Case 3:10-cv-02494-P Document 3 Filed 01/11/11 Page 1 of 21 PageID 11

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UNO';E\)\SfA]IBS! DlSTR!€T COURT'

NORTTIERN DISTRICT OF TEXAS

DALLAS DIVISION

UNITED STATES OF AMERICA, Plaintiff, )

)

v.

)

)

PRIMELENDlNG, a PlainsCapital Company, )

Defendant.

)

)

No·3: 10-CV-02494-P

CONSENT ORDER l, INTRODUCTION This Consent Order (Order) is submitted jointly by the parties for the approval of and entry by the Court simultaneously with the filing of the United States' complaint (Complaint) in this action. The Order resolves the claims of the United States that the Defendant, PrimeLcnding, has engaged in a pattern or practice of conduct in violation of the Fair Housing Act (FHA), 42
U.S.c. §§ 3601-3619, and the Equal Credit Opportunity Act (ECOA), 15 U.S.c. §§ 1691-1691 C
by charging African-American borrowers higher annual percentage rates of interest for certain fixcd rate loans and certain loans guaranteed by the Federal Housing Administration and Department of Veterans Affairs secured by residential real estate than charged to non-Hispanic white borrowers between 2006 and 2009. Defendant denies that it discriminated unlawfully in setting loan prices.
Defendant has altered its pricing policy prior (0 the entry of this Order, and, under the provisions of the Order, (he Defendant agrees (0 continue (0 implement policies and procedures designed to ensure that the price charged for its residential loan products, including the portion of the pricc that reflects the discretion of the loan officer or any other company employee, is set in a

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nondiscriminatory manner consistent with the requirements ofthe FHA and the ECOA. In addition, the Defendant will compensate certain African-American borrowers.
There has been no factuallinding or adjudication with respect to any matter alleged by thc United States. The parties have entered into this Order to avoid the risks and burdens of litigation, and to resolve voluntarily the claims in the United States' Complaint relating to Defendant's alleged violations of fair lending laws.
II. BACKGROUND Prime Lending is a wholly-owned subsidiary of PlainsCapital Bank, a bank chartered by the Texas Department of Banking and a member of the Federal Reserve System. PrimeLending's principal place of business is Dallas, Texas. Prime Lending engages in retail mortgage lending. Historically, the company has largely concentrated its lending in Texas, particularly Dallas, but has opened other branches throughout the country in more recent years. It originated more than 30,000 loans secured by residential real estate in 2009, and, at the end of 2009, it originated these loans through employees who worked in 168 offices located in 32 states. PrimeLending has rapidly expanded its operations over the past several years, with originations of loans secured by residential real estate more than tripling between 2007 and 2009. Consistent with other mortgage lenders, the company's volume of loans guaranteed by the Federal Housing Administration has grown at an even more rapid clip over that period, with an increase fl'Om under 1,500 such loans in 2007 to nearly 15,000 in 2009. Prior to 20 I0, PrimeLending did not limit the discretion of its employees to charge "overages" or accept "underages," which could influence the overall price of the loan. Par prices, the price of the loan before any overage 01' underage, were communicated to employees through the dai Iy distribution of "ratesheets. " Prior to 20 I0, PrimcLending did not require its employees to document the reasons for charging overages or accepting undcragcs. The compensation of
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PrimeLending's employees was, in part, based on their ability to charge overages and avoid accepting underages.
The Federal Reserve System began in 2008 to examine the lending practices of PrimeLending to evaluate compliance with, among other laws, the FHA and the [eOA. The Federal Reserve System analyzed the annual percentage rates (APR) of interest charged for certain fixed rate and government-guaranteed loans secured by residential real estate that PrimeLending originated in 2006 and 2007. Although PrimeLending did not monitor or separately record overage or underage data for those years. the APR, in part. reflects the discretionary pOliion of the loan price. The Federal Reserve System found reason to believe that PrimeLending had displayed a pattern or practice of charging African-American borrowers higher annual percentage rates of interest than non-Hispanic white borrowers that, in the agency's view, could not be explained fully by factors unrelated to race. Further, the Federal Reserve System found that Prime Lending did not have robust fair lending controls.
The Board of Governors of the Federal Reserve System referred this matter to the United States Department of Justice on December 15,2009 for appropriate enforcement pursuant to 15 U.s.c. § 169Ie(g). In addition to the information obtained from the Federal Reserve System, the United States reviewed the annual percentage rates of interest charged for certain fixed rate and governmcnt-guaranteed loans secured by residential real estate that PrimeLending originated between 2006 and 2009. The Defendant promptly approached the United States to seek a mutually agreeable resolution of this matter, and it cooperated in good faith with the United States throughout its inquiry.
Both parties have agreed to the entry of this Order to resolve voluntarily the claims asserted by the United States in order to avoid the costs, risks, and burdens of' litigation.
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III. MODIFICATION OF LOAN PRICING AND MONITORING PRACTICES Subsequent to the referral from the Federal Reserve System, Prime Lending altered its
loan pricing policy to advance fair lending compliance. The company began to measure the discretionary portion of the price of each loan so that overages and underages could be determined and monitored to ensure that any deviations from the starting price are not based on factors prohibited by the FHA or the ECOA.
The company adopted a pricing policy that limits overages to 100 basis points (1.00% of the loan principal) and requires written explanations li'OIn loan officers for all overages and underages that exceed 50 basis points (0.50% of the loan principal). The company hired outside economists to evaluate loan pricing to borrowers of different races and ethnicities to ensure that pricing was being effectuated without regard to impermissible factors.
PrimeLending of11cials consult with regional managers and branch managers to ensure uniform compliance with fair lending standards. The company has developed a national training program to ensure that the pricing policy is understood by all employees who interact with consumers or otherwise are involved in the loan pricing or loan approval process.
IV. REMEDIAL ORDER I. Unless otherwise stated herein, the remedial provisions of this Order shall be implemented within 30 days of the Effective Date of this Order and shall continue throughout its tenn. The Effective Date of this Order shall be the date on which it is approved and entered by the Court. A. General Nondiscrimination Injunction 2. The Defendant, including all of its officers, employees, agents, assignees, successors in interest, and all those in active concert 01' participation with any of them, is hereby enjoined from engaging in any act or practice that discriminates on the basis of race in any aspect
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ofa residential real estate-related transaction in violation of the Fair Housing Act, 42 U.S.C. §§ 3604 and 3605, or in any aspect ofa credit transaction in violation of the Equal Credit Opportunity Act, 15 U.S.C. § 1691(a)(I). This prohibition includes, but is not limited to, the adoption, performance, or implementation of any policy, practice, or act that results in race discrimination in the charging of loan prices. including the portion of the loan price thaI reflects the discretion of the loan officer or any other company employee, to those who borrow moncy secured by residential real estate.
B. Lending Policies and Procedures 3. Until April 1,2011, the Defendant shall continue to follow the pricing policy described above that Iimits overages to 100 basis points. Effective April I, 20 I I, in accordance with the Federal Reserve System Regulation Z, 12 C.F.R. § 226.36(d), the Defendant shall prohibit its employees from receiving, directly or indirectly, overages or other compensation in an amount that is based on any of the terms or conditions of a loan sccured by residential real estate, including the annual percentage rate of interest charged to the borrower or the amount by which it varies hom the par rate. This prohibition shall not limit compensation that is based on the principal amount of a loan, provided the compensation is based on a fixed percentage of the principal; however, such compensation may be subject to a minimum or maximum dollar amount. This prohibition also shall not limit the Defendant fi'om allowing a borrower to finance, at the option of the borrower, including through principal or rate, any origination fees or costs, so
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long as such fees or costs do not vary based on the terms of the loan (other than the amount of

