Split Decision: Supreme Court Goes Two Steps Forward, One Step Back on Holding Banks Accountable for Discriminatory Practices.

This morning, the Supreme Court handed down a decision that should mean banks will face lawsuits from city governments looking to rein in predatory, discriminatory lending under the federal Fair Housing Act. But the Court’s decision, which held that cities have a right to sue banks under the FHA, a law which prohibits discriminatory lending practices, also imposed some barriers to this lawsuit and future actions, raising the bar for cities seeking to follow Miami’s lead. In order to overcome those barriers, future litigants and courts should look to several recent decisions that might help chart a course forward, making sure banks are held accountable for practices that violate the nation’s fair lending laws. Cities, now empowered to take such action, should not shy away from serving as a check on discriminatory conduct. This is especially important now, a time when the federal government, and many states, are abdicating this critical governmental role.

The Court’s decision, Bank of America, et al, v. City of Miami, involved a lawsuit by city government in Miami, FL, for actions by Bank of America and Wells Fargo. The city alleged that such actions were rooted in discrimination prohibited by the FHA. Such practices included making loans on discriminatory terms and then failing to modify such loans when borrowers were unable to pay them back, resulting in foreclosures and vacant properties, predominantly in neighborhoods of color. Miami alleged that this caused harm to the city itself, including that the city faced lost tax revenue, as abandoned properties often do not generate property taxes, and increased costs, because the city has to expend more in emergency services due to crime that often follows such abandoned properties.

The banks challenged the right of the city to bring the action under the fair lending law, saying that the statute does not protect cities. They also argued that even if the statute does protect cities, the injuries Miami claims to have suffered were too attenuated, too far removed from the banks’ practices.

The Court agreed with the city on the first question — that the Fair Housing Act, with its broad grant of relief to any “aggrieved person,” covers municipal plaintiffs, like the City of Miami. At the same time, it found that the lower court would have to take another look at the case because the standard the appellate court had used — that the injuries the city is alleging were foreseeable from the banks’ actions — is not the proper standard to use to connect the banks’ conduct to the injuries the city claims. The Court said the lower court should give the case another look and determine whether the city can prove that the acts of the banks were the “proximate cause” of the injuries the city is alleging.

Recent case law — one Supreme Court case in the environmental field, and another trial court ruling under the FHA — could help the lower court determine whether the city can prove the banks’ actions were the proximate cause of its injuries. In Massachusetts v. EPA, the Supreme Court found that the risk that the EPA’s failure to regulate carbon emissions could have a measurable impact on climate change was enough to connect the injuries the plaintiffs were alleging to the EPA’s inaction. Similarly, a trial judge in Baltimore, after dismissing an FHA case several times for the plaintiffs’ failure to prove that Wells Fargo’s lending practices led to the harms city officials were alleging, ultimately found the lawsuit could proceed because those officials were able to identify specific loans and bank practices that led to the injuries to the City of Baltimore alleged by the plaintiffs.

There is no doubt that the Court’s historic ruling in the Miami case will likely lead to more litigation under the FHA, initiated by cities, seeking to rein in discriminatory bank practices. At a time when federal and even many state officials do not seem to have an appetite for checking discrimination, city officials can step into the breach. The Supreme Court just endorsed a powerful tool for them to do so. These cases will now hinge on the ability of cities to trace a direct line between financial discrimination and the harms such discrimination inflicts on communities and the cities in which they are found. City governments should strive to make effective use of this tool, provided they can highlight the connection between discrimination and the injuries to those cities such discrimination causes.

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