Good afternoon. Eighteen months ago, Attorney General Garland announced a new all-of-government initiative to combat modern-day redlining.
The CFPB, with the strong support of Assistant Attorney General Clarke and her team, has prioritized two types of modern-day redlining: digital redlining, including bias in algorithms and technologies marketed as artificial intelligence, exclusionary conduct by mortgage lenders, including those by nonbanks. Today, I want to discuss a third category which marks the next phase of our efforts: discriminatory targeting, which is also known as reverse redlining.
Last year, Assistant Attorney General Clarke and I announced the first federal redlining action against a nonbank mortgage outfit called Trident Mortgage Company, which is part of the Berkshire Hathaway conglomerate, for its illegal redlining activities throughout the mid-Atlantic – including in New Jersey.1 The Attorneys General of New Jersey, Pennsylvania, and Delaware also sanctioned the firm for racist and illegal conduct.
While exclusion based on a protected category has long been a part of anti-redlining enforcement, equally damaging to families are the financial risks from discriminatory targeting.
As courts have recognized for decades, discriminatory targeting is the act of directing predatory products or practices at certain groups, neighborhoods, or parts of a community. Instead of viewing specific groups of people as inherently problematic, and therefore, too risky to lend to, companies engaging in discriminatory targeting see those same groups as prime for financial exploitation and credit predation.
When a lender either excludes protected groups of consumers from lending or targets those consumers with harmful credit products or services, they violate the Equal Credit Opportunity Act and potentially other consumer financial protection and civil rights laws.
Last week, in the case of Roberson v. Health Career Institute, the CFPB filed a Statement of Interest in the United States District Court for the Southern District of Florida to emphasize how the Equal Credit Opportunity Act protects people from the discriminatory targeting of loans.
Health Career Institute, a for profit college, allegedly targeted students to enroll in its nursing program based on race, and expected that targeted prospective applicants would be highly likely to need to take out loans to pay for the program. While students were enrolled, Health Career Institute took actions to increase the cost of the program beyond what the school advertised when students took out loans to enroll. Health Career Institute imposed new grading policies and graduation requirements that coerced students into repeating semesters they had already completed. These policies increased the targeted students’ financial burdens, and students who could not obtain additional financing were forced to drop out of the program, saddled with debt but with no degree.
In our submission, we detail the Equal Credit Opportunity Act’s prohibition on discrimination applies to any aspect of a credit transaction. That means it covers every part a person’s dealings with a creditor.
The law is clear – discriminatory targeting violates the Equal Credit Opportunity Act when a company targets consumers on a prohibited basis for harmful and predatory loans – and courts have consistently upheld this. While each case is unique, courts have recognized discriminatory targeting claims when creditors target, on a prohibited basis, predatory lending acts or practices, such as equity stripping, bait-and-switch schemes, churning through foreclosures or repossessions, and misrepresenting costs to induce credit applications.
We will be working with the Department of Justice, federal agencies, and the states to hold lenders that engage in discriminatory targeting – by individuals and by algorithms – accountable for their law violations.