the principal) or the borrower's decision about whether to finance such fees or costs. I

4.

Within 30 days of the Effective Date of this Order, the Defendant shall set

specific, nonracial standards for the assessment of all origination fees and costs it charges and

retains for itself or pays to its employees on loans secured by residential real estate. To the extent

it allows discretion in the amount of these fees and costs, loan oiTicers wi II provide a written

explanation for all discretionary amounts charged that result in overages or underages that

exceed 50 basis points.

5. The Defendant shall require all employees who originatc loans secured by

residcntial real estate to comply with the requirements established in Paragraphs 3-4. The

Defendant shall also require an appropriate manager, under the supervision of a designated

senior oiTieial oflhe Defendant, to review compliance with thcsc requirements, including the

cxistence of a legitimate nondiscriminatory reason for any overage or underages that exceeds 50

basis points and ensuring that discretionary loan prices do not vary materially by race or

ethnicity. Any loan that is not in compliancc with these requirements may not be funded. In the

event that a loan inadvertently is funded in material violation of the policy, an appropriate refund

will be provided to the borrower. All reviews shall be documented and kept in the loan file.

I No term of this Consent Order will be interpreted to prevent the Defendant from complying with any federal statutory or regulatory requirement concerning loan officer compensation or loan pricing. In the event that the federally scheduled implementation of Regulation Z is modified, Defendant may continue with its current loan pricing policy pending the effective date of any modified provisions, but will remain under the obligation to ensure nondiscrimination as required by this Consent Order.
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C. Monitoring Program 6, The Defendant shall maintain its currently existing level of fair lending auditing

and monitoring staff and systems for the term of this Order.

7,

Within 30 days of the Effective Date of this Order, the Defendant shall have in

place a monitoring program designed to ensure compliance with this Order. The program shall

be designed to monitor loans securcd by residential real estate originated by its employees for

potential racial disparities in the price charged for its residential loan products, At a minimum,

the Defendant shall monitor APRs and overages and underages, The program also shall require a

quarterly review by senior managers, Each such quarterly review shall be documented and

presented to the Defendant's Board of Directors for review and approval not later than 60 days

after the end of each quarter. Each quarterly review shall include, but not be limited to, an

analysis designed to detect, both at the national and metropolitan (MSA) level, significant racial

disparities in the price charged for its residential loan products, with respect to all loans secured

by residential real estate originated by the Defendant.

a,

In the event that any such review discloses significant disparities at the

national level or in any MSA, the Defendant shall attempt to determine the reasan(s) for

those disparities and shall promptly take corrective action to address signifIcant

disparities that were attributable to a policy or practice of the Defendant, and not justifIed

by legitimate business need, Corrective action shall include, as warranted, financial

remediation for borrowers, modifications to the Defendant's pricing policies and/or

monitoring programs as appropriate, and education, discipline or termination of'

employee(s), Defendant shall document all such disparities, determinations, and actions

taken and shall provide a summary of the quarterly reviews and any documentation and

