NOTES Using the Fair Housing Act to Combat Predatory Lending

ueorgetown Journal on t"oveny Law 61: t"OllCY
Volume VI, Number I, Winter 1999
NOTES
Using the Fair Housing Act to Combat
Predatory Lending
Frank Lopez*
In this article, Frank Lopez examines various solutions to the widespread
problem ofpredatory lending. Because minority borrowers are shut out from
mainstream lending institutions, predatory lenders can make loans with exorbitant
rates and excessive closing costs to low-income borrowers. These high
costs often force borrowers into default, allowing lenders to foreclose on their
homes. The Article first discusses the evolution and consequences ofpredatory
lending in poor minority communities. Next, the article discusses several
legal options that have been offered as a means to combat predatory lending,
including: the Community Reinvestment Act, the Truth in Lending Act, the
Civil Rights Act of 1866, and the doctrine of unconscionability. The Article
makes a thorough examination of these options, finding that each is inadequate
to the task ofdeterring predatory lending practices. Ultimately, Lopez
concludes that the Fair Housing Act is the most effective means to combating
predatory lending.
CONTENTS
I. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
n. PROBLEM PRESENTED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
1lI. CURRENT LEGAL OPTIONS '.' . . . . 80
A. The Community ReinvestmentAct . . . . . . . . . . . . . . . . . . . . . . 80
B. Truth in Lending Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
C. Doctrine ofUnconscionability. " . . . . . . . . . . . .. . . . . . . . . . . 85
D. Civil Rights Act of1866: Sections 1981 and 1982 . . . . . . . . . . . 88
IV. FAIR HOUSING ACT: THE MOST VIABLE VEIllCLE FOR CHANGE. . . . 92
A. General Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
B. Broad Construction ofthe FHA. . . . . . . . . . . . . . . . . . . . . . . . 93
* J.D., Georgetown University Law Center, 1999; B.S., University of Florida, 1996. I would like to
thank Peter Edelman, a professor at Georgetown University Law Center, and John ReIman, an attorney
at the Washington Lawyers' Committee for Civil Rights, for their insightful contributions. Further, on a
personal note, I want to thank my wife Jennifer for her daily guidance and my parents for their
continuing support.
73

als who have been injured by discriminatory housing practices to vindicate their
own rights. 133
Unfortunately, certain aspects of sections 1981 and 1982 limit their impact in
the fight against reverse redlining. First, because only citizens may sue under
section 1982,!34 non-citizens, many of whom are language minorities,!35 are
precluded from bringing suits regardless of how egregiously a predatory lender
has taken advantage of them. Sadly, tlns lack of protection has made "language
minorities the victims for unscrupulous lenders who prey on their inability to
understand the tenus of the bargain." 136 For example, Hispanic immigrants in
California, unable to read English, unknowingly sign documents tlmt convey
full title to their homes to loan brokers.!37 Further, the lender may deter victim
action by using anti-immigrant laws to manipulate a borrower's fear of the
government. For instance, the lender may threaten investigation into victims'
immigration status if they complain to any government agency or appear in
court to contest the foreclosure. !38
Additionally, the Supreme Court has limited the scope of sections 1981 and
1982 to discrimination based on "ancestry or ethnic characteristics"-the
statutes do not directly extend to national origin discrimination. l39 Pursuant to
the holdings of the Supreme Court, lower courts have dismissed claims asserted
by a Norwegian!40 and a Colombian.!4! Wlnle there will be cases where
national origin overlaps with race (and hence be actionable), it is likely that
there will be plaintiffs who are denied relief under sections 1981 and 1982
because mere birthplace discrimination is insufficient to state a claim. !42
It can also be onerous for an organizational plaintiff to bring an action under
section 1981 or section 1982, which have been construed as limiting standing to
"the direct victims of the alleged discriminatory practice."!43 Organizational
133. ZUCKERMAN ET AL., supra note 124, at 288.
134. [d. at 8.
135. As used here, a language minority is a person not proficient in the English language.
136. Bender, Consumer Protection/or Latinos, supra note 80, at 1030.
137. See Tracy WJ.1k:inson, Elderly, PoorAre Easy Preyfor Home-Equity Schemers, L.A. TIMEs, Oct.
15,1989,atB1.
