City of Los Angeles failed to show that Wells Fargo’s allegedly discriminatory practices violated the FHA under a disparate impact theory

In City of Los Angeles v. Wells Fargo & Co., No. 213CV09007ODWRZX (C.D. Cal. July 17, 2015), the FHA’s statute of limitations limited the City of Los Angeles’ predatory lending claims under against Wells Fargo to two types: high-cost loans and FHA loans. The City’s claim under the FHA was brought under the disparate impact theory which requires the plaintiff to show that alleged discriminatory practices have a ‘disproportionately adverse effect on minorities’ and are otherwise unjustified by a legitimate rationale citing _Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc._, 135 S. Ct. 2507 (2015) which imposed limitations on the disparate impact theory of liability under the FHA, despite holding that the theory remains cognizable. 135 S. Ct. 2507 (2015). To establish a prima facie case for disparate impact liability under the Act, a plaintiff must prove the occurrence of certain outwardly neutral policies and a disproportionately adverse impact on persons of a particular class caused by the defendant’s facially neutral practices. The lender argued that high-cost loans do not violate the Act because (1) the statistical disparity is too small to establish a basis of liability, and (2) the City failed to identify a lender policy that caused the disparity. The court bought both arguments. The evidence proffered by the City consisted of 5 high-cost loans issued to African-Americans and 7 high-cost loans issued to Hispanics, while 4 high-cost loans issued to Caucasians. The difference between 0.0033 percent and 0.0008 percent is not enough evidence to support the claim. Relying on _Inclusive Communities_, the district court observed that disparate impact claims may only seek to remove policies that are artificial, arbitrary, and unnecessary barriers and not valid governmental and private priorities. The City failed to point to a specific policy that caused the disparate impact and failed to show robust causality between any of defendant’s policies and the alleged statistical disparity, as _Inclusive Communities_ requires. The court also rejected the notion that disparate impact claims could be used to impose new policies on lenders, and said that the City’s argument that lenders should adopt policies to avoid disproportionate lending was a roundabout way of arguing for a racial quota. The court was sharply critical of the City’s argument that FHA loans are harmful to minority borrowers, and further that any disparate impact from these loans would be a result of the federal government’s policies, not the defendant’s policies.

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