analysis relating thereto to the United States on a quarterly basis,

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b. In the event that any such review discloses significant disparities with respect to any particular employee or branch, the Defendant shall require the employee or branch manager to explain the non-discriminatory reason(s) for those disparities. If there is no reasonable, nonracial explanation for the noted disparities, the Defendant shall require the employee or branch manager to take prompt corrective action to address the disparities. If the United States raises any objections to the Defendant's determinations or remedial actions, the Defendant and the United States shallmcet and confer to consider appropriate steps to address the concerns raised by thc United States' review. If the parties arc unable to come to an agreement regarding such objections, any party may bring the dispute to this Court for resolution. D. Notification to the United States and Right to Object 8. The Defendant shall provide a copy of the policies it utilizes to implement Paragraphs 3-5 of this Order and descriptions of the monitoring programs required under Paragraphs 6-7 to the United States within 30 days of the Effective Date of this Order? The United States shall have 30 days from receipt of the policies and descriptions to raise any objections to them, and ifit raises any, the parties shall confer to resolve their differences. In the event they are unable to do so, either party may bring the dispute to this Court for resolution.
2 All material required by this Order to be sent to counsel for the United States shall be sent by commercial overnight delivery service addressed as follows: Chief~ Housing and Civil Enforcement Section, Civil Rights Division, U.S. Department of Justice, 1800 G Street NW, Suite 7002, Washington, DC 20006, Attn: DJ 188-73-10, or by facsimile to 202-514-11 16.
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E. Borrower Notices 9, The Defendant shall post and prominently display in each location where loan applications are received by the Defendant a notice of nondiscrimination (a sample of which is attached as Appendix A), 10, The Defendant shall require its employees who originate loans secured by residential real estate to provide the following disclosures to applicants, to the extent not inconsistent with applicable law: (a) the full amount of the origination fees and costs it charges, and whether such fees and cost are negotiable between the originator and borrower, and (b) a notice of non-discrimination that provides substantially the same information as is contained in Appendix A, Such disclosures shall be in writing, signed by thc originator and the borrower (if the borrower executes), and submitted by the originator to be made part of the loan file by the Defendant. This disclosure shall be made as early as practicable but not later than 48 hours prior to the closing of the loan, F. Equal Credit Opportunity Training Program I I, Within 90 days of the Effective Date of this Order, the Defendant shall provide equal credit opportunity training to its management officials, loan officers, and any other employees or agents who participate in the origination of loans secured by residential real estate, During this training, the Defendant shall provide to each pmticipant: (a) access to a copy of this Order and the loan policies adopted pursuant to it; and (b) training on the terms of this Order, the loan policies adopted pursuant to it, the requirements of the FHA, the ECOA, and his or her responsibilities under each, During the term of this Order, the Defendant shall provide annual equal credit opportunity training to covered employees with respect to his or her responsibilities and obligations under the FHA, the ECOA, and this Order.
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12. T'he Defendant shall secure from each employee or agent specificd in the preceding paragraph a signed statement acknowledging that he or she has reccived access to a copy of this Order and the loan policies and has completed the initial equal crcdit opportunity training, The signature of the acknowledgement may be either manual or electronie. These statements shall be substantially in the form of Appendix 13 (Acknowledgment) and Appendix C (Equal Credit Opportunity Training). During the term of the Order, each new employec or agent whose rcsponsibilities include those set forth in Paragraph II, shall be provided access to a copy of this Order and given an 0ppOitunity to have any questions answered, and shall sign the acknowledgment form statement (Appendix B) within 10 days of beginning his or her employment in that position.
13. The content of the training program required by this Section shall be approved in advance by the United States. Any expenses associated with this training program shall be borne by the Defendant.
G, Satisfaetion of United States' Claims for Monetary Relief 14. The Dcfendant shall deposit in an interest-bearing escrow account the total sum of $2.0 million to compensate for monetary damages aggrieved persons nationwide may have suffered as a result of the alleged violations of the FHA and the ECOA (the "Settlement Fund"). Title to this account shall be in the name of "Prime Lending for the benefit of aggrieved persons pursuant to Order of the COlllt in Civil Action No. Ixxx]", The Defendant shall provide written verification of the deposit to the United States within five days of the Effective Datc of this Order. Any interest that accrues shall become part of the Settlement Fund and be utilized and disposed of as set forth herein, 15. Within 30 days of the Effective Date of this Order, the United States shall request any information it believes will assist in identifying aggrieved persons and determining any
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damages. The Defendant shall, within 30 days of receipt of sueh request, supply, to the extent that it is within the Defendant's control, such information as requested. Requested data may be supplied as a supplement to the database already provided to the United States by the Defendant in the eourse ofthc United States' inquiry. To the extent that the information is not within the Defendant's control, the Defendant shall, within 30 days of receipt of such request, supply any data in its control that identifies other parties that may have that the information.
16. The United States shall, upon reasonable notice, be allowed access to the Defendant's records and files to verify the accuracy of the data provided and to otherwise identify persons entitled to the payments from the Settlement Fund.
17. Within 90 days of the Effective Date of this Order, the United States shall provide to the Defendant a list of aggrieved persons and an amount each individual shall receive f1'om the Settlement Fund to compensate for monetary damages these persons may have suffered, subject to the conditions set forth in Paragraph 18. The Defendant shall have 30 days from receipt of such list in which to review the list and the United States shall consider in good faith any issues raised by the Defendant.
18. Payments l1'om the Settlement Fund to aggrieved persons shall be subject to the following conditions, provided that the details in administration of the Settlement Fund set forth in Paragraphs 19-20, can be modified by agreement of the parties and without further Court approval:
(a) No aggrieved person shall be paid any amount from the Settlement Fund until he or she has executed and delivered to the Defendant a written release, as set forth in Appendix D, of all claims, legal or equitable, that he or she might have against the released persons and
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entities regarding the claims asserted by the United States in this lawsuit, so long as such claims accrued prior to the entry of this Order; and
(b) The total amount paid by the Defendant collectively to the aggrieved persons shall not exceed the amount of the Settlement Fund, including accrued interest
19, The Defendant shall, no later than 45 days after receiving the compensation list referred to in Paragraph 17, notify each identified person eligible for compensation by a letter (using its best efforts to locate each person), The form of this letter shall be subject to the review and approval of the United States, At a minimum, the letter shall state that the identified person is eligible for compensation in the indicated amount provided he 01' she executes and returns to the Defendant a copy of the agreed-upon release, whieh release shall be enclosed with the notice along with an addressed and postage-paid return envelope, Each letter shall identify the loan(s) the Defendant originated to the identified person, The letter shall explain the complaint resolution program referenced in Paragraph 22 of this Order, If the parties are unable to agree on the terms of the letter, any party may bring the dispute to the Court for resolution, Any letters that are returned with a forwarding address shall promptly be re-sent to that new address, The Defendant shall provide an accounting of these notifications, indicating the name and address to which each was dispatched, within the 45-day period referred to in this paragraph,
20, The Defendant shall issue checks in the amount indicated on the compensation list to all identified persons who execute and return the releases, The Defendant shall issue and mail such checks no later than 21 days after the receipt of the release, The Defendant shall set forth reasonable deadlines for requirements of return of releases, and for the timely deposit of checks, subject to approval of the United States, so that the compensation is distributed and checks are presented for payment or become void prior to the date that is one year from the date the initial
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notifications are sent. The Defendant shall provide, as part of the reporting required in Paragraph

26, an accounting of releases received, checks sent, and notifications for which no response has

been received or that were reported to be undeliverable. The United States may make its own

efforts to locate aggrieved persons.

