L.A. Sues JPMorgan Over Discriminatory Mortgage Lending Practices

On Friday, May 30, 2014, asserting that “[i]t is axiomatic that banks should not make discriminatory loans”, the City of Los Angeles filed a two-count complaint against JPMorgan Chase & Co. in Federal Court for the Central District of California. Count one of the complaint is brought under the Federal Fair Housing Act, 42 U.S.C. §§ 3601, et seq., while count two is styled as “Common Law Claim For Restitution Based On California Law.”

In the complaint, the City of Los Angeles alleges, among other things, that:

• JPMorgan intentionally targeted residents of predominantly African-American and Latino neighborhoods in Los Angeles for different treatment than residents of predominantly white neighborhoods in Los Angeles with respect to mortgage lending.
• JPMorgan intentionally targeted residents of African-American and Latino neighborhoods for high-cost loans, without regard to their individual credit qualifications and without regard to whether they would have qualified for more advantageous loans.
• JPMorgan intentionally targeted residents of these neighborhoods for increased interest rates, points and fees, as well as for other disadvantageous loan terms.
• JPMorgan intentionally targeted residents of these neighborhoods for unfair and deceptive lending practices in connection with its marketing and underwriting of mortgage loans.

The city of Los Angeles accused JPMorgan of “redlining” — the practice of denying credit to residents of particular neighborhoods based on race. The City also accuses JPMorgan of “reverse redlining” — the practice of flooding a minority community with exploitative loan products.

The city of Los Angeles alleged that JPMorgan underwrote adjustable rate loans that borrowers could not afford. According to the complaint, “the fact that these loans would result in delinquency, default, and foreclosure for many borrowers was, or should have been, clearly foreseeable to JPMorgan at the time the loans were made.” Moreover, the complaint alleges that JPMorgan “induced foreclosures by failing to offer refinancing or loan modifications to minority customers on fair terms, and otherwise limiting equal access to fair credit.”

City Seeks Damages for Reduced Property Tax Revenues and Expenditure of Municipal Services

Based on these and other allegations, the City of Los Angeles seeks damages “for reduced property tax revenues based on (a) the decreased value of the foreclosed properties themselves, and (b) the decreased value of properties surrounding the foreclosed properties.” The City also seeks damages based on “the expenditure of municipal services that will be required to remedy the blight and unsafe conditions which exist at vacant properties that were foreclosed as a result of JPMorgan’s allegedly illegal lending practices.”

According to the City, the loss of tax revenues at specific foreclosure sites, and at closely neighboring properties in predominantly minority neighborhoods of the City, “was a foreseeable consequence that is traceable to JPMorgan’s discriminatory lending.” Likewise, the need to provide increased municipal services at blighted foreclosure sites in predominantly minority neighborhoods of the City was allegedly “a foreseeable consequence that was fairly traceable to JPMorgan’s discriminatory lending.”

In addition to these damages, the complaint also seeks: a permanent injunction enjoining JPMorgan from continuing its alleged discriminatory conduct; an order forcing JPMorgan to disgorge its “wrongfully obtained” profits; and an award of punitive damages to the City to “punish JPMorgan” for its “willful, wanton, and reckless conduct.”

In December of last year, the City of Los Angeles filed similar lawsuits against Bank of America, Citigroup and Wells Fargo. Last week, the Court in the Wells Fargo case denied the bank’s motion to dismiss the City’s complaint.