Luther Burbank Savings in Santa Rosa, Calif., has agreed to invest $2 million in low-income communities to settle a Justice Department lawsuit alleging it discriminated against minorities.
The Department of Justice said Wednesday that Luther Burbank set a $400,000 minimum loan amount for jumbo mortgages that resulted in too few home loans made to black and Hispanic borrowers from 2006 to mid-2011. The Justice Department alleges the thrift's policy had a "disparate impact" based on race and nationality.
Under the settlement, Luther Burbank agreed to create a new mortgage unit that will offer 30-year fixed-rate loans to qualified borrowers. It will invest $1.1 million in a special financing program that will include offering down payment assistance and low interest rates to increase lending to majority-minority census tracts in California. The bank agreed to invest in community-based organizations that provide credit services to minorities and consumer education programs. It also will conduct fair lending training for its employees.
John Biggs, Luther Burbank's president and chief executive, said in a statement that the $3.6 billion-asset thrift agreed to settle to "avoid a long and costly litigation with the Department of Justice."
"We are proud of our record on nondiscriminatory lending, and we will do everything possible to make a positive different in the communities within our marketplace," Biggs said.
The complaint alleges that only 5.8% of Luther Burbank's single-family residential mortgages were made to African-American and Hispanic borrowers during the six-year period, compared with 31.8% of loans made to minority borrowers in Los Angeles by comparable prime lenders.
Thomas E. Perez, assistant attorney general for the Justice Department's civil rights division, said in a statement that the settlement demonstrated the agency's commitment to addressing "a wide range of abuses in the credit market."
"It is critical that lenders have policies in place to ensure that they don't discriminate in their lending programs," he said.
The Justice Department also noted that Luther Burbank has operated with a $20,000 minimum loan amount policy for single-family residential mortgage loans since June 2011.
The Justice Department has logged a considerable amount of fair-lending enforcement activity in the past year, including a $335 million settlement with Countrywide Financial, now part of Bank of America (BAC), and a $175 million fair-lending settlement in July with Wells Fargo (WFC).
The Justice Department has pursued a number of enforcement actions in recent years under the "disparate impact" theory, claiming fair-lending violations resulted from policies that had a disparate impact on a group of borrowers, even if the discrimination did not appear to be intentional.
Andrew Sandler, chairman of the law firm BuckleySandler, said the department accused Luther Burbank of discrimination because it offered only nontraditional portfolio loan products to high-net-worth individuals.
"This case represents DOJ's most aggressive use of the disparate impact discrimination theory," said Sandler.
The lawsuit originated from a 2010 referral by the now-defunct Office of Thrift Supervision to the Justice Department's civil rights unit.