H. Consume,' Education

2 I. Any moneys not distributed fi'OIl1 the Settlement Fund including accrued interest

within one year of the date the initial notifications are sent to persons deemed to be aggrieved by

the United States shall be distributed to qualified organization(s) to provide credit counseling,

Ilnancial literacy, and other related educational programs targeted at African-American

borrowers. The Defendant will consult with and obtain the non-objection ofthe United States in

selecting recipient(s) of these funds, and the parties shall obtain the Court's approval prior to

distribution of the fund. To the maximum extent practicable, these funds shall be directed to

organizations that work with borrowers living in the Dallas, Houston, Fort Worth, and Raleigh

MSAs, where the Defendant originated its highest volume of loans to African-American

borrowers in 2009.

I.

Complaint Resolution Program

22. In addition to the above, during the period of this Order the Defendant shall

maintain a robust complaint resolution program to address consumer complaints alleging

discrimination regarding loans secured by residential real estate originated by the Defendant.

Documentation rcgarding such complaint resolution program, including documentation of

individual complaints and resolutions, if any, shall be made available to the United States on a

quarterly basis and included in the semi-annual reports referenced in Paragraph 25. A person

shall not be deemed ineligible for the complaintrcsolution program on the basis of having

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executed the release described in Paragraph 18(a), but there is no requirement under this Order that any complaint necessarily be resolved for or against the Defendant.
V. EVALUATING AND MONITORING COMPLIANCE 23. For the duration of this Order, the Defendant shall retain all records relating to its obligations hereunder as well as its compliancc activities as set forth herein. The Unitcd States shall have the right to review and copy such records upon requcst, including loan files and electronic data for loans secured by residential real estate made during the period of this Order. 24. The Defendant shall provide to the United States the data on its lending that is submitted to the Federal Financial Institutions Examination Council (FFIEC) pursuant to the Home Mortgage Disclosure Act and the Community Reinvestment Act. The data will be provided in the same format in which it is presented to the FFJEC, within 30 days of its submission to the FFIEC each year, for the duration of this Order, including the record layout. 25. In addition to the submission of any other plans or reports specified in this Order, the Defendant shall submit semi-annual reports to the United States on its progress in completing the requirements of this Order. Each such report shall provide a complete account of the Defendant's actions to comply with each requirement of this Order during the previous six months, an objective assessment of the extent to which each quantifiable obligation was met, an explanation of why any particular component fell short of meeting its goal for the previous six months, and any recommendations for additional actions to achieve the goals of this Order, The Defendant shall submit its first report no later than 180 days after the Effective Date of this Order, and every 180 days thereafter for so long as the Order is in effect. In addition, if applicable, the Defendant shall attach to the semi-annual reports representative copies of training materials disseminated pursuant to this Order.
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VI. ADMINISTRATION 26. The Order shall terminate three months aficr the submission of the Defendant's eighth semi-annual report due under Paragraph 25 to the United States. Notwithstanding the above, this Order may be extended further upon motion of the United States to the Court, for good cause shown. 27. Any time limits for performance fixed by this Order may be extended by mutual written agreement of the parties. Except as provided by Paragraph 18, other modifications to this Order may be made only upon approval of the Court, upon motion by either party. The parties recognize that there may be changes in relevant and material factual circumstances during the term of this Order which may impact the accomplishment of its goals. The parties agree to work cooperatively to discuss and attempt to agree upon any proposed modifications to this Order resuiting therefi·om. 28. This Order shall be binding on the Defendant, including all its officers, employees, agents, representatives, assignees, and successors in interest, and all those in active concert or participation with any of them. This Order shall consider employees ofjoint ventures operated by the Defendant, and the loans they originate, to be employees of the Defendant and to be loans originated by employees of the Defendant. This Order also shall consider loans to be originated by employees of the Defendant even when origination functions are completed by contractors. In the event the Defendant seeks to transfer Or assign all or part of its operations, and the successor Or assign intends on carrying on the same or similar use, as a condition of sale, the Defendant shall obtain the written accession of the successor or assign to any obligations remaining under this Order for its remaining tenn.
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29. The Defendant represents it does not currently originate loans secured by residential real estate through mortgage brokers and does not currently plan to do so during the term of this Order. During the term of this Order, the Defendant shall not begin originating loans through mortgage brokers without first providing notice to the United States and implementing policies and monitoring designed to prevent and detect fair lending violations by these
originators.
30. Nothing in this Order shall excuse the Defendant's compliance with any currently or subsequently effective provision of' law or order of a regulator with authority over the Defendant that imposes additional obligations on the Defendant.
3 I. In the event that any disputes arise about the interpretation of or compliance with the tcrms of this Order, the parties shall endeavor in good faith to resolve any such dispute between themselves before bringing it to this Court for resolution. If either party reasonably believes that the other party has violated any provision of this Order, it will provide the other party written notice thereof and allow 30 days to resolve the alleged violation before presenting the matter to this Court. In the event of either a failure by the Defendant to perform in a timcly manner any act required by this Order or an act by the Defendant in violation of any provision hereof, the United States may move this Court to impose any remedy authorized by lawaI' equity, including attorneys' fees and costs.
32. The Defendant's compliance with the terms of this Order shall fully and finally resolve all fair lending claims oflhe United States that have been or could have bcen raised in the Complaint relating to any violations that arise out of or relate to the Complaint's allegations of racial disparities in loan prices, including all claims for equitable rei ief and monetary damages
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and penalties. Each party to this Order shall bear its own costs and attorneys' fees associated with this litigation.
33. The Court shall retain jurisdiction for the duration of this Order to enforce the terms of the Order, after which time the case shall be dismissed with prejudice.

