Miami Hits JPMorgan with Lawsuit over Discriminatory Lending Practices

The city of Miami recently sued JPMorgan Chase & Co. in Florida federal court alleging that JPMorgan violated the Federal Fair Housing Act (“FHA”) by engaging in a “continuing pattern” of discriminatory mortgage lending practices in Miami, resulting in a disproportionate number of foreclosures in minority neighborhoods. Ironically, the suit was filed on Friday the 13th, symbolizing the recent run of bad luck for JPMorgan. The suit came only two weeks after the city of Los Angeles asserted the same claims against JPMorgan. In that suit, Los Angeles claimed that JPMorgan’s conduct resulted in a loss of $481 million in property tax revenue.

The case is currently pending before Judge Ursula Ungaro in the U.S. District Court of the Southern District of Florida. The complaint alleges that between 2004 and 2012, JPMorgan made 2,383 loans in minority neighborhoods in Miami that resulted in commencement of foreclosure proceedings. According to data included in the pleadings, Miami has the highest foreclosure rate among the country’s 20 largest metropolitan areas. More importantly, the data revealed that a loan issued in a predominantly minority neighborhood in Miami is about 4.6 times more likely to end up in foreclosure than a loan issued in a neighborhood with a majority of white residents.

The city of Miami claims, “JPMorgan’s foreclosures are so disproportionately concentrated in minority neighborhoods” that they can’t be the “product of random events. To the contrary, it reflects and is fully consistent with JPMorgan’s practice of targeting minority neighborhoods and customers for discriminatory practices and predatory pricing and [high risk loan] products.”

Discriminatory Lending Tactics: Redlining and Reverse Redlining

The discriminatory practices that form the basis of the case are known as “redlining” and “reverse redlining,” both of which have been deemed by federal courts throughout the country to violate the FHA. The complaint describes redlining as the practice of denying credit to minorities, whereas reverse redlining is the practice of extending credit on predatory terms based on race and ethnicity.

In response, JPMorgan claimed it was targeted as a scapegoat for “unrelated city finances impacted by the recent economic downturn.” JPMorgan has asserted that the claims are meritless and contrary to its records of providing affordable housing to low-income families.

Like the city of Los Angeles, Miami is seeking compensatory and punitive damages for the negative effect the decreased value of foreclosed properties has had on property tax revenue, as well as the cost the city has expended in dealing with the dangerous conditions associated with the affected areas. Assuming other metropolitan cities suffered the same fate, it will be interesting to see how many will follow suit.