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If You Are Sued For Discrimination

by BOL Guru Sam Ott

It's every banker's nightmare -- a lawsuit alleging illegal discrimination. The laws are designed to protect consumers from illegal discrimination, but they are also written in such a way as to protect lenders from claims that are baseless. A new Eighth Circuit Court of Appeals case helps you understand the legal process that applies when a claim arises for racial discrimination under the Fair Housing Act (FHA) or the Equal Credit Opportunity Act (ECOA) (referred to collectively in this article as "the Acts"). It describes who has the burden of proof and what they must show.

In the case of Rowe v. Union Planters Bank of Southeast Missouri, the Court affirmed the decision of the district court that the plaintiff did not establish a claim for violation of the Acts.

The plaintiff applied for a bank loan to finance the purchase of a new church and parsonage. The loan application was denied for both a Farmers Home Administration (FmHA) guaranteed loan and a commercial bank loan. The plaintiff then retained a financial consultant and prepared a second application that was submitted to another bank. The second bank approved a loan for a smaller amount.

The plaintiff, an African-American, believed that the advice of a bank officer at the first bank, the handling of the loan application and the denial of the loan request were motivated by racial discrimination. The plaintiff filed a complaint against the bank with the Comptroller of the Currency who referred it to the Department of Housing and Urban Development (HUD). After reviewing the complaint, HUD issued a determination of no probable cause for action. The plaintiff then filed suit against the bank in district court.

The district court action was heard by a magistrate judge who granted the bank's motion for summary judgment. The judge found the plaintiff failed to establish the elements of either a FHA or ECOA claim. The plaintiff then appealed.

The Court stated that in order for the plaintiff to establish a FHA or ECOA claim, the plaintiff must demonstrate:

  1. she was a member of a protected >
  2. she applied for and was qualified for the loan,
  3. the loan was rejected despite her qualifications, and
  4. the bank continued to approve loans for applicants with similar qualifications.

The Court reviewed the evidence presented by the plaintiff and determined that required elements were not satisfied. The evidence indicated that the plaintiff was not qualified for either a FHA or commercial loan. In addition, no evidence was presented to substantiate the claims that the denial was racial motivated or that similar loans were approved for applicants of a different race with similar qualifications.

If a denied loan applicant alleges the denial was made due to racial discrimination, the applicant may file a compliant with the bank's regulator and other appropriate Federal Agencies. In addition, a lawsuit may be filed alleging violations of the Fair Housing Act and the Equal Credit Opportunity Act. If a lawsuit is filed, however, the plaintiff has the burden of proof to establish that the alleged discrimination has occurred. The bank should be prepared to defend itself by clearly documenting the reasons for the denial of each loan application.

Find more court case articles and summaries in Court Watch.

First published on 5/10/02

First published on 05/10/2002

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