The undersigned hereby apply for and consent to the entry of this Order:

For Defendant PrimeLending
~~ Florida Bar Number 0140619 K&L Gates LLP Wachovia Financial Center 200 South Biscayne Boulevard, Suite 3900 Miami, Florida 33131-2399 Email: PauI.Hancock@klgates.com Phone: 305-539-3378 Fax: 305-358-7095

For Plaintiff United States
STEVEN H. ROSENBAUM Chief
. JON M. SEW ARD Deputy Chief
DANIEL P. MOSTELLER Trial Attorney North Carolina Bar Number 36958 United States Department of Justice Civil Rights Division Housing and Civil Enforcement Section 950 Pennsylvania Ave'., N. W. - NWB Washington, D.C. 20530 Email: DanieI.MosteIler@usdoj.gov Phone: 202-305-0053 Fax: 202-514-1116

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APPENDIX A
We do Business in Accordance with Federal Fair Lending Laws
UNDER THE EQUAL CREDIT OPPORTUNITY ACT, IT IS ILLEGAL TO DISCRIMINATE IN ANY
CREDIT TRANSACTION:

On the basis of race, color, national origin, religion, sex, marital status, or age;

Because income is from public assistance; or

Because a right has been exercised under the Federal Consumer Credit Protection Laws.

IF YOU BELIEVE YOU HAVE BEEN DISCRIMINATED AGAINST, YOU SHOULD SEND
A COMPLAINT TO:

Federal Reserve Consumer Help

OR

PO Box 1200

Minneapolis, MN 55480

Tel: 1-888-851-1920

Website:

http://federaIresc rvecon sumerheIp. gov

U.S. Department of .Justice Civil Rights Division Housing and Civil Enforcement Section Washington, DC 20530 Tel: 1-800-896-7743 Website: http://www.usdoj.gov/crt/housing

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Case 3:10-cv-02494-P Document 3 Filed 01/11/11 Page 19 of 21 PageID 29 APPENDIX B
Employee Acknowledgmcnt I acknowlcdgc that on _ _ __ ___, I was provided copies of the Consent Order entered by the Court in United States v. PrimeLending, (N.D. Tex.), and the loan policies developed pursuant thereto. I have read and understand these documents and have had my questions about these documents answered. I understand my legal responsibilities and shall comply with those responsibilities.
Signature Print Name Job Title Date
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APPENDIX C Emplovee Training Certification I certify that on ... ~.~_ ~~~_. _.___~__, I received training with respect to my responsibilities under the Consent Order entered by the Court in United States v. PrimeLending. (N.D. Tex.), and the federal fair lending laws. I have had the opportunity to have my questions about them answered. I understand my legal responsibilities not to discriminate under the federal fair lending laws, including the Equal Credit Opportunity Act and the Fair Housing Act, and shall comply with those responsibilities.
Signature Print Name .Job Title Date
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APPENDIX D Release
In consideration i()r the parties' agreement to the terms o/'the Consent Order entered in United States v. PrimeLending, (N.D. Tex.), and the payment to me 01'$ _ _ _ _, pursuant to the Consent Order and effective upon that payment, I hereby release and forever discharge all claims, rights, remedies, and recoveries related to the facts of housing and credit discrimination in the origination oj'Joans secured by residential real estate at issue in the litigation referenced above, and release and forever discharge all claims, rights, remedies, and recoveries arising fi'OIn housing and credit discrimination alleged in that litigation in connection with the origination of my loan(s), known and unknown, up to and including the date of execution of this release.
I understand that this releases those claims, rights, remedies and recoveries against Prime Lending, and against any and all related entities, parents, predecessors, successors, subsidiaries, and affiliates, and against any and all of their past and present directors, of1icers, agents, managers, supervisors, shareholders, and employees and their heirs, executors, administrators, successors in interest, or assigns.
Executed this _ day 01' _ _ _, .
Signature
- ; - : - - - - - .._ - - - - - _ ..- -
Print Name
--------
Address
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 Case 3:10-cv-02494-P Document 1 Filed 12/08/10 Page 1 of 8 PageID 1

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION

UNITED STATES OF AMERICA, Plaintiff, )

)

v.

)

No.

)

PRIMELENDING, a PlainsCapital Company, )

Defendant.

)

)

COMPLAINT The United States of America alleges: 1. This action is brought by the United States to enforce the provisions of the Fair Housing Act, 42 U.S.C . §§ 3601-3619 ("FHA"), and the Equal Credit OppOltunity Act, 15 U.S .c. §§ 1691 - 1691f("ECOA"). 2. This Court has jurisdiction ofthis action pursuant to 28 U.S.C. § 1345,42 U.S.c. § 3614, and 15 U.S.C . § 1691e(h). Venue is appropriate pursuant to 28 U.S.c. § 1391. 3. PrimeLending, a Texas corporation, is a wholly-owned subsidiary of PlainsCapital Bank, a bank chartered by the Texas Department of Banking and a member of the Federal Reserve System. PlainsCapital Bank is a wholly-owned subsidiary of PlainsCapital Corporation. PrimeLending's principal place of business is 2323 Victory Avenue, Suite 1400, Dallas, Texas, and it is subject to the regulatory authority of the Federal Reserve System. 4. PrimeLending is a residential mortgage lender offering conventional prime loans and loans guaranteed by the Federal Housing Administration and Department of Veterans Affairs. It operates through a retail model of accepting applications and originating loans using its own employees. Although its lending continues to be concentrated most heavily in Texas,

