Why Did Federal Court Deny Class Certification in Fair Lending Case Against Large Bank?

  A federal judge in California has denied class certification in a high-stakes mortgage litigation case targeting a large bank. The lawsuit accused the institution of racially discriminatory mortgage lending practices. This decision marks a major development in fair lending litigation and narrows the path for class-based claims.

Was There Systemic Bias in the Mortgage Lending?

The plaintiffs, black and hispanic applicants, alleged they were unfairly denied mortgage loans, faced longer processing delays, or were charged higher rates than non-hispanic white applicants. They claimed the conduct violated the Fair Housing Act and Equal Credit Opportunity Act (ECOA), seeking to certify a broad class of similarly affected borrowers.

The court rejected the plaintiffs’ request, finding they failed to demonstrate that the alleged harm was driven by a common, discriminatory policy applicable across the proposed class.

What Were Some Key Reasons for the Denial?

The reasons the case could not proceed as a class included:

• No uniform discriminatory practice: Plaintiffs did not establish that the bank had a single policy or practice that resulted in the alleged racial disparities.

• Individualized decisions matter: Mortgage underwriting decisions involved multiple factors and human discretion, making broad generalizations inappropriate.

• Statistical evidence fell short: While plaintiffs pointed to disparities in outcomes, they failed to prove that those disparities were caused by race or by a specific unlawful policy.

Without a clear causal link or a shared experience among all class members, the class certification was inappropriate.

What Does This Mean for Mortgage Executives Today?

This ruling underscores important takeaways for C-suite leaders navigating compliance, litigation exposure, and fair lending enforcement:

• Disparity ≠ discrimination: Even statistically significant differences in loan outcomes do not, on their own, prove unlawful conduct.

• Policy precision matters: The absence of a clear, common policy causing harm will limit plaintiffs' ability to bring class actions.

• Human judgment is a factor: When manual review is part of loan decisioning, courts are more reluctant to presume systemic discrimination.

Any Takeaways for Lenders?

• Review and document internal lending practices: Ensure policies are consistent and applied equitably across borrower groups.

• Maintain healthy training and oversight: Educate underwriting staff on compliance, discretion, and documentation.

• Evaluate class action vulnerability: Consider how individualized lending decisions and internal controls may serve as defenses against systemic claims.

• Continue proactive fair lending monitoring: Do not wait for litigation, identify and address disparities before they become legal liabilities.

There are a number of other fascinating aspects about this case.  Why a federal court in California?  Why did the bank not fight harder against plaintiff’s argument of disparate impact under ECOA?  What does this mean in an AI world?  Reach out to troy@garrishorn.com and let’s chat.  You can also find the court’s Order here.