138. Bender, Consumer Protection for Latinos, supra note 80, at 1035 (citing to Memorandum from
Raul Ramirez, Hispanic Outreach Program Director, Oregon's Attorney General's Office, to Timothy
Wood, Financial Fraud Division, OregonAttorney General's Office (May 24, 1995».
139. 81. Francis College v. AI-Khazraji, 481 U.S. 604, 613 (1987) (stating that section 1981 claims
do not necessarily extend to nationalities). But see Shaare Tefila Congregation v. Cobb, 481 U.S. 615,
618 (1987) (finding that Arabs and Jews may have standing to make section 1982 claims because at the
time the statute was enacted, they were not considered to be part of the Caucasian race).
140. See Bauge v. Jernigan, 671 E Supp. 709, 712 (D. Colo. 1987) (holding that allegation that
plaintiff was discriminated against because he was Norwegian did not state a section 1983 claim based
on racial animus).
141. See Ana Leon T. v. Federal Reserve Bank, 823 E2d 928, 931 (6th Cir. 1987) (holding
discrimination based on Colombian heritage does not state a claim under section 1981).
142. See St. Francis College, 481 U.S. at 614 (Brennan, J., concurring).
143. Fair Employment Council of Greater Wash., Inc. v. BMC Marketing Corp., 28 F.3d 1268, 1279
(D.C. Cir. 1994) (holding that a fair employment organization lacked standing to bring a claim under
r I
I II
- -- ------oJ --------0
plaintiffs generally claim standing by arguing that (I) they have been injured in
their own right as a result of defendant's actions (derivative standing)!44 or (2)
their members have been directly injured as a result of defendant's actions
. al d') !45
(representation stan mg .
While Article III injury-in-fact is usually quite easy to demonstrate---

edlining.!49 Such practices include using solely minority models or concentrating
advertising efforts in low-income, heavily minority communities.!SO This
type of targeted adve!1ising is not actionable under sections 1981 and 1982. 15 !
Therefore, although these practices may be discriminatory, no legal recourse is
afforded to the victims under the Civil Rights Act of 1866.
IV. FAIR HOUSING ACT: THE MOST VIABLE VEffiCLE FOR CHANGE
A. General Overview
Title VIII of the Civil Rights Act of 1968,!S2 also known as the Fair Housing
Act ("FHA"), was enacted in response to a study that found widespread
residential segregation in America.!S3 The FHA's aim was to provide protection
to those persons who had suffered housing discrimination on the basis of race,
color, religion, or national origin.!54 In 1988, the FHA was amended to provide
stronger enforcement provisions and expanded coverage.!SS The changes significantly
enhanced the legal options for victims of housing-related discriminatory
practices. Despite these improvements, the FHA's potential is still greatly
unrealized. !S6
There are tlrree avenues of action under tl,e FHA. First, a victim can file a
complaint Witll the U.S. Department of Housing and Urban Development
("HUD").!S7 If, after a thorough investigation, the complaint is found to be
valid, HUD will attempt to resolve the problem "tlrrough informal methods of
conference, conciliation, and persuasion.,,!58 Second, the Attorney General can
choose to independently bring a suit in response to the discriminatory housing
practice at issue. 159 Cases brought by the Attorney General can be based on
149. ZUCKERMAN ET AL., supra note 124, at 156.
150. [d.
151. See Spann v. Colonial Village, Inc., 899 F.2d 24, 35 (D.C. Cir. 1990) (holding that sections
1981 and 1982 are not "all-purpose antidiscrimination or comprehensive open housing laws," and that
section 1982 "does not prohibit [real estate] advertising or other [dwelling place sale or rental]
representations that indicate discriminatory preferences").
152. 42 U.S.C. §§ 3601-3619, 3631 (1994 & Supp. II 1996).
153. See Robert G. Schwemm, Introduction to Mortgage Lending Discrimination Law, 28 J.
MARSHALL L. REv. 317 (1995) [hereinafter Schwemm, Mongage Lending Discrimination Law] (stating
that, in response to urban riots, the Kerner Commission Report studied the housing disparity between
races in the United States).
154. ROBERT G. SCHWEMM, HOUSING DISCRIMINATION LAW 1 (1983).
155. See Fair Housing Amendments Act of 1988, Pub. L. No. 100-430, § 6, .102 Stat. 1619, 1620
(codified as amended at 42 U.S.c. § 3604 (1993)).