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particularly in the Dallas market, it had expanded by the end of 2009 to operate 168 offices in 32 states. In 2009, PrimeLending originated more than 30,000 loans secured by residential real estate, with an aggregate principal value of more than $5.5 billion, and it was one of the 20largest lenders in the Federal Housing Administration loan program.
5. PrimeLending is subject to Federal laws governing fair lending, including the FHA and the ECOA and the regulations promulgated under each of those laws. The FHA and the ECOA prohibit financial institutions from discriminating on the basis of, inter alia, race in their lending practices. Charging higher prices for loans on the basis of race, including charging higher annual percentage rates of interest, is one of the discriminatory lending practices prohibited by the FHA and the ECOA.
6. PrimeLending is a "creditor" within the meaning of the ECOA, 15 U.S.C. § 169Ia(e), and engages in " residential real estate-related transactions" within the meaning of the FHA, 42 U.S .C. § 3605 . PrimeLending also is subject to the Home Mortgage Disclosure Act, 12 U.S.c. § 2803, which requires mortgage lenders to maintain data on the race of each borrower.
7. Beginning in 2008, the Federal Reserve System conducted an examination of the lending practices of PrimeLending to evaluate compliance with, among other laws, the FHA and the ECOA. Based on analysis of the annual percentage rates of interest that PrimeLending charged in 2006 and 2007 for conforming fixed-rate loans secured by residential real estate and for loans guaranteed by the Federal Housing Administration and Depat1ment of Veterans Affairs secured by residential real estate (collectively, "the examined loan products"), the Federal Reserve System found reason to believe that PrimeLending had displayed a pattern or practice of discrimination on the basis of race against African-American borrowers. Further, the Federal
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Reserve System found that PrimeLending did not have robust fair lending controls. On December 15, 2009, following the examination described above, the Board of Governors of the Federal Reserve System referred the lending practices of PrimeLending to the United States Department of Justice pursuant to 15 U.S.C. § 169Je(g).
8. PlainsCapital Corporation has disclosed in a public securities filing that the Federal Reserve in the spring of 20 I0 gave PlainsCapital Bank a "needs to improve record of meeting community credit needs" rating under the Community Reinvestment Act, J2 U.S.C. § 2906, as a result of alleged fair lending issues associated with PrimeLending.
9. After receiving the referral from the Board of Governors of the Federal Reserve System, the United States Department of Justice analyzed the annual percentage rates of interest that PrimeLending charged between 2006 and 2009 for the examined loan products.
10. Between at least 2006 and 2009, PrimeLending gave its employees wide discretion to charge "overages" or accept "underages" that raised or lowered, respectively, the annual percentage rate of interest paid by borrowers from the "par" interest rate at which PrimeLending would originate the loan. These par rates were communicated to employees through the daily distribution of "ratesheets." PrimeLending did not monitor or separately record overage or underage data for those years.
11. The compensation of PrimeLending's employees was, in part, based on their ability to charge overages and avoid accepting underages. Prior to 2010, PrimeLending did not establish objective criteria to be followed by employees in charging overages or accepting underages. Moreover, prior to 20 I0, it did not require employees to document the reasons for charging overages or accepting underages, it did not monitor whether discrimination based on
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race occurred through the inclusion of overages and underages, and it did not offer detailed fair lending training to its employees.
12. Between 2006 and 2009, PrimeLending charged higher loan prices to AfricanAmerican borrowers, as measured through the annual percentage rates of interest for the "examined loan products," than it charged to similarly-situated white borrowers. The differences in the annual percentage rates of interest charged to African-Americans borrowers for the "examined loan products" and those charged to white borrowers cannot be explained fully by factors unrelated to race.
13. In each year between 2006 and 2009, PrimeLending charged annual percentage rates of interest between 11 and 14 basis points I higher nationwide to African-Americans who obtained conforming fixed-rate loans secured by residential real estate than the annual percentage rate of interest charged to similarly-situated whites, after accounting for all the credit risk factors (such as credit score, loan-to-value ratio, and property type) that PrimeLending's ratesheets used to set the par rate. These disparities are statistically significant, and mean that an African-American borrower who took out a $200,000 loan of this type, on average, annually paid approximately $220 to $280 more in interest than a similarly-situated white borrower during each year that he or she remained in the loan.
14. In each year between 2006 and 2009, PrimeLending charged annual percentage rates of interest between 5 and 11 basis points higher nationwide to African-Americans who obtained loans guaranteed by the Federal Housing Administration and Depaltment of Veterans Affairs secured by residential real estate than the annual percentage rate of interest charged to similarlysituated whites, after accounting for all the credit risk factors that PrimeLending's ratesheets lOne basis point represents one hundredth of a percentage point (0 .01 %).
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used to set the par rate. These disparities are statistically significant, and mean that an AfricanAmerican borrower who took out a $200,000 loan of this type, on average, annually paid approximately $ 100 to $220 more in interest than a similarly-situated white borrower during each year that he or she remained in the loan.
15. Between 2006 and 2009, PrimeLending made nearly 3,300 loans to AfricanAmerican borrowers that involved the examined loan products with statistically significant pricing disparities . These disparities will result in African-American borrowers continuing to pay additional interest because of race in each monthly mortgage payment they make until the loan is paid off, as many as 30 years in the future.
16. The higher annual percentage rates of interest that PrimeLending charged to AfricanAmerican borrowers for "the examined loan products" are a result of PrimeLending's policy or practice of giving its employees wide subjective discretion in charging overages and accepting underages that altered the annual percentage rate of interest for a loan.
17. PrimeLending's policy or practice of giving its employees wide subjective discretion in charging overages and accepting underages that altered the annual percentage rate of interest for a loan have had a disparate impact on African-American borrowers compared to similarlysituated white borrowers.
18. PrimeLending's policy or practice of giving its employees wide subjective discretion in charging overages and accepting underages is not justified by business necessity or legitimate business interests.
19. PrimeLending's actions, policies and practices, as alleged herein, constitute:
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a. Discrimination on the basis of race in making available, or in the terms or conditions of, residential real estate-related transactions, in violation of the Fair Housing Act, 42 U.S.C. § 3605(a);
b. Discrimination on the basis of race in the terms, conditions, or privileges of the provision of services in connection with sale of a dwelling, in violation of the Fair Housing Act, 42 U.S.C. § 3604(b); and
c. Discrimination against applicants with respect to credit transactions on the basis of race in violation of the Equal Credit Opportunity Act, 15 U.S.C. § 1691 (a)(l) . 20. PrimeLending's actions, policies and practices, as alleged herein, constitute:
a. A pattern or practice of resistance to the full enjoyment of rights secured by the Fair Housing Act, 42 U .S.c. §§ 3601-3619, and the Equal Credit Opportunity Act, 15 U.S.C. §§ 1691-1691f; and
b. A denial of rights granted by the Fair Housing Act to a group of persons that raises an issue of general public importance . 21. Persons who have been victims of PrimeLending' s discriminatory actions, policies and practices are aggrieved persons as defined in the FHA, 42 U.S.c. § 3602(i), and aggrieved applicants as defined in the ECOA, 15 U.S.C. § 1691e, and have suffered injury and damages as a result of PrimeLending's violation of both the FHA and the ECOA. 22. PrimeLending's pattern or practice of discrimination has been intentional and willful , and has been implemented with reckless disregard for the rights of African-American borrowers.
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WHEREFORE, the United States prays that the Court enter an ORDER that: 23. Declares that the policies and practices of the Defendant constitute violations of the Fair Housing Act, 42 U.S.C. §§ 3601-3619, and the Equal Credit Opportunity Act, IS U.S.C. §§ 1691-169If; 24. Enjoins the Defendant, its agents, employees, and successors, and all other persons in active concert or participation with it, from:
a. Discriminating on the basis of race against any person in making available, or in the terms or conditions of, a residential real estate-related transaction;
b. Discriminating on the basis of race in the in the terms, conditions, or privileges of the provision of services in connection with the sale of dwellings;
c. Discriminating on the basis of race against any person with respect to any aspect of a credit transaction;
d. Failing or refusing to take such affirmative steps as may be necessary to restore, as nearly as practicable, the victims of the Defendant's unlawful conduct to the position they would have been in but for the discriminatory conduct; and
e. Failing or refusing to take such actions as may be necessary to prevent the recurrence of any such discriminatory conduct in the future. 25. Awards monetary damages to all the victims of the Defendant' s discriminatory policies and practices for the injuries caused by the Defendant, pursuant to 42 U.S.c. § 3614(d)(l)(B) and 15 U.S .C. § 1691e(h); and 26. Assesses a civil penalty against the Defendant in an amount authorized by 42 U.S.c. § 3614(d)(l)(C), in order to vindicate the public interest.
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The

