WBK Industry News - Litigation Developments

Class Claim Alleging Fair Lending Violations by Credit Union Partially Dismissed

A U.S. District Court recently dismissed in part a putative class action against a federal credit union involving alleged disparate treatment and disparate impact in violation of federal and state fair lending laws. 

The plaintiffs allege that, according to an analysis of the credit union’s recent HMDA data and the plaintiffs’ own application experience, the credit union discriminated against Black and Latino applicants by denying their applications at a significantly higher rate than similarly situated white applicants and by offering minority borrowers less favorable mortgage terms.  The nine named plaintiffs each applied to the credit union for at least one home loan product and all were denied, although different plaintiffs applied for different products.

The court found that by failing to adequately allege that the plaintiffs’ credit profiles met the credit union’s loan requirements at the time of application, the plaintiffs did not plausibly claim that the credit union intentionally discriminated against minority applicants, either directly or by inference.  The court dismissed the plaintiffs’ disparate treatment claims. 

The court found that the plaintiffs’ disparate impact claims were sufficiently pled, however, as the plaintiffs plausibly alleged that a specific policy of the credit union – its underwriting algorithm and process – caused a disparate impact among non-white loan applicants, as demonstrated by the statistical disparities reflected in the credit union’s HMDA data.  However, noting that the circumstances of each plaintiff’s loan application process are significantly varied, the court struck the proposed class and required the nine named plaintiffs to instead proceed with their remaining claims as a consolidated case or individually in separate actions.