156. Schwemm, Mortgage Lending Discrimination Law, supra note 153, at 332.
157. Jane McGrew et al., Washington Lawyers' Committee for Civil Rights Under the Law: Fair
Housing, 27 How. L.J. 1291, 1319 (1984).
158. [d.
159. [d.
r I
l"tU . .lJ r 1CUi:1lUlY LCUWUg ';Ij
either a "pattern or practice" of denying Title VIII rights or an "issue of general
public importance." !60 Finally, the complainant can bring a private suit against
the offender. !6!
To sustain an action under the FHA, the plaintiff must prove four elements.!62
First, the plaintiff's discrimination must be attributable to one of the protected
categories: race, COlOT, religion, sex, national origin, familial status, or disability.
]63 Second, the discrimination must occur in the context of the sale or rental
of a dwelling.!64 Third, the specific type of transaction at issue must be
covered. !6S Finally, the plaintiff must meet the required standard ofproof.!66
B. Broad Construction ofthe FHA
In Trafficante v. Metropolitan Life Insurance .co., the Supreme Court held
that claims brought under the FHA will be broadly construed.! 67 A later decision
by the U.S. Court of Appeals for the Sixth Circuit expanded on the holding in
Trafficante by reasoning that the legislative intent of the FHA was to "eliminate
all traces of discrimination within the housing field.,,!68 Under the FHA, one
may not "engag[e] in residential or real estate-related transactions to discriminate
against any person in making available such a transaction, or in the terms
or conditions of such a transaction, because of race, color, ... or national
origin."!69 The phrase "terms or conditions" includes mortgages and foreclosure
terms.!70 Consequently, reverse redlining cases involving institutions charging
egregious interest rates to minorities should fall within the scope of the
FHA.
160. ZUCKERMAN ET AL., supra note 124, at 203 (quoting 42 U.S.c. § 3614(a) (1994)).
161. The plaintiff must commence the action within two years of the last occurrence of the
"discriminatory housing practice." [d. Prior to the 1988 amendments, the statute oflimitations afforded
to the plaintiff was merely 180 days. ld. See infra Part IV.C.iv (describing the continuing violations
doctrine's applicability to the statute oflimitations).
162. Schwemm, MOJ1gage Lending DiscriminationLaw, supra note 153, at 325.
163. [d.
164. [d. See also 42 U.S.c. § 3602(b) (defining "dwelling").
165. Schwemm, Mortgage Lending Discrimination Law, supra note 153, at325-26. The language of
the FHA explicitly covers financial discrimination. leI. at 326.
166. Id. at 326. See infra Part N.C.ii (discussing the required standard ofproof under the FHA).
167. 409 U.S. 205, 208 (1972) (stating that the language ofthe FHA is broad and inclusive).
168. Marr v. Rife, 503 F.2d 735,740 (6th Cir. 1974).
169. 42 U.S.c. § 3605(a) (1994)) (emphasis added).
170. See, e.g., Harper v. Union Sav. Ass'n, 429 F. Supp. 1254, 1257 (N.D. Ohio 1977) ("This court
concludes that it is the intent of Congress that section 3605's prohibitions against discrimination on the
part of lending institutions in connection with real estate loans proscribe discrimination in the manner
in which a lending institution forecloses a delinquent or defaulted mortgage note since the right of
foreclosure is one of the 'teans or conditions of such loan.' "); 42 U.S.C. § 3605(b)(1) (1994) (defining
"residential real estatehrelated transactions" as "the making ... of loans or providing other financial
assistance-for purchasing, constructing, improving, repairing, or maintaining a dwelling; or [making
or purchasing of loans] secured by residential real estate")..