United .

States

further

prays

f.or

such

additional

relief

as

th' e inte. rests

ofjustice

may

requite.

1AMES T. JACKS
United States Attorney

ERIC H. HOLDER, JR.
Att9:G7.~

JOHN R. PARKER Civil Chief texas Bar Nuinber 00784721 ' 1100 Commerce Street, 3rd'Ploor ' Dallas, Texas ,75242 , Email: rohn.Parket@usdoj.gov. Telephone: 214~65.9-8600 Fax,: 214-659-8800

Hous~g and Civil Enforcement Section
{%rJJ'IJn'.f~ .~ Ii L
DANIEL P. MOSTELLER , Trial Attorney US. Department of Justice Civil Rights D~vision , , Housing and Civil Enforcement Section '
950 Pennsylvania Ave. NW - NWB
Washington, D.C. 20530 Email: Danie1.MosteIler@usd6j:gov TelephOne: 202-305-0053
Fax:202~514-1116

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 Case 3:10-cv-02494-P Document 7 Filed 09/27/12 Page 1 of 3 PageID 52

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION

UNITED STATES OF AMERICA,

§

§

Plaintiff,

§

v.

§

§

PRIMELENDING, a PlainsCapital Company, §

§

Defendant.

§

3: 10-cv-02494-P

ORDER 1. On January 11,2011, this Court entered a Consent Order between Plaintiff United States and Defendant PrimeLending. The Consent Order resolved all claims set forth in the United States' Complaint against Defendant in this matter. 2. Paragraph 21 of the Consent Order mandates that Defendant must distribute, one year after initial notifications were sent to persons deemed to be aggrieved by the United States, any money remaining in the Settlement Fund to qualified organization(s) to provide credit counseling, financial literacy, and other related educational programs targeted at AfricanAmerican borrowers. It further provides that, to the maximum extent practicable, these funds shall be directed to organizations that work with borrowers living in the Dallas-Fort Worth, Houston, and Raleigh metropolitan areas, where Defendant originated its highest volume of loans to African-American borrowers in 2009. 3. Paragraph 21 of the Consent Order also requires that Defendant consult with and obtain the non-objection of the United States in selecting the recipient(s) of these funds. The parties must also obtain the Court's approval prior to the distribution of the funds.

Order 3: lO-cv-02494-P Page 1 of3

Case 3:10-cv-02494-P Document 7 Filed 09/27/12 Page 2 of 3 PageID 53
4. On March 18,2011, Defendant sent notices to the borrowers on the 1,876 loans that the United States identified as affected by the discriminatory practices alleged in the Complaint. The borrowers on 1,558 of these loans responded to the notices by returning the release, as required by the Consent Order, and negotiated the settlement check by June 8, 2012. 5. The parties informed the Court that $367,900.95 remained in the Settlement Fund after the payments to the borrowers who responded and negotiated the settlement check. Defendant has selected 15 organizations to receive those funds. The United States does not object to the selection of these organizations. 6. The National Association of Real Estate Brokers (NAREB) will receive $73,900.95. 7. The Women's Council ofNAREB will receive $33,000. 8. The Houston Area Urban League will receive $35,500. 9. The Urban League of Greater Dallas will receive $22,000. 10. Business and Community Leaders of Texas will receive $22,000. 11. The East Dallas Community Organization will receive $22,000. 12. The North Texas Housing Coalition will receive $22,000. 13. The Fifth Ward Community Redevelopment Corporation of Houston, Texas will receive $27,500. 14. The Downtown Housing Improvement Corporation of Raleigh, North Carolina will receive $22,000. 15. Consumer Education Services, Incorporated of Raleigh, North Carolina will receive $22,000. 16. CCCS, A Division of Triangle Family Services, Incorporated of Raleigh, North Carolina will receive $22,000.
Order
3: 10-cv-02494-P
Page 2 of3

