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Court approves final settlement in class action against credit union alleging discriminatory loan denial based on DACA status
On August 15, the U.S. District Court for the Northern District of California, issued a final order approving settlement of a loan discrimination class action against a credit union, entering final judgment and ordering dismissal pursuant to the settlement. In this case, the plaintiff claimed that she and other class members experienced discrimination on the basis of immigration status after attempting to finance the purchase of her vehicle with the defendant credit union. According to the complaint, the plaintiff’s auto loan application was denied after disclosing her status as a DACA recipient to a representative of the defendant. The plaintiff alleged that the representative communicated that the defendant does “not lend on DACA status.” In a previous motion to dismiss, the credit union had argued the ECOA and Regulation B allow creditors to consider immigration and residency status in creditworthiness and repayment analyses. The District Court, however, disagreed with the defendant, denying the motion to dismiss, and holding that “Regulation B does not allow a creditor to decline credit solely on the basis of residency or immigration status.”
The approved settlement established an $86,750 settlement fund to be distributed to the 95 members of two settlement classes (a California class and a national class). The settlement provided that each California class member will receive $2,500 from the settlement fund, while other national class members will receive $250 each. The approved settlement will also require the credit union to implement corrective action to ensure that it does not deny consumer credit applications based solely on immigration status.
District Court preliminarily approves lending discrimination settlement
On December 15, the U.S. District Court for the Northern District of California preliminarily approved a $480,000 class action settlement concerning whether an online lender allegedly denied consumers’ applications based on their immigration status. Plaintiffs filed a putative class action against the defendants, alleging the lender denied their loan applications based on one of the plaintiff’s Deferred Action for Childhood Arrivals (DACA) status and the other plaintiff’s status as a conditional permanent resident (CPR). Plaintiffs claimed that these practices constituted unlawful discrimination and “alienage discrimination” in violation of federal law and California state law. Plaintiffs also alleged that the defendants violated the FCRA by accessing their credit reports without a permissible purpose. (Covered by InfoBytes here.) Under the terms of the preliminarily approved settlement, the defendants would be required to pay $155,000 into a settlement fund, as well as up to $300,000 in attorneys’ fees and $25,000 in administrative costs. The defendants have also agreed to change their lending policies to ensure DACA and CPR applicants are evaluated for loan eligibility based on the same terms as U.S. citizens.
The district court noted, however, that the proposed settlement includes a “clear sailing arrangement,” which provides that the defendants will not oppose plaintiffs’ motion for attorneys’ fees and costs provided the requested amount does not exceed $300,000. Referring to an opinion issued by the U.S. Court of Appeals for the Ninth Circuit in which the appellate court warned that clear sailing arrangements are “important warning signs of collusion” because they show an increased “likelihood that class counsel will have bargained away something of value to the class,” the district court explained that it intends to “carefully scrutinize the circumstances and determine what attorneys’ fee awards is appropriate in this case.”
FHA clarifies eligibility of nonpermanent residents
On May 28, FHA announced the publication of Mortgagee Letter (ML) 2021-12, which clarifies the eligibility of FHA-insured financing for Deferred Action for Childhood Arrivals (DACA) recipients and amends employment documentation requirements for citizens of the Freely Associated States and individuals with H-1B status. ML 2021-12 also updates requirements for certain non-permanent residents seeking to obtain insured mortgage financing under FHA’s Single Family Title I and Title II forward mortgage insurance programs. FHA notes that while the guidance may be implemented immediately, it must be implemented for mortgages with case numbers assigned on or after July 26, 2021.
Court denies lender’s bid to arbitrate DACA suit
On April 12, the U.S. District Court for the Northern District of California denied defendants’ motion to compel arbitration in a matter alleging a lender denied plaintiffs’ applications based on their immigration status. The plaintiffs filed a putative class action against the defendants, alleging the lender denied their loan applications based on one of the plaintiff’s Deferred Action for Childhood Arrivals (DACA) status and the other plaintiff’s status as a conditional permanent resident. The plaintiffs claimed that these practices constituted unlawful discrimination and “alienage discrimination” in violation of federal law and California state law. The plaintiffs also alleged that the lender violated the FCRA by accessing one of their credit reports without a permissible purpose. The defendants moved to compel arbitration and dismiss the claims.