3. Potential Remedies
The 1988 amendments to the FHA have "had a substantial effect on the
availability of remedies.,,236 A plaintiff may now seek equitable remedies such
as injunctions or restraining orders,23? compensatory and punitive damages,Z38
and attorneys' fees and costS.Z 39 The Supreme Court has conferred broad
discretion to lower courts in "fashioning an effective eqnitable remedy."24o
Injunctive relief should be structured to "achieve the twin goals of assuring that
the [FHA] is not violated in the future and removing any lingering effects of
past discrimination."241 Under a predatory lending claim, the court may order a
consent decree requiring the defendant's employees to sign a non(1iscrimination
statement, mandating record-keeping to enable judicial monitoring, and requiring
fair housing law training for employees. 242
Although equitable relief may deter a predatory lender fTom future discriminatory
practices, victims may not have the incentive to bring a claim if they are
not reimbursed for the hann suffered. Compensatory damages serve the function
of "putting the [victim] in the same position he would have been in had
there been no injury,,,z43 and providing incentives for the victim to file a claim.
A plaintiff is entitled to recover damages for out-of-pocket expenses, humiliation,
embarrassment, mental anguish, emotional distress, and loss of civil rights
incurred as a result of the defendant's actions 244
The most potent weapon in deterring predatory lending is likely tl,e threat of
punitive damages. Originally, punitive damages under the FHA were capped at
$1,000?45 However, the 1988 amendments eliminated this limitation 246 and in
recent years, punitive damage awards have escalated. 24 ? Like any other business,
predatory lenders are motivated by profitability. Unfortunately, foreseeable
borrowing needs, and will likely not turn to predatory lenders who charge exorbitant interest rates and
fees. As such, by failing to offer prevailing market terms to whites, the predatory lender, its branchoffices,
and its parent and subsidiary corporations, would have to forego serving whites, who make up
the vast majority of the population, and are a significant market.
236. ZUCKERMAN ET AL., supra note 124, at 270.
237. 42 U.S.c. § 3613(c)(I) (1994).
23S. Id.
239. Id. § 3613(c)(2).
240. Jones v. Alfred Mayer Co., 392 U.S. 409, 414 n.13 (196S).
241. Marable v. Walker, 704 F.2d 1219, 1221 (11th Cir. 1983); see also United States v. Jamestown
Center-in-the-Grove Apartments, 557 F.2d 1079, 1081 (5th Cir. 1977) ("Relief for violations of Fair
Housing Act should be aimed toward insuring that no future violations of the Act occur and removing
any lingering effects of past discrimination.").
242. ZUCKERMAN ET AL., supra note 124, at 284.
243. Id. at 277 (quoting Lee v. Southem Home Sites COJp., 419 F.2d 290, 293 (5th Cir. 1970».
244. RELMAN, supra note 176, at 6-1.
245. Di Lorenzo, supra note 56, at 1763 (discussing the reasons that enforcement of the FHA was
weak prior to the 1988 amendments).
246. See 42 U.S.C. § 3613(c)(I) (1994) (permitting the comt to award actual and punitive damages
for a finding of discriminatory housing practice).
247. RELMAN, supra note 176, at 6-23.
compensatory damages may merely be viewed by defendants as operating costs.
Consequently, the best way to instigate reform of discrintinatory lending practices
is to elintinate the potential for profitability by hitting the defendants
where it really hurts: in the wallet?48 Courts will do a case-by-case inquiry into
the defendant's culpability when determining the amount of punitive damages
that will sufficiently punish the defendant and deter the defendant from future
wrongdoing 249
The FHA also entitles the plaintiff in a predatory lending claim to reasonable
attorneys' fees and costs if she prevails. 250 A plaintiff will be considered the
"prevailing" party if she succeeds on any significant issue in the case 251 Unlike
section 1982, which allows the defendant to recover attorneys' fees, only the
plaintiff may qualify to recover attorneys' fees under the FHA 252 Although a
losing plaintiff will rarely be assessed the defendant's attorney's fees under
section 1982, eliminating this possibility in FHA claims may invite victims of
predatory lending to file suit who would otherwise be discouraged from doing
so.
253
4. Continuing Violations Docrrine
The statute of limitations has a great impact on the number of suits filed
against a predatory lender. The shorter the limitation period, the greater the risk
that potential plaintiffs will be disqualified. Pursuant to the 1988 amendments,
the statute of limitations under the FHA was extended from 180 days to two
years?54 However, the court must determine the point upon which the statute
begins to toll before it can consider whether or not the claim is barred.
