Plaintiffs sued Navy Federal Credit Union in federal court Sunday, alleging the lender discriminated against Black and Latino mortgage applicants.

The class-action lawsuit comes days after a CNN report found a nearly 29 percentage-point gap between the credit union’s rate of acceptance for Black mortgage applicants (48.5%) in 2022, compared with White ones (77.1%). Latino applicants fared only slightly better than Blacks in the CNN analysis, at 55.8% acceptance.

The CNN report cites data publicly available from the Consumer Financial Protection Bureau but has received pushback from both Navy Federal and three credit union trade groups.

"The statistics in the article do not appear to have considered several key credit criteria that all financial institutions, including Navy Federal, rely on to assess mortgage applications,” the credit union said in a statement seen Monday by American Banker. 

Bill Pearson, a spokesperson for Navy Federal, listed “credit score, available cash deposits and relationship history with lender” as some of those factors, in comments Thursday to CNN.

In its statement to American Banker, Navy Federal emphasized that it ranks third among the top 50 mortgage lenders in percentage of loans made to Black borrowers, adding that its mortgages to Black borrowers in 2022 totaled more than $3.5 billion.

"We take our responsibility to fair lending very seriously and are closely examining the allegations in the recent CNN article,” the credit union said in a statement Monday to American Banker.

In a statement of their own, the leaders of the National Association of Federally-Insured Credit Unions, the Credit Union National Association and the African American Credit Union Coalition called CNN's report “misleading."

"It's unfortunate that a recent CNN analysis misconstrued credit union mortgage lending data to paint an inaccurate picture and draw false conclusions about Navy Federal Credit Union, and the entire credit union industry," CUNA CEO Jim Nussle, NAFCU CEO Dan Berger and AACUC CEO Renée Sattiewhite said in a joint statement Monday seen by American Banker.

A stagecoach-shaped shadow

On its face, the Navy Federal allegations hew closely to those leveled against Wells Fargo in March 2022, after a Bloomberg analysis found a 25 percentage-point gap between the acceptance rate for Black mortgage applicants in 2020 (47%) and White ones (72%).

The bank’s acceptance rate for Black mortgage borrowers jumped by 11 percentage points the following year — to 58%. But the gap, by race, stood at 21 points in 2021 because the acceptance rate for White borrowers also increased — to 79%.

Rep. Maxine Waters, D-CA, the ranking member of the House Financial Services Committee, likely referenced the Wells Fargo disparity in a call to action Monday.

"While this type of discrimination may be par for the course for a profit-driven megabank, a member-driven credit union should know better,” Waters said in a statement seen by CNN.

She’s asking the CFPB and the National Credit Union Administration to “promptly investigate this matter” and for Navy Federal to justify its lending decisions.

“As a private institution that bears the name of an esteemed branch of the United States military, Navy Federal must explain both to Congress and their members how such practices took place, what immediate steps are being taken to correct the harm done, and who in management will be held responsible," Waters said. "Its leadership should also share to what extent they prioritize diversity and inclusion, including on their management team and board, as well as in their hiring, promoting, and contracting practices.”

For his part, Pearson, the Navy Federal spokesperson, told CNN last week that the credit union “is committed to equal and equitable lending practices and strict adherence to all fair lending laws.” 

“Employee training, fair lending statistical testing, third-party evaluations and compliance reviews are embedded in our lending practices to ensure fairness across the board,” Pearson said, adding that CNN’s analysis “does not accurately reflect our practices.”

The lawsuit

The class-action suit filed against Navy Federal on Sunday asserts that the credit union violated the Fair Housing Act and the Equal Credit Opportunity Act in allowing the lending disparity. 

Among the statistics the lawsuit cites, Navy Federal approved a higher percentage of applications from White borrowers making less than $62,000 a year than it did from Black borrowers making $140,000 or more, according to last week’s CNN report.

“Navy Federal claims that it ‘champions community,’ and that it is ‘dedicated … to embracing and celebrating diversity and inclusion in all the communities’ it serves,” the complaint argued. “But Navy Federal’s claims of community support are meaningless in the face of its actions: systematic discrimination in housing, in violation of federal law.”

CNN’s report Thursday centered on Bob Otondi, a Texas-based Black business owner whose mortgage application Navy Federal rejected in 2021. Otondi was making more than $100,000 a year from his business, had a credit score above 700, and said he didn’t have significant debts, according to documents he showed the network.

Another lender approved Otondi roughly two weeks later, CNN reported.

“I thought it could have been racial discrimination,” Otondi said, “but I could never prove it.”

The gap by race in Navy Federal’s mortgage data persisted even after applicants’ income, debt-to-income ratio, property value and down payment percentage were taken into consideration, CNN said of its review.

The lawsuit names two plaintiffs with similar or higher incomes and credit scores to Otondi’s. The suit aims to represent all nonwhite Navy Federal residential loan applicants — between 2018 and now — whose applications were denied, approved at higher interest rates or subject to less favorable terms compared to similar non-minority applicants, or were processed more slowly.