Once again the Justice Department has filed a complaint alleging discrimination by a residential mortgage lender.
In a recently proposed consent order, the DOJ has accused Sage Bank, based in Lowell, Mass., of a pattern of discriminatory pricing that disproportionately impacted African-American and Hispanic borrowers.
“Sage Bank’s loan pricing policies created the risk that borrowers would be treated differently based on impermissible characteristics like race and national origin, and that was in fact the result,” said Principal Deputy Assistant Attorney General Vanita Gupta, head of the Civil Rights Division.
The complaint details Sage Bank’s “target price” practices in which loan officers were required to achieve an assigned price on a home loan regardless of a borrower’s credit.
The DOJ found that loan officers who were assigned target prices were disproportionately located in African-American and Hispanic communities and that loan officers in these communities were allowed to assign even higher prices than the targets at their discretion. As a result, African-American borrowers paid an average of $2,500 more per home loan than similarly qualified white borrowers. Hispanic borrowers paid approximately $1,400 more.
The Consequences of Non-Compliance
Like many of the small institutions prosecuted by the DOJ in recent years, Sage Bank will pay a price for not catching and correcting these discrepancies before the Justice Department did.
The consent order requires that Sage Bank implement a number of provisions including:
- Creating a $1,175,000 settlement fund that will be used to compensate borrowers and applicants affected by Sage Bank’s policies
- Establishing new loan pricing and officer compensation policies
- Providing fair housing and fair lending training for loan officers and bank employees
- Establishing a monitoring program to catch any future disparities in lending patterns
What Can We Learn?
There are a number of important lessons compliance officers can take away from Sage Bank’s situation.
Smaller institutions are not immune to fair lending litigation. Small as well as large institutions need to have compliance management systems that include monitoring for differential treatment.
Employees need fair lending training. It’s unclear whether Sage Bank’s loan officers knew they were engaging in discriminatory practices. Training may have mitigated the damage.
Monitoring is essential. Having a monitoring program in place can catch disparities and help an institution stay in compliance before a larger problem arises.
Interested in talking through these options? If you have questions or comments regarding the consent order or how your own institution can learn from it, please give Preiss&Associates a call.