Justices weigh fair lending lawsuit against Bank of America, Wells Fargo

The Supreme Court appeared divided Tuesday over whether the city of Miami could sue Bank of America and Wells Fargo for discriminating against African-American and Latino residents when issuing mortgage loans.

Justice Elena Kagan struggled with the bank’s argument that Miami had not shown that discrimination was the primary cause of the city’s injuries.

{mosads}Under the Fair Housing Act (FHA), she said, the city is considered an “aggrieved person.”

“This is their own interest in maintaining their communities free of the kind of racial discrimination that the Act says causes neighborhood blight,” she said.

Miami claims Wells Fargo and Bank of America violated the FHA by steering minority residents toward predatory mortgages that caused properties throughout the city to fall into foreclosure.

As a result, the city is seeking monetary damages for the property tax revenue it lost due to neighborhood blight and the money it had to spend on city services responding to it, such as police, fire and building inspectors.

Wells Fargo and Bank of America, however, claim Miami is only trying to recoup the money it lost in the 2008 financial crisis and that it doesn’t have standing to sue under the FHA.

Miami’s attorney Robert Peck denied that claim.

“If the 2008 financial crisis was, indeed, the purpose of this lawsuit, then the statute of limitations, which is two years, would have ended this lawsuit a long time ago,” he said.

But Chief Justice John Roberts and Justice Anthony Kennedy wanted to know if neighborhood businesses that have a vested interest in a vibrant community would also be able to claim they were injured by the bank’s discriminatory practices.

Peck argued they would not because they are commercial property owners.

“The city has a special interest in fair housing and an integrated community that the FHA is designed to vindicate,” he said. “The employer does not. The local dry cleaner does not.”

Because the damages being sought by the city don’t appear to be going to the residents who received the bad loans, Kennedy asked if the city considered itself a direct victim of discrimination.

When Peck said it does, Roberts pushed back, arguing the city’s injuries are a result of the direct injury its residents suffered.

“You don’t start with you,” he said. “I understand your argument that you’re down the line, but I don’t see how you can say that your loss of property taxes is a direct injury.” 

The banks’ attorney, Neal Katyal, warned the justices that a ruling in favor of Miami would allow any city to claim it has been discriminated against under the Fair Housing Act.

“There are 19,300 cities in America,” he said. “If you adopt their theory, you would be allowing all of them to bring complaints just like this.”

Updated: 1:07 p.m.