Department of Justice Announces Proposed Resolution of Discriminatory Mortgage Lending Claims

The Department of Justice announced a proposed resolution of lending discrimination claims asserted against Sage Bank.  In a complaint filed in the United States District Court for the District of Massachusetts, the Department of Justice alleged that Sage Bank employed a pricing system which resulted in African-American and Hispanic borrowers paying higher prices than similarly-situated white borrowers for residential mortgage loans.  Among other challenged elements of the pricing system, the bank allegedly allowed loan officers the discretion to price loans without management approval, which purportedly increased the risk that “similarly qualified borrowers would receive differently priced loans.”  The Department of Justice alleged that the bank’s pricing system created a “foreseeable disparate impact,” and that the higher prices could not be “fully explained by factors unrelated to race or national origin.”  Based upon these allegations, the Department of Justice asserted that the bank violated the Fair Housing Act and the Equal Credit Opportunity Act.

The consent order, if approved by the court, will require Sage Bank to pay $1.175 million into a settlement fund to compensate impacted borrowers.  The consent order also requires the bank to implement pricing policies designed to minimize fair lending risks and to establish a monitoring program to address pricing disparities.  Finally, the bank must establish a loan officer compensation policy which ensures compliance with TILA, including prohibiting compensation based on any loan term other than the amount of the loan.

Sage Bank denies all allegations made by the Department of Justice. 

The Department of Justice’s complaint, and the proposed consent order, may be found at the Department of Justice’s website:  http://www.justice.gov/opa/pr/justice-department-reaches-settlement-sage-bank-resolve-allegations-mortgage-lending

For more information, please contact Brian Farrell at bfarrell@sheppardmullin.com.

Consumer Financial Services Committee

Chair
Jennifer Duncan  
ResortCom International LLC
jduncan@resortcom.com

Vice Chair of Communications 
Alicia Tortarolo
Hudson Cook LLP
atortarolo@hudco.com

Vice Chair of Programming
Andrew Noble
Severson & Werson
awn@severson.com

Vice Chair of Membership
Scott M. Pearson
Ballard Spahr LLP
pearsons@ballardspahr.com

Vice Chair of Legislation
Brian Farrell
Sheppard Mullin Richter & Hampton LLP
bfarrell@sheppardmullin.com

Secretary
Avital Samet
TrueAccord
avital@trueaccord.com