Last month, the Supreme Court handed cities the right to sue lenders for
lost revenue resulting from predatory lending practices. The unanimous
ruling that allows cities to sue banks, also cast a shadow over the prospects
of succeeding by tossing out an 11th Circuit decision permitting the city
of Miami to sue several national banks over the predatory lending practices.
Bank of America and Wells Fargo challenged the 11th Circuit Court of Appeals
decision, and while the SCOTUS tossed out the appeals decision, it allowed
cities the right to litigate in lower courts if the evidence supports
their assertion that the banks violated the Fair Housing Act. The Supreme
Court decision also includes a case brought against Citigroup by the city of Miami.
Miami claims that Wells Fargo, Citigroup, and Bank of America violated
the law by directing minority borrowers into higher-cost and risky loans
even though they had the same or better credit ratings to similar white
borrowers. Miami further contends that the riskier loans resulted in unaffordable
payments for many of the borrowers, who ultimately ended up in foreclosure.
The increase in defaults and foreclosures drove property values downward
and required the city to incur expenses in maintaining the vacant properties.
The decision can be seen as somewhat of a win for both parties, as the
justices voted 5-3 in favor of allowing lower court cases to proceed,
rather than eliminating the option for cities to sue altogether. On the
other side, the banks were pleased that the Court voted unanimously to
throw out the appeals decision, essentially allowing the banks a do-over
in arguing their position.
"We believe these claims are without merit and we will continue to
defend our interests in this matter," Bank of America spokesman Lawrence
However, Miami’s City Attorney, Victoria Mendez, had a different
take, stating, "We are pleased that the Supreme Court validated the
city's standing to bring its claims under the Fair Housing Act. We
look forward to litigating this case further in federal court."
Tom Goyda, Wells Fargo senior vice president, added that under the rules
set by the court, "it will be very difficult for Miami or any other
municipality to show the required connection between the claimed damages
and unsubstantiated allegations about our lending practices, which do
not reflect how we operate in the communities we serve."
This Supreme Court case is the culmination of a series of lawsuits brought
against major lenders by Miami and other metropolitan cities that were
hit hardest from the housing bust of 2008. Los Angeles, Baltimore, and
Memphis have filed similar lawsuits against banks, with Baltimore and
Memphis settling their cases for $10 million each.
The banks claimed that by allowing this case to proceed, the court would
hand cities the ability to sue banks for billions of dollars in damages,
and flood the courts with frivolous lawsuits. Miami attorneys disagreed,
pointing to the modest settlements in both the Baltimore and Memphis suits.
In his majority opinion, Justice Stephen Breyer wrote that under the Fair
Housing Act, a city could make claims against a bank for discrimination
in lending. However, tying a loss in tax revenue to discriminatory lending
is more difficult, and must have "some direct relation between the
injury asserted and the injurious conduct alleged."
Justice Clarence Thomas sided with the banks in writing the dissent and
was joined by Justices Samuel Alito and Anthony Kennedy.
Dennis Parker, the American Civil Liberties Union's racial justice
program director, praised the decision saying, "With this decision,
the Supreme Court has acknowledged the crucial role of municipal governments
in protecting residents' rights. In housing and lending as in other
areas, cities can and should serve as a bulwark against discrimination."