Borrowers with disabilities are protected from lending discrimination by the federal Fair Housing Act of 1968, enforced by the Department of Housing and Urban Development (HUD) and its Office of Fair Housing and Equal Opportunity.
According to the Fair Housing Act, it is illegal to discriminate against loan applicants based on race, color, national origin, religion, sex, familial status, or disability. The Fair Housing Act identifies specific behaviors that are considered discriminatory:
- Refusal of a mortgage loan or to refinance a mortgage loan
- Refusal to provide information regarding loans
- Imposing special terms or conditions on a loan, such as different interest rates, points, or fees
- Inconsistencies in property appraisal
- Refusal to purchase a loan or setting special terms and conditions for purchasing a loan
- Refusing financial assistance for purchasing, constructing, improving, repairing, or maintaining a dwelling
Despite the Fair Housing Act and HUD’s promise to enforce it, discrimination against borrowers with disabilities nonetheless finds its way into the lending practices of major financial institutions.
In the past decade, major lenders that many borrowers rely on have made headlines for discriminatory practices against borrowers with disabilities, including the Fifth Third Mortgage Company and national heavyweight Bank of America.
The DOJ vs. B of A
The US Department of Justice filed a complaint against Bank of America in 2020, alleging that the bank began a policy in January of 2010 of denying mortgage and home equity loans to adults with disabilities who were under legal guardianships or conservatorships even when applicants met all requirements.
In July of 2020, the DOJ and Bank of America came to a settlement agreement in which Bank of America agreed to pay $4,000 per loan to individuals affected and end all such discriminatory practices.
Bank of America also agreed to train employees in the new non-discriminatory policies and monitor its loan processing and underwriting activities to ensure compliance with the Fair Housing Act.
Fifth Third Mortgage Company
The DOJ filed a complaint against Fifth Third Mortgage Company in 2014 alleging a pattern of discriminatory practices in which applicants who received disability and public assistance were denied loans and mortgages, violating the Fair Housing Act and the Equal Credit Opportunity Act.
DOJ and Fifth Third reached a settlement agreement in August of 2014 in which the bank agreed to revise discriminatory policies, conduct employee training regarding new policies, and pay over $1.5 million to compensate victims of the discrimination.
One of the specific allegations made against Fifth Third at this time was that loan policy dictated that loan officers request that applicants with disabilities provide documentation from a doctor to verify said disability, a clear violation of privacy, the ADA, and the Fair Housing Act.
Though the doctor’s note requirement was taking discrimination to unreal extremes, this behavior from Fifth Third is not unusual. And the difficulty in using disability income for lending purposes is a common complaint of people with disabilities as they go through the mortgage process. Yet, as the Fifth Third lawsuit indicates, denying borrowers with such income violates the Fair Housing Act. Along with that, there are other things to be wary of when seeking a loan and choosing a lender.
Borrower beware
Here are some basic red flags to be on the lookout for.
- Refusal to accept SSI or SDI or other government benefits as eligible income
- Being treated differently in person than on the phone or online
- Being discouraged from applying for a loan
- Encouraged to apply for a loan that has less favorable terms, like a higher interest rate
- Hearing lenders make negative comments about race, age, sex, disability, etc.
- Being refused a loan even when all advertised requirements are met
- Being offered a high-interest rate when advertised information indicates eligibility for a lower rate.
Additionally, as evidenced by the Fifth Third settlement, lenders who dig around about an applicant’s medical history use discriminatory lending practices to determine loan eligibility. Lenders cannot ask about the nature of an applicant’s disability or request information from their doctors. While income verification is necessary to obtain loan approval, only documentation showing the sources and amounts of income is required. Proof of payment should have nothing to do with medical information.
Veterans applying for loans using disability and VA benefits are protected by the same regulations. For loans backed by the VA, lenders do not need any medical documentation from an applicant’s doctor, and any lender requesting such should be reported.
To report suspected incidences of disability discrimination in the loan process, visit the HUD site or the DOJ’s Civil Rights Division. Though dealing with bureaucracy can feel overwhelming, initial complaints about Bank of America and Fifth Third led to the DOJ lawsuits, subsequent settlements, and the end of the discriminatory practices at those institutions.
The Consumer Financial Protection Bureau offers some best practices for borrowers for further information on credit discrimination and fair lending requirements.
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