Miami drops reverse redlining claims against top 4 banks

Dive Brief:

The city of Miami dropped its fair housing lawsuits against the nation’s four biggest banks last week, ending a dispute that began in 2013 and went to the Supreme Court.
Miami was one of several municipalities to allege in the early 2000s that Wells Fargo, Bank of America, JPMorgan Chase and Citi steered black and Latino homeowners into mortgages they couldn’t afford, leaving local governments to pay to maintain properties that were foreclosed during the 2007-08 financial crisis. Miami also alleged it suffered harm in the form of lost tax revenue.
Miami’s move is curious in that the city on Jan. 21 got the permission of the U.S. District Court for the Southern District of Florida to file an extension on a revised complaint in the Wells Fargo case, according to the court docket. No settlement talks are ongoing.

Dive Insight:

The dismissal comes a month and a half after Philadelphia won a $10 million settlement against Wells Fargo in which it claimed the bank targeted nonwhite borrowers for loans with predatory terms, a practice known as reverse redlining. Oakland, California, is among the other cities filing fair housing lawsuits.

"The dismissal was initiated by the city and is not related to a settlement, and Wells Fargo is providing nothing in exchange," Wells Fargo said in a statement Friday on the Miami case, according to Bloomberg Law.

The district court dismissed Miami’s cases against Wells Fargo and Bank of America in 2014, saying the city had not demonstrated its claims were covered by the housing law. However, the U.S. Court of Appeals for the 11th Circuit reversed those rulings in 2015, saying the city’s claim that it "suffered an economic injury resulting from a racially discriminatory housing policy" was sufficient. The Supreme Court ruled in 2017 that Miami was entitled to sue under the housing law but gave no guidance as to whether the city argued a direct enough connection between the banks’ actions and the alleged harm.

Justices on the high court in 2015 determined that plaintiffs must show more than racial disparity. Rather, they should demonstrate a robust causal link between a race-neutral policy and disproportionate harm.

Miami’s dismissal illustrates the difficulty involved in connecting fair-housing harm to current policy, and it may lead other municipalities to reassess, attorneys said.

"I think you’re going to see many of these lawsuits go away," Joseph Lynyak, a partner at Dorsey & Whitney, told American Banker.