National City Bank

Documents in this case

• Complaint · 15 p.
• Consent order · 14 p.

Case summary

On April 23, 2025, the President issued Executive Order 14281 on “Restoring Equality of Opportunity and Meritocracy,” which provides that “[i]t is the policy of the United States to eliminate the use of disparate-impact liability in all contexts to the maximum degree possible.” On April 22, 2026, the Bureau issued final amendments to the Equal Credit Opportunity Act’s (ECOA) implementing regulation, Regulation B, which state that ECOA does not authorize disparate-impact liability.

The CFPB and the Department of Justice filed a joint complaint against National City Bank for charging higher prices on mortgage loans to African-American and Hispanic borrowers.

Complaint

PDF of this document (15 pages)

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IN THE UNITED STATES DISTRICT COURT WESTERN DISTRICT OF PENNSYLVANIA

CONSUMER FINANCIAL PROTECTION BUREAU ) and UNITED STATES OF AMERICA,

)

)

Plaintiffs,

) CIVIL ACTION NO.

)

v.

)

) NATIONAL CITY BANK, ) through its Successor in Interest, )

)

Defendant.

) _____________________________________________)

COMPLAINT Plaintiffs Consumer Financial Protection Bureau (“CFPB”) and the United States of America (“Department of Justice” or “DOJ”) bring this action to remedy discrimination by National City Bank against approximately 76,000 African-American and Hispanic residential mortgage borrowers between 2002 and 2008. The PNC Financial Services Group (“PNC”), purchased National City Bank in 2008, and as successor in interest is responsible for remedying the violations of law by National City Bank alleged herein. Plaintiffs allege: 1.

From 2002-2008, National City Bank originated over one million mortgage loans nationwide through its retail loan offices. Approximately 36,000 of these were to African- American borrowers, and approximately 34,000 to Hispanic borrowers. From 2003-2008, National City Bank originated over 600,000 loans throughout the country through its wholesale lending channels using mortgage brokers. Approximately 25,000 of these were to African- American borrowers, and approximately 49,000 to Hispanic borrowers. 2.

As a result of National City Bank’s policies and practices, African-American and Hispanic borrowers paid higher prices for their home mortgage loans than non-Hispanic White borrowers (“White borrowers”), not based on creditworthiness or other objective criteria related to borrower risk, but because of their race or national origin. Case 2:13-cv-01817-CB Document 1 Filed 12/23/13 Page 1 of 15

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3.

The victims of National City Bank’s discrimination were located in geographic markets spread across the country.

4.

National City Bank maintained compensation systems that created financial incentives for loan officers to charge “overages” and to minimize “underages.” These financial incentives resulted in discrimination against African-American and Hispanic borrowers. 5.

An “overage” is an additional fee charged to a borrower above the par rate, which is the price of a mortgage loan that is based solely on criteria related to loan risk and is usually set forth on a rate sheet. An overage therefore raises the total cost to borrowers above what they would pay if the loans were closed using the prices that were set based on the borrowers’ objective credit characteristics and the terms of the loan. An “underage” is a price concession that reduces the par rate of a loan. An underage therefore lowers the total cost to borrowers below what they would pay if the loans were closed using the prices that were set based on the borrowers’ objective credit characteristics and the terms of the loan. 6.

The higher loan prices National City Bank charged to African-American and Hispanic borrowers put increased economic burdens on those borrowers and their families. 7.

Plaintiffs bring this lawsuit to hold PNC accountable for National City Bank’s serious violations of law and to remedy the substantial and widespread harmful consequences of National City Bank’s discriminatory lending policies and practices. 8.

This Court has subject-matter jurisdiction over this action because it is “brought under Federal consumer financial law,” 12 U.S.C. § 5565(a)(1), presents a federal question, 28 U.S.C. § 1331, and is brought by an agency of the United States, 28 U.S.C. § 1345. Venue is proper in this District under 28 U.S.C. §§ 1391(b) and (c), and 12 U.S.C. § 5564(f). Case 2:13-cv-01817-CB Document 1 Filed 12/23/13 Page 2 of 15

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PLAINTIFFS 9.