With respect to the defendants’ motion to compel arbitration, the lender claimed that the DACA plaintiff “expressly consented to arbitration” when he was required to check a box labeled “I agree” in order to proceed with his online student loan refinancing application back in 2016. However, the DACA plaintiff argued the arbitration agreement “lacked adequate consideration” because he was ineligible for a loan as a DACA applicant, and that even if it were a valid agreement, it only applied to his 2016 application and not to his subsequent attempts to refinance his student loans. In denying the lender’s motion to compel arbitration, the court concluded that the DACA plaintiff did not claim that he was seeking to reopen or have the lender reconsider his 2016 application, but rather he asserted that these were “standalone attempted transactions,” and as such, did not fall within the scope of the 2016 arbitration agreement.
In reviewing whether the lender’s policies constitute alienage discrimination, the court determined, among other things, that while the lender “asserts that it does not discriminate against non-citizens because some non-citizens—namely [lawful permanent residents] and some visa-holders—are still eligible to contract for credit with [the lender],” the distinction “is not supported by the language of the statute,” noting that under 42 U.S.C. § 1981, protections “extend to ‘all persons within the jurisdiction of the United States.’” Additionally, the court ruled that the second class of conditional permanent residents whose credit reports were pulled by the lender and allegedly experienced a decrease in their credit scores—despite plaintiffs claiming the lender’s policy states that permanent residents are ineligible for loans if their green cards are valid for two years or less—may proceed with their FCRA claims.
DACA recipients eligible for FHA loans
On January 20, the Federal Housing Administration (FHA) announced that Deferred Action for Childhood Arrivals (DACA) recipients are now eligible for FHA loans. Specifically, FHA is waiving the FHA Single Family Housing Handbook statement: “Non-US citizens without lawful residency in the U.S. are not eligible for FHA-insured mortgages.” As previously covered by InfoBytes, in June 2019, Len Wolfson, the Assistant Secretary for Congressional and Intergovernmental Relations at HUD sent a letter to Representative Pete Aguilar (D-CA) stating that DACA recipients are not eligible for FHA loans under FHA published policy, referring to the handbook statement. FHA is now reversing course, stating that the term “‘lawful residency’ pre-dates DACA and thus did not anticipate a situation in which a borrower might not have entered the country legally, but nevertheless be considered lawfully present.” In order to avoid confusion, FHA is waiving the Handbook subsection containing the statement in its entirety, but emphasizes that all other FHA borrower requirements remain in effect for all potential borrowers, including DACA recipients.
National bank settles DACA discrimination class action
On January 8, the U.S. District Court for the Northern District of California granted final approval to a settlement resolving allegations brought by a national class and a California class against a national bank concerning the denial of credit to recipients who held valid and unexpired Deferred Action for Childhood Arrivals (DACA) status. In a motion for preliminary settlement filed last June, the plaintiffs claimed that the bank allegedly determined DACA recipients to be ineligible for direct auto financing because of their noncitizen status, even though “[t]here is no federal or state law or regulation that prohibits banks from lending to non-citizens generally, or DACA recipients specifically, based on their status as non-citizens.” The bank moved to dismiss, claiming the plaintiffs failed to plead facts sufficient to state claims under the Equal Credit Opportunity Act and the Fair Credit Reporting Act. The parties engaged in discovery, but ultimately agreed to stay the case and engaged a mediator to assist with settlement discussions.
Under the terms of the settlement, the bank is required to provide verified California class members up to $2,500 per claim and national class members up to $300 pending submission of a valid claim. The settlement also provides injunctive relief, a service award to the class representative, attorneys’ fees and costs, and settlement administration costs. Additionally, the bank will amend its direct auto lending practices in order “to extend loans to current and valid DACA recipients on the same terms and conditions as U.S. citizens,” and will provide class counsel an annual status report detailing the status of its programmatic relief for a two year period.