SunTrust Mortgage Inc. agreed Thursday to pay $21 million to settle a federal lawsuit alleging racial discrimination in its lending practices, the second-largest fair lending settlement ever obtained by the U.S. Department of Justice.
A complaint filed by the department in U.S. District Court in Richmond said SunTrust Mortgage charged more than 20,000 black and Hispanic borrowers more than similarly qualified non-Hispanic white borrowers between 2005 and 2009. Minority borrowers in 75 geographic markets stretching from Virginia Beach to San Francisco paid more in loan fees or higher interest rates based solely on race or national origin, according to the complaint.
The consent order filed along with the complaint says SunTrust Mortgage denied wrongdoing but agreed to the settlement to avoid expensive and potentially risky litigation.
"SunTrust strongly believes in the principles of fair lending," company spokesman Mike McCoy in Atlanta said. "We are pleased to have reached a settlement and put this matter behind us."
Thomas E. Perez, assistant attorney general for the Civil Rights Division, said the agreement is second only to last year's record $335 million fair-lending settlement with Countrywide.
"At the core of the complaint is a simple story: If you were African-American or Latino, you likely paid more for a SunTrust loan than a similarly qualified white borrower simply because of your skin color," Perez said in a teleconference with reporters. "You paid what amounted to a racial surtax that ranged from hundreds to thousands of dollars."
The department began its investigation based on a referral from the Federal Reserve, which reviewed the Richmond-based mortgage company's compliance with the Fair Housing Act and the Equal Credit Opportunity Act. The department said it reviewed more than 850,000 residential mortgage loans originated by SunTrust between 2005 and 2009.
According to the complaint, SunTrust set prices based on objective credit-related criteria but allowed its own loan officers as well as its national network of brokers to adjust those prices without regard to borrower risk, often resulting in black and Latino customers paying more than white borrowers. SunTrust "incentivized discrimination" by sharing the inflated charges with those loan officers and brokers, Perez said.
Brokers generally extracted larger overpayments, he said. For example, Latino customers in Dallas borrowing $200,000 through a broker paid about $1,360 more than similarly qualified white borrowers while black customers in Atlanta were charged about $745 more than white voters.
Those minority borrowers had no idea white customers with similar credit would pay less, Perez said.
"That is discrimination with a smile," he said.
Authorities said SunTrust fully cooperated in the investigation and has since adopted policies and procedures to prevent discrimination.
"They should be commended for recognizing there were problems in their own house and taking steps to clean those up," said U.S. Attorney Neil H. MacBride.
The settlement, which is subject to court approval, requires the lender to continue operating under those nondiscrimination policies.
According to the consent decree, SunTrust will be required to put the $21 million into an interest-bearing escrow account. Borrowers in 34 states and the District of Columbia who paid too much will be contacted. Any money left over after borrowers are compensated will be distributed to fair-housing and credit-counseling organizations.