Plaintiff CFPB is an independent agency of the United States charged with regulating the offering and provision of consumer financial products or services under Federal consumer financial laws. 12 U.S.C. § 5491(a). The CFPB is authorized to take appropriate enforcement action to address violations of Federal consumer financial law, including the Equal Credit Opportunity Act, 15 U.S.C. §§ 1691-1691f (“ECOA”). See 12 U.S.C. §§ 5481(12)(D); 5564(a).

10.

The CFPB brings this action under sections 1064 and 1065 of the Consumer Financial Protection Act of 2010 (“CFPA”), 12 U.S.C. §§ 5564 and 5565; and the ECOA, 15 U.S.C. § 1691c(a)(9), which prohibits discrimination by any creditor against any applicant with respect to any aspect of a credit transaction on the basis of, inter alia, race or national origin. 15 U.S.C. § 1691(a)(1).

11.

The DOJ brings this action to enforce the ECOA and the Fair Housing Act, 42 U.S.C. §§ 3601-3619 (“FHA”). The Attorney General of the United States is authorized to initiate a civil action in federal district court whenever the Attorney General has reasonable cause to believe that a pattern or practice in violation of the FHA or the ECOA has occurred. 42 U.S.C. §§ 3614(a); 15 U.S.C. § 1691e(h).

DEFENDANT 12.

Defendant National City Corporation was a Delaware corporation headquartered in Cleveland, Ohio and was the parent company to National City Bank (hereafter collectively referred to as “National City”). PNC, a Pennsylvania corporation headquartered in Pittsburgh, Pennsylvania acquired National City Corporation, its subsidiaries, and its operations through a stock-for-stock transaction on December 31, 2008. Since PNC’s acquisition of National City on December 31, 2008, National City’s mortgage portfolio and residential mortgage lending retail Case 2:13-cv-01817-CB Document 1 Filed 12/23/13 Page 3 of 15

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business has been wholly integrated and assumed by PNC. As successor-in-interest to National City, PNC is responsible for remedying the violations alleged herein. 13.

National City was a residential mortgage lender that originated conventional loans, loans insured by the Federal Housing Administration and loans guaranteed by the Department of Veteran Affairs.

14.

PNC is, and National City was, subject to Federal laws governing fair lending, including the ECOA and the FHA and the regulations promulgated under each of those laws. The ECOA and the FHA prohibit lenders from discriminating on the basis of, inter alia, race or national origin in their lending practices. Charging a higher price for loans on the basis of race or national origin, including charging a higher annual percentage rate of interest (“APR”), is a discriminatory lending practice prohibited by the ECOA and the FHA. 15.

PNC is, and National City was, a “creditor” within the meaning of the ECOA, 15 U.S.C. § 1691a(e), and PNC is, and National City was, engaged in “residential real estaterelated transactions” within the meaning of the FHA, 42 U.S.C. § 3605. INVESTIGATION 16.

In 2011, the CFPB and the DOJ (hereafter collectively referred to as “Plaintiffs”) opened a joint investigation of the lending practices of National City from 2002-2008 and the lending practices of PNC from 2009-2010 to evaluate compliance with Federal fair lending laws, including the ECOA and the FHA.

17.

After notifying PNC of the investigation, the Plaintiffs requested a number of documents and data related to National City’s and PNC’s pricing of residential mortgage loans for the years 2002-2010.

18.

The Plaintiffs analyzed National City’s and PNC’s lending policies and practices for the years 2002-2010.

19.

The Plaintiffs also analyzed the APRs of residential mortgage loans originated by National City and PNC for the years 2002-2010.

Case 2:13-cv-01817-CB Document 1 Filed 12/23/13 Page 4 of 15

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FACTUAL ALLEGATIONS 20.

From at least 2002-2008, National City originated residential mortgage loans through two channels: 1) a retail channel, through which National City originated loans using its own employees, and 2) a wholesale channel, through which National City originated loans through brokers.

Retail Lending 21.

With respect to its retail channel, National City operated over 410 retail mortgage offices throughout the country. National City loan officers accepted loan applications, determined whether to originate each loan using National City’s underwriting guidelines, and set the price of each loan using National City’s pricing guidelines. From 2002-2008, National City originated more than one million loans through its retail channel. 22.

For loans in the retail channel, National City determined the risk-related pricing of a particular loan based on objective factors, including the borrower’s credit characteristics and the terms of the loan, which resulted in calculated “par” interest rates for individual mortgage loan applications. These par rates were communicated to National City’s loan officers through the distribution of rate sheets.

