Miami sues over bad lending in bad neighborhoods

When Miami began suffering some of the horrifying results of urban blight, it sought to recover some of the losses by suing banks for violating a fair housing law. The banks’ discriminatory lending practices, the city argued, contributed to crime, deaths, fires, and business closings in blighted areas—all of which cost the city money.

“The City of Miami brought these cases seeking injunctive relief and monetary damages because the banks’ practice of providing minority borrowers with more expensive and riskier loans than they qualified for … actually frustrated and counteracted the city’s efforts on fair housing and tended to cause the city to lose the benefits of social, professional, and business opportunities that come with an integrated community free from housing discrimination,” Miami lawyer Robert Peck argued last month before the U.S. Supreme Court.

The banks’ practice is called “reverse redlining,” meaning they lend money to equally qualified African-Americans and Latinos, but they offer worse terms to those minority groups than they offer to whites. The city draws a direct line between that illegal banking practice and the city’s blighted areas.

Miami sued Wells Fargo and Bank of America in 2013 for violating the Fair Housing Act, a 1968 law written to fight the effects of racial segregation. The Supreme Court must decide whether the city has standing to sue since it was not the direct target of discrimination.

The banks argue if the justices permit Miami to proceed, they would invite a flood of fair-housing lawsuits by other cities. The Obama administration supported Miami. Assistant Solicitor General Curtis Gannon argued the reasonableness of a city trying to recover from blight as a result of discriminatory lending practices. But Justice Elena Kagan wondered the limits of that: “What do you do then with the restaurant or the dry cleaner or the laundry or the whatever that wants to sue for somebody else’s discrimination?”

Plenty of outside organizations showed an interest in the case. The libertarian Cato Institute, in a friend-of-the-court brief filed on the banks’ behalf, cited the separation of powers, saying no court has license to invent a new cause of action for any type of economic loss, no matter what social ill Congress is trying to fix.

Los Angeles, San Francisco, and 24 other jurisdictions took the opposite view in another brief, arguing the Fair Housing Act aims to reduce urban unrest and persistent poverty that bedevils urban areas. In addition, the lawmakers who debated the Fair Housing Act in the first place also filed a brief in support of Miami. They claimed the city’s broad interpretation of “aggrieved person” is what they’d intended.

Listen to “Legal Docket” on the Dec. 5, 2016, edition of The World and Everything in It.