On September 13, the U.S. District Court for the Southern District of Texas ordered to grant the motion to dismiss of one defendant and granting in part and denying in part a second defendant’s motion to dismiss claims of discriminatory lending practices in violation of the ECOA and the Fair Housing Act (FHA). In its complaint, the CFPB claimed the defendants — a real estate developer and a loan origination company that originated all the developer’s seller-financed mortgages — engaged in discriminatory practices that constituted reverse redlining by unjustly targeting Hispanic consumers to purchase land in one of the developer’s subdivisions and subjecting the consumers to what the CFPB labeled “predatory” financing.

Each defendant filed a motion to dismiss, and the court granted the motion for the loan origination company. The loan origination company argued that none of the alleged discriminatory acts were attributable to the company. That company did not do any advertising or marketing, did not interact with consumers, and only provided the loan origination software that was used to prepare the closing documents. While the court recognized that reverse redlining could be discrimination under both the ECOA and the FHA, it concluded that none of the allegations plausibly alleged that the loan origination company engaged in any of the offending activity.

However, the court denied the developer’s motion to dismiss in part, allowing claims under the ECOA to proceed. The court disagreed with the real estate developer’s contention that the plaintiff had failed to allege all four elements of a reverse redlining claim as set forth in prevailing case law: (i) that the consumer is a member of a protected class; (ii) that the consumer applied and was qualified for a loan; (iii) that the loan was given on grossly unfavorable terms; and (iv) that the lender either intentionally targeted the consumer for unfair loans or currently makes loans on more favorable terms to others. The court found that the plaintiff plausibly alleged sufficient facts for each element and allowed the claim to proceed under the ECOA claims. However, with respect to the FHA claim under Section 3604(a), the court denied it, stating that the plaintiffs did not sufficiently allege that the company made dwellings unavailable or denied them based on race or national origin.