23.

National City gave its retail loan officers wide discretion to charge more than the par rate as set forth on the rate sheet (an “overage”) or offer a pricing concession that lowered the par rate as set forth on the rate sheet (an “underage”). These overages and underages were not related to loan terms or to a borrower’s objective credit characteristics. 24.

The compensation of National City’s retail loan officers was based in part on their ability to charge overages and avoid including underages on the loans they arranged. The compensation system rewarded loan officers with extra compensation for making loans with overages – the greater the overage, the greater the additional compensation. The compensation system also created incentives to make any underages as small as possible. Case 2:13-cv-01817-CB Document 1 Filed 12/23/13 Page 5 of 15

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25.

From 2002-2008, National City did not have in place objective criteria, or provide guidelines, instructions, or procedures to be followed by loan officers in charging overages or making available underages. In addition, National City did not require its loan officers to document the reasons for charging overages or including underages and did not have meaningful monitoring of whether discrimination based on race or national origin resulted from these overages and underages.

26.

Charging a higher net overage on the basis of race or national origin, whether through National City’s inclusion of a greater overage or a smaller underage in the price of the mortgage loan, is a discriminatory lending practice by National City and prohibited by the ECOA and the FHA.

27.

Statistical analyses of retail mortgage loans originated by National City between 2002 and 2008 demonstrate statistically significant discriminatory pricing disparities in retail mortgage loans based on race and national origin. Statistical significance is a measure of probability that an observed outcome would not have occurred by chance. As used in this Complaint, an outcome is statistically significant if the probability that it could have occurred by chance is less than 5%.

28.

With respect to retail mortgage loans, between 2002 and 2008, National City charged African-American borrowers nationwide, on average, approximately 11 basis points more than it charged similarly-situated White borrowers as measured through the APR, after accounting for the credit risk factors (e.g., credit score) and terms of the loan (e.g., loan-to-value ratio and property type) that National City used in establishing the par rates that were set forth in its rate sheets. These disparities are statistically significant and mean that on average an African- American borrower paid approximately $159 more than a similarly-situated White borrower during each year that he or she remained in the loan. These disparities cannot be explained by factors unrelated to race.

Case 2:13-cv-01817-CB Document 1 Filed 12/23/13 Page 6 of 15

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29.

These disparities result in approximately 20,000 African-American borrowers having paid higher upfront mortgage loan fees or continuing to pay additional interest because of race in each monthly mortgage payment they make until the loan is paid off, which may be as many as 30 years after origination.

30.

With respect to these retail loans, National City, on average, charged Hispanic borrowers approximately 9 basis points more than it charged similarly-situated White borrowers as measured through the APR, after accounting for the credit risk factors (e.g., credit score) and terms of the loan (e.g., loan-to-value ratio and property type) that National City used in establishing the par rates that were set forth in its rate sheets. These disparities are statistically significant and mean that on average, a Hispanic borrower paid approximately $125 more than a similarly-situated White borrower during each year that he or she remained in the loan. These disparities cannot be explained by factors unrelated to national origin. 31.

These disparities result in more than 18,000 Hispanic borrowers having paid higher upfront mortgage loan fees or continuing to pay additional interest because of national origin in each monthly mortgage payment they make until the loan is paid off, which may be as many as 30 years after origination.

32.

In setting the par rates for its retail mortgage loans, National City accounted for individual borrowers’ differences in credit risk characteristics. The net overages charged to African-American and Hispanic borrowers were separate from and not justified by the credit risk characteristics, which were already accounted for in the par rates set forth in the rate sheets. Accordingly, the disparities in the net overages paid by African-American and Hispanic borrowers described above are not justified by borrowers’ credit risk characteristics. 33.

The higher APRs that National City charged to African-American and Hispanic borrowers in its retail channel (borrowers whom National City determined had the credit characteristics to qualify for a home mortgage) were a result of the implementation of National City’s policies or practices that: a) allowed loan officers subjective discretion to adjust pricing Case 2:13-cv-01817-CB Document 1 Filed 12/23/13 Page 7 of 15

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without regard to borrower risk, including charging overages and applying underages; b) did not require its loan officers to justify or document the reasons for charging overages or allowing underages; c) failed to adequately monitor or control for disparities based on race or national origin resulting from its policies and practices; and d) linked loan officer compensation in part to charging overages and avoiding underages.

