Banking: Claims narrowed in bias suit against credit union

Where a credit union was accused of systematically discriminating against racial minorities by denying mortgage applications that would have been approved for similarly situated white Americans, but the complaint failed to allege sufficient facts to sustain an intentional discrimination claim, that claim was dismissed.

Background

This proposed consolidated class action involves allegations that Navy Federal Credit Union “systematically discriminates against African Americans, Latinos, Native Americans, and other racial minorities by denying mortgage applications that would have been approved for similarly situated White Americans.” Navy Federal has filed a motion to dismiss.

Disparate treatment

Plaintiffs rely on the statistics analyzed in three reports purporting to show a disparity in outcomes for minority loan applicants to demonstrate that Navy Federal was on notice of the discriminatory impact of its mortgage lending program and did not act to address the disparity, thus establishing direct or circumstantial evidence of an intent to discriminate. The court declines to find that the pleaded statistical evidence contained in the media reports constitutes a plausible allegation of direct or circumstantial evidence of intentional discrimination.

Plaintiffs may thus sustain their disparate treatment claim only if the complaint’s allegations support an inference of such intent from the broader facts and circumstances alleged. To sustain such an inference, the complaint must plausibly allege that: (1) plaintiffs are members of a protected class; (2) they applied for and were qualified for loans; (3) their loan applications were rejected despite those qualifications and (4) the defendant approved loan applications for applicants with similar qualifications who are not members of the protected class.

With respect to the loan applications plaintiffs submitted, Navy Federal argues that the complaint fails to detail the “terms of the credit sought” or “the requirements necessary for approval.” Moreover, while plaintiffs applied for different types of mortgage products, the complaint does not allege any meaningful differences among these products or among plaintiffs’ applications.

As a result, the complaint makes only conclusory claims about plaintiffs’ qualifications for such products when they applied for them. Without plausibly claiming that plaintiffs were qualified at the time of application, the complaint fails to allege sufficient facts to sustain an intentional discrimination claim through inference. The disparate treatment claims are dismissed.

Disparate impact

To sustain a disparate impact claim at the motion to dismiss stage, the complaint must allege (1) a disparate impact on the protected class; (2) a specific policy of the defendant and (3) a causal connection between the policy and the disparate impact. The court finds that the complaint here meets the requirements to state a claim: the statistical disparities reveal a disparate impact among non-white loan applicants and the underwriting algorithm and process is alleged to have caused the disparity.

California claim

Navy Federal asks the court to dismiss plaintiffs’ California Unfair Competition Law claim for three reasons: (1) California law does not apply because of choice-of-law clauses in the Navy Federal Membership Agreement; (2) plaintiffs failed to plead facts supporting their claim and (3) they may not pursue a restitution claim when there is an otherwise adequate remedy at law. The court need only address Navy Federal’s first argument because it is correct that the choice-of­law clause in the parties’ agreement proscribes application of California law to claims arising out of plaintiffs’ membership in Navy Federal Credit Union.

Notice of claims

Navy Federal maintains that plaintiffs were required under the Membership Agreement to provide notice and a reasonable period to take corrective action or resolve the grievance before filing a judicial action. As alleged in the complaint, only Carr attempted to do so. The court is persuaded that additional notice to Navy Federal regarding plaintiffs’ claims of discrimination would have been futile.

This is supported by the allegation that Carr wrote to Navy Federal in January 2022 saying that he believed he had been discriminated against based on his race by Navy Federal when it denied his loan application. In response, Navy Federal said there was no “evidence of discrimination on file” and did not provide further assistance. At the pleading stage, such an allegation is sufficient to conclude that any additional notice by the named plaintiffs would not have meaningfully addressed their core contentions.

Class

Because the circumstances of each plaintiffs’ loan application process are so varied, and to promote the efficient use of resources and to streamline the claims to be considered in this civil action, the court will strike the class allegation and allow the nine plaintiffs to proceed on their Equal Credit Opportunity Act and Fair Housing Act disparate impact claims under Case No. 1:23-cv-1731 (LMB/WEF) or permit them to proceed individually.

Defendant’s motion to dismiss granted in part, denied in part.

Oliver v. Navy Federal Credit Union, Case No. 1:23-cv-1721, May 30, 2024. EDVA at Alexandria (Brinkema). VLW 024-3-294. 23 pp.