In Havens Realty Corp. v. Coleman, the Supreme Court found that when a
plaintiff challenges an unlawful practice under the FHA, continning violations
of the practice are afforded a more liberal analysis than isolated acts of
discrimination?SS Under the FHA, the statute of limitations commences after
the alleged discriminatory housing practice occurred. 256 The defendant in Ha-
248. "II]t is quite clear that the central purpose of the [Fair Housing Act] is to accelerate the
eradication of housing disclimination acrOSS the country by making such conduct prohibitively expensive."
Id. at 6-26.4.
249. Courts differ as to the requisite culpability for punitive damages. Some courts require knowledge
of the discriminatory practice while others find that willful or reckless disregard of the plaintiff's'
rights will walTant pecuniary punishment of the defendant. Id. at 6-20.
250. 42 U.S.C. § 3613(c)(2) (1994).
251. RELMAN, supra nole 176, at 6-31 (citing Hensley v. Eckerhart, 461 U.S. 424, 433 (1983».
252. The courts have read a "double standard" into section 1982 under which there is no differentiation
between a prevaili.ng defendant and plaintiff. Schwemm, Mortgage Lending Discrimination Law,
supra note 153, at 329 (citi.ng Roadway Express, Inc. y. Piper, 447 U.S. 752, 762 (1980».
253. Id. a1330.
254. 42 U.S.C. § 3613(a)(l)(A) (1994). A private complaint to HUD has a statute of limitations of
one year. 42 U.S.C. § 361O(a)(I)(A)(i) (1994).
255. 455 U.S. 363, 3S1 (1982).
256. 42 U.S.C. § 3610(a)(I)(A)(i) (1994). See also Thelma A. Civens, The Cantinuing Walatian
Theory and Systematic Discrimination: In Search ofa Judicial Standardfor Timely Filing, 41 VAND. L.

yens argued that each discrete act of housing discrimination constituted an
"occurrence. ,,257 However, the Supreme Court held that in order to meet the
broad remedial intent of the FHA in eliminating systematic discrimination, a
claim for continuing violations commences at the time of the last occurrence of
the discriminatory practice. 258 The court reasoned that "[w]here the challenged
violation is a continuing one, the staleness concern disappears.,,259 Consequently,
a plaintiff under a reverse redlining claim will not necessarily be
precluded from filing suit even if it has been over two years since she was
personally discriminated against. Instead, the court will focus on whether the
predatory lending practice by the defendant, irrespective of the plaintiff, has
occurred within the past two years. For example, if victim X was targeted by
Predatory Lender Mortgage Co. four years ago, but victim Z was targeted only
one year ago, then victim X will still have a viable claim under the continuing
violations doctrine.
V. CONCLUSION
Over the past four decades, significant strides have been made in overcoming
blanket refusals of lending institutions to extend mortgage loans in minority
communities. Today, discriminatory lending practices, although egregious, are
not as apparent. Predatory lenders conceal reverse redlining practices under the
guise of opportunities to minorities who would not otherwise be able to obtain
financing. In reality, predatory lending has resulted in financial and psychological
distress for its victims.
While numerous legal options might be used to address this problem, none
has been able to provide a consistently viable remedy. Some, such as tl,e CRA
and TILA, have the potential to uncover and rectify some predatory lending
practices, but they lack sufficient bite to be tmly useful as deterrents. The CRA
provides a significant cause of action, but does not provide adequate standing
for certain groups, such as language minorities, testers, and housing organizations.
Similarly, sections 1981 and 1982 of the Civil Rights Act of 1866 have
relatively strict standing requirements .and do not allow for disparate impact
claims. Finally, the doctrine of unconscionability, while seemingly invented for
such cases, is too ambiguous to rely on in predatory lending cases.
In contrast to the options described above, the FHA has great potential in
REv. 1171, 1183-84 (1988). It should be noted that Havens was decided prior to the 1988 amendments,
thus the statute of limitations period was 180 days under section 3612(a). See id. at 1182.
257. Coles v. Havens Realty Corp., 633 F.2d 384, 385 (4tll CiT. 1980), modified, 455 U.S. 363
(1982).
258. Havens Realty Corp. v. Coleman, 455 U.S. 363, 380-81 (1982).
259. Havens, 455 U.S. at 380.
reverse redlining cases. The FHA has broad standing requirements; multiple
causes of action, including disparate impact claims; strong remedial potential;
and the continuing violations doctrine. Because of these, the FHA stands out as
the most viable means to remedy the scourge of predatory lending.