Long Beach, CA lender to pay $4 million to settle Justice allegations of race, sex, age discrimination

In early September, just a few months after the Justice Department's landmark $4 million settlement with Fleet Financial, the Department's Division of Civil Rights has again won a multimillion dollar settlement from a mortgage lender to resolve allegation s of illegal discrimination. The California-based Long Beach Mortgage Company has agreed to pay $4 million to settle claims that they discriminated against borrowers on the basis of race, national origin, sex, and age.

The settlement agreement requires the mortgage company to establish a $3 million fund to compensate more than 1,200 borrowers that the Department of Justice alleged were the victims of illegal discrimination. The lender must also contribute $1 million to consumer education programs in conjunction with California civil rights groups. Long Beach has also agreed to training and monitoring programs.

The Justice Department's case revolved around data obtained from both Long Beach Mortgage's retail lending, business generated internally by Long Beach employees, and its wholesale lending, business generated by third-party mortgage brokers. The Department of Justice claimed that the finance company allowed both its employees and the brokers that it did business with to charge fees and premiums to borrowers which were not based on the borrowers creditworthiness. As in the Fleet case, the Department of Justice based its case not on application denials but on the differences in loan terms received by minority borrowers.

The complaint filed by the Justice Department claimed that Long Beach Mortgage's loan pricing system was based on an applicants race, national origin, sex, or age, as well as their credit risk level. The Department claimed it had evidence that African-Americans, Hispanics, women, and senior citizens were charged higher prices and fees for their loans than other borrowers with equal credit risk who did not have minority characteristics. The Department also claimed that the lender directed its marketing efforts toward minorities because officials believed minority borrowers would not discover the higher prices in their loans. Both the lender's loan officers and brokers who referred clients to Long Beach emphasized the low monthly payments rather than loan fees or interest rates. The mortgage company used this technique to present a loan package that appeared favorable to the borrower. In actuality, the applicant paid more than was necessary to obtain the loan. The Justice Department claimed there was no risk-related explanation that justified the different loan fees paid by minority borrowers.

Long Beach Mortgage was first investigated by the Justice Department after a 1993 examination by the Office of Thrift Supervision (OTS) determined that the lender may have engaged in discriminatory conduct. In an investigation, the Justice Department checked Long Beach's lending records from 1991 to 1994 and confirmed the OTS findings.