Last week, on May 30, U.S District Judge Brinkema of the U.S. District Court for the Eastern District of Virginia, granted in part and denied in part Navy Federal Credit Union’s (Navy FCU) motion to dismiss the consolidated complaint filed on December 17, 2023. The complaint, filed by nine plaintiffs, alleged that Navy FCU 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 in violation of the Fair Housing Act (FHA) and Equal Credit Opportunity Act (ECOA). Judge Brinkema’s order means that certain counts in the complaint will proceed, specifically, the allegation that Navy FCU’s mortgage underwriting policies have had a disparate impact on minority loan applicants.
You may recall that a CNN article, published on December 14, 2023, had initially charged that Navy FCU has the widest disparity in mortgage approval rates between White and Black borrowers of any major lender. The lawsuit was filed following CNN’s report. Navy FCU responded to the allegations in a December 18 press release.
The complaint relied on Home Mortgage Disclosure Act data and statistical analyses in three publicly available independent reports to allege that Navy FCU “engaged in racial discrimination by denying plaintiff’s loan applications or offering plaintiffs a loan product on less favorable terms.”
In her discussion, Judge Brinkema said that “[b]ecause the Complaint has failed to allege plausible direct or circumstantial evidence of discriminatory intent, and has failed to allege facts showing that plaintiffs were qualified for the mortgage products they sought”, the disparate treatment claims under the FHA (Count I), the ECOA (Count II), Section 1981 (Count III), the California Unruh Civil Rights Act (Count V), the California Unfair Competition Law (Count VI), and Florida Section 725.07 (Count VII) will be dismissed. She continued that “[w]ithout 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.”
However, regarding the disparate impact claim, Judge Brinkema stated that the complaint has successfully met the requirements to state a claim for disparate impact under the FHA and ECOA because the statistical disparities reveal a disparate impact among non-white loan applicants and Navy FCU’s underwriting algorithm and process is alleged to have caused the disparity. She continued that “[i]f during discovery plaintiffs are unable to link the described “secret” underwriting process to the precise disparities and adverse consequences experienced by the borrowers-taking into consideration their individualized application criteria-then the Court may revisit whether the claim can survive at summary judgment.” Therefore, the disparate impact theory in Counts I and II will proceed as well as the plaintffs’ claim for declaratory relief under Count IV.
Finally, regarding the plaintiffs’ proposed three nationwide class allegations, the order stated that 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 federal ECOA and FHA disparate impact claims…or permit them to proceed individually.”
The plaintiffs must file an amended complaint with the reasoning outlined in the court’s order.
America’s Credit Unions will keep you up-to-date on this litigation as developments occur.