SCOTUS Rules Cities Can Sue Big Banks For Discriminatory Lending

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Kevin Daley Supreme Court correspondent
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The Supreme Court ruled Monday in a partial vindication for cities across the country that municipal governments can sue banks over discriminatory lending practices under the Federal Housing Act (FHA).

The justices qualified their ruling, however, finding cities must show a direct, causal relationship between lending practices and injuries local governments incur.

The 5-3 ruling was written by Justice Stephen Breyer. His opinion was joined by Chief Justice John Roberts and Justices Ruth Bader Ginsburg, Sonia Sotomayor, and Elena Kagan. Justice Clarence Thomas wrote an opinion concurring and dissenting in part. Thomas was joined by Justices Anthony Kennedy and Samuel Alito. Justice Neil Gorsuch did not participate in the case, as it was argued before he joined the high court.

Miami first brought a suit against Bank of America and Wells Fargo in 2013, claiming predatory lending protocols had diminished their property tax revenue and forced them to expend more money on basic services. The city alleges “the Banks intentionally targeted predatory practices at African-American and Latino neighborhoods and residents,” leading to a spike in foreclosures in minority-majority neighborhoods, as Breyer explains in his opinion, Consequently, these practices “impaired the City’s effort to assure racial integration, diminished the City’s property-tax revenue, and increased demand for police, fire, and other municipal services.”

The Court concluded that a city government is a person within the meaning of the FHA, but stopped short of siding with Miami in the dispute.

“This Court has repeatedly written that the FHA’s definition of person ‘aggrieved’ reflects a congressional intent to confer standing broadly,” Breyer wrote.

Though the ruling manifests a partial victory for Miami, the Court also established that cities must demonstrate a lender’s conduct is the direct and proximate cause of the alleged injuries in order to prevail, a much higher standard as compared to lower court rulings on this topic.

“[P]roximate cause under the FHA requires ‘some direct relation between the injury asserted and the injurious conduct alleged,'” the ruling says.

This section of the opinion may reflect the influence of the chief justice, who defected from the conservative bloc to join the liberal justices in this case. Had the Court spilt 4-4 along ideological lines, the judgement of the 11th U.S. Circuit Court of Appeals in this case would have been affirmed. The 11th Circuit also held that cities are persons under the FHA, but set a much lower proximate cause standard, making victories more attainable for cities.

In providing the liberals with the necessary fifth vote, the chief handed the banks a partial defeat, but also made it more difficult for cities to prevail in future litigation.

Over two dozen cities and municipal jurisdictions, including Los Angeles and San Francisco, filed an amicus (or “friend-of-the-court”) brief supporting Miami.

Writing in dissent, Thomas argued the city’s injuries are “‘marginally related to or inconsistent with the purposes,'” of the FHA, but agreed with the proximate cause standard articulated in the majority opinion.

The case will now return to a lower court, which will further define the contours of the proximate cause standard, and determine if Miami is entitled to damages.

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