dismiss.
Lee said to this point, the county has successfully argued its legal theories, including those for alleged intentional discrimination and disparate impact - practices which, while not intentionally discriminatory, end up with essentially the same result - and so should be allowed to continue the case.
Cook County is represented in the action by attorneys with the firms of James D. Montgomery and Associates, of Chicago, and Harris Penn Lowry, of Atlanta.
HSBC and its affiliates are represented by attorneys with the firm of BuckleySandler LLP, with offices in Washington, D.C., and Chicago.