Which top banks were sued for discrimination over a loan pricing issue?
Everyone knows that qualifying for a loan can sometimes be hard depending on credit market conditions. While loan applications are usually reviewed based on a number of factors such as the ability of the borrower to repay, some large-sized financial institutions look at other things such as race, and often in a very negative way. This article talks about two top banks that were sued for discrimination over a loan pricing issue and received hefty fines from the U.S. Department of Justice over the past few years.
What is loan discrimination and how does it occur?
Loan discrimination occurs when two borrowers from two different races and with the same ability to repay debt get a different response from the loan application review. More specifically, one borrower will get the loan under more favorable terms than the other. Loan discrimination has been a major issue in both mortgage and auto lending transactions in the U.S. in recent years, but is being tackled by two arms of the Justice Department: the Civil Rights Division’s Housing and Civil Enforcement Section and its Fair Lending Unit.
Which top banks were sued?
In a report published on August 2014, the Justice Department mentioned two major players in the U.S. financial system for their involvement in loan discrimination practices. These include:
– Bank of America
– Wells Fargo
These two banks were required to pay $335 million and $234 million, respectively for giving financing to black and Hispanic borrowers at a cost higher than white borrowers with similar attributes were charged. Since the Department Justice has decided to enforce loan discrimination laws, nearly $1 billion have been given to affected parties in settlement. This shows the determination of the U.S. judiciary system to protect those who can be discriminated, and that any lender that is found guilty of such practices will be punished to the full extent of the law.
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Alan Lee