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17. The Avenue Community Development Corporation of Houston, Texas will receive $11,000. 18. The Credit Coalition of Houston, Texas will receive $11,000. 19. The Raleigh Area Development Authority, Incorporated will receive $11,000. 20. The Telamon Corporation of Raleigh, North Carolina will receive $11,000. 21. All interest paid to the Settlement Fund not reflected in the balance reported in Paragraph 5 will be split equally between the Houston Area Urban League and the Fifth Ward Community Redevelopment Corporation of Houston, Texas. 22. The Court hereby APPROVES the selection ofthese charities and APPROVES the disbursement of the above-referenced funds. 23. Defendant is hereby ORDERED to disburse the funds required by Paragraph 21 of the Consent Order to the charities in the amounts reflected above within 30 days of the issuance of this order.
IT IS SO ORDERED.
Signed this t2.'1J{ day of September, 2012.
JO GE A. SOLIS UNITED STATES DISTRICT JUDGE
Order 3: 1O-cv-02494-P Page 3 of3

 
 Case: 3:10-cv-2494 As of: 05/15/2013 09:49 PM CDT 1 of 2
U.S. District Court Northern District of Texas (Dallas) CIVIL DOCKET FOR CASE #: 3:10−cv−02494−P

CLOSED

United States of America v. PrimeLending Assigned to: Judge Jorge A Solis Cause: 42:405 Fair Housing Act
Plaintiff United States of America

Date Filed: 12/08/2010 Date Terminated: 01/11/2011 Jury Demand: None Nature of Suit: 443 Civil Rights: Accommodations Jurisdiction: U.S. Government Plaintiff
represented by John R Parker−DOJ US Attorney's Office 1100 Commerce St 3rd Floor Dallas, TX 75242−1699 214/659−8728 Fax: 214/767−2916 Email: john.parker@usdoj.gov LEAD ATTORNEY ATTORNEY TO BE NOTICED Bar Status: Admitted/In Good Standing
Tami C Parker−DOJ US Attorney's Office 1100 Commerce Street Third Floor Dallas, TX 75242 214−659−8681 Fax: 214−767−2916 Email: tami.parker@usdoj.gov ATTORNEY TO BE NOTICED Bar Status: Government Attorney

V.
Defendant
PrimeLending a PlainsCapital Company

represented by Paul F Hancock KLGates LLP Wachovia Financial Center 200 S Biscayne Blvd Suite 3900 Miami, FL 33131 305/539−3378 LEAD ATTORNEY ATTORNEY TO BE NOTICED Bar Status: Not Admitted
Tami C Parker−DOJ (See above for address) ATTORNEY TO BE NOTICED Bar Status: Government Attorney

Date Filed 12/08/2010

# Docket Text
1 COMPLAINT against Primelending, a PlainsCapital Company filed by The United States of America. Summons(es) not requested at this time. In each Notice of Electronic Filing, the judge assignment is indicated, and a link to the Judges Copy Requirements is provided. The court reminds the filer that any required copy of this and future documents must be delivered to the judge, in the manner prescribed,

Case: 3:10-cv-2494 As of: 05/15/2013 09:49 PM CDT 2 of 2

12/08/2010 12/08/2010 01/11/2011 01/11/2011 01/11/2011 06/15/2012
06/17/2012 06/18/2012 09/26/2012
09/27/2012 09/28/2012

within three business days of filing. Unless exempted, attorneys who are not admitted to practice in the Northern District of Texas should seek admission promptly. Forms and Instructions found at www.txnd.uscourts.gov, or by clicking here: Attorney Information − Bar Membership (Parker−DOJ, John) (Entered: 12/08/2010)
2 CERTIFICATE OF INTERESTED PERSONS/DISCLOSURE STATEMENT by The United States of America. (Parker−DOJ, John) (Entered: 12/08/2010)
New Case Notes: A filing fee is not due for this case. Magistrate Judge Kaplan preliminarily assigned. File to Judge Solis. (dnc) (Entered: 12/08/2010)
3 CONSENT ORDER. (See Order) (Ordered by Judge Jorge A Solis on 1/11/2011) (dnc) (Entered: 01/11/2011)
***Clerk's Notice of delivery: (see NEF for details) Docket No:3. Tue Jan 11 10:39:47 CST 2011 (crt) (Entered: 01/11/2011)
***Civil Case Terminated. (jrb) (Entered: 01/14/2011)
4 Joint MOTION for Entry of Disbursement Order filed by Primelending, The United States of America with Brief/Memorandum in Support. (Attachments: # 1 Proposed Order) (Parker−DOJ, Tami) (Entered: 06/15/2012)
5 ORDER granting 4 Motion for Entry of Disbursement Order. (Ordered by Judge Jorge A Solis on 6/17/2012) (chmb) (Entered: 06/18/2012)
***Clerk's Notice of delivery: (see NEF for details) Docket No:5. Mon Jun 18 12:32:46 CDT 2012 (crt) (Entered: 06/18/2012)
6 Joint MOTION for Entry of 5 Amended Disbursement Order filed by Primelending, The United States of America (Attachments: # 1 Proposed Amended Disbursement Order) (Parker−DOJ, Tami) Modified on 9/27/2012 (skt). (Entered: 09/26/2012)
7 ORDER granting 6 Motion to Amend Consent Order. (Ordered by Judge Jorge A Solis on 9/27/2012) (chmb) (Entered: 09/28/2012)
***Clerk's Notice of delivery: (see NEF for details) Docket No:7. Fri Sep 28 11:09:35 CDT 2012 (crt) (Entered: 09/28/2012)