PREDATORY LENDING

Issues

In this consolidated action, the Supreme Court will decide whether a city can sue a bank under the Fair Housing Act for discriminatory lending practices, and whether it can recover lost property tax revenues and funds spent addressing widespread foreclosures that the bank’s discriminatory practices allegedly caused. The City of Miami alleges, based on statistical analyses, that loans by Bank of America and Wells Fargo & Co. to minority borrowers were more than five times as likely to result in foreclosures than loans to white borrowers. The banks argue that the City of Miami falls outside the zone of interests required to obtain standing under the Fair Housing Act, and that any alleged causal relationship between the City’s financial losses and the discriminatory housing practices of the banks is too far a stretch to support a valid lawsuit. The City responds that it meets the broad standing requirements of the Fair Housing Act and should recover for its injuries because they are foreseeably and directly linked to the discriminatory lending practices of the banks. A victory by Miami could potentially overburden the courts with similar lawsuits and overextend judicial power; however, Miami’s defeat could leave the FHA under-enforced and cities underfunded to battle urban blight.

Questions as Framed for the Court by the Parties

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Issues

In this consolidated action, the Supreme Court will decide whether a city can sue a bank under the Fair Housing Act for discriminatory lending practices, and whether it can recover lost property tax revenues and funds spent addressing widespread foreclosures that the bank’s discriminatory practices allegedly caused. The City of Miami alleges, based on statistical analyses, that loans by Bank of America and Wells Fargo & Co. to minority borrowers were more than five times as likely to result in foreclosures than loans to white borrowers. The banks argue that the City of Miami falls outside the zone of interests required to obtain standing under the Fair Housing Act, and that any alleged causal relationship between the City’s financial losses and the discriminatory housing practices of the banks is too far a stretch to support a valid lawsuit. The City responds that it meets the broad standing requirements of the Fair Housing Act and should recover for its injuries because they are foreseeably and directly linked to the discriminatory lending practices of the banks. A victory by Miami could potentially overburden the courts with similar lawsuits and overextend judicial power; however, Miami’s defeat could leave the FHA under-enforced and cities underfunded to battle urban blight.

Questions as Framed for the Court by the Parties

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Issues

Buckeye Check Cashing, a service provider in the payday loan industry, agreed to loan money to John Cardegna. The loan agreement contained an arbitration clause that compelled the parties to use arbitration, and not the courts, in case of dispute. Cardegna brought a class action lawsuit against Buckeye for allegedly charging interest rates higher than Florida usury law allows. Buckeye responded by filing a motion to compel arbitration pursuant to the arbitration clause. Cardegna resisted arbitration, maintaining that the arbitration clause was part of an illegal contract and therefore void ab initio—the clause had never come into existence as a matter of law. The issue before the Court is thus whether a court or an arbitrator should determine whether the underlying contract is void for illegality before enforcing the arbitration clause. The outcome will depend on whether the Supreme Court believes the separability doctrine applies to such contracts. If the Court affirms and holds that Cardegna's claims should be decided by the courts, the payday industry and its consumers, businesses that use arbitration clauses, and the policies behind the Federal Arbitration Act may suffer. If the Court instead decides that the claims should be sent to arbitration, low-income consumers, consumer protection regulation, and the integrity of the judicial system as a whole may be negatively affected.

Questions as Framed for the Court by the Parties

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