34.

National City’s policies and practices identified in the previous paragraph were not justified by business necessity or legitimate business interests. There were also less discriminatory alternatives available to National City than these policies or practices. Wholesale Lending 35.

From 2003-2008, National City charged African-American and Hispanic wholesale borrowers nationwide higher loan prices than White wholesale borrowers, not based on their creditworthiness or other objective criteria related to borrower risk, but because of their race or national origin. It was National City’s policy and practice to allow mortgage brokers who submitted loan applications to National City through its wholesale channel to charge discretionary fees and vary a loan’s interest rate from the par rate set by National City. This subjective pricing discretion resulted in higher loan prices that were not based on loan risk for African-American and Hispanic borrowers compared with similarly situated White borrowers. As a result of National City’s discriminatory wholesale lending practices, African-American and Hispanic borrowers paid, on average, hundreds of dollars more for a National City wholesale loan.

36.

In the years 2003-2008, National City originated over 600,000 residential mortgage loans through its wholesale channel. Mortgage brokers throughout the United States, who had entered into contracts with National City for the purpose of submitting mortgage loan applications to it for origination, brought loan applications to National City during this time. 37.

National City was directly and extensively involved in setting the complete terms and conditions of wholesale mortgage loans. National City evaluated the risk of making each Case 2:13-cv-01817-CB Document 1 Filed 12/23/13 Page 8 of 15

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wholesale mortgage loan using National City’s underwriting guidelines and it determined whether to originate and fund each loan.

38.

National City determined the par rate of a particular wholesale loan based on objective factors, including the borrower’s credit characteristics and the terms of the loan. These par rates were communicated to mortgage brokers through rate sheets. 39.

National City permitted its mortgage brokers to charge discretionary fees and to increase or decrease the loan price that was listed on the rate sheets. This step of pricing wholesale loans permitted mortgage brokers to exercise subjective discretion in setting the final price National City charged to individual borrowers, for reasons unrelated to a borrower’s credit risk characteristics and terms of the loan.

40.

From 2003-2008, National City did not have in place objective criteria to be followed by brokers in charging fees or higher interest rates than the par rates listed on the rate sheets. In addition, National City did not require its brokers to document the reasons for charging fees or higher interest rates, did not have meaningful monitoring of whether discrimination based on race or national origin resulted from these charges, and did not offer fair lending training to its brokers.

41.

If a loan was originated by National City, brokers received compensation through (1) discretionary fees charged to consumers, and (2) yield spread premiums (“YSPs”) paid by National City. The YSP was an amount paid by National City to its brokers based on the extent to which the note rate charged on a loan exceeded the par rate for that loan as listed on the rate sheet. The YSP is derived from the present dollar value of the difference between the par rate a wholesale lender such as National City would have accepted on a particular loan and the note rate a mortgage broker actually obtained for National City. The higher the interest rate, the higher the YSP paid by National City. National City generally capped the total amount of compensation that a broker could receive at 5% of the loan amount, including any YSP and fees Case 2:13-cv-01817-CB Document 1 Filed 12/23/13 Page 9 of 15

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charged to the consumer, but imposed no other guidelines or rules with respect to broker compensation.

42.

For each individual residential loan application presented to it, National City had actual knowledge about the broker compensation paid to brokers and charged to the consumer. National City controlled broker compensation through its policies and practices, and incentivized mortgage brokers to increase the interest rate above the par rate set forth on the rate sheet and to increase broker fees in order to increase the compensation that brokers received through YSP and fees.

43.

Requiring borrowers to pay higher mortgage loan prices on the basis of race or national origin, whether through higher interest rates that reflect National City’s payment of a higher YSP to brokers or through higher direct broker fees, is a discriminatory lending practice by National City prohibited by the ECOA and the FHA.

44.

Statistical analyses of wholesale mortgage loans originated by National City demonstrate statistically significant discriminatory pricing disparities in wholesale mortgage loans based on race and national origin.

45.

From 2003-2008, with respect to wholesale loans, National City charged African- American borrowers nationwide, on average, approximately 14 basis points more than it charged similarly-situated White borrowers as measured through the APR, after accounting for the credit risk factors (e.g., credit score) and terms of the loan (e.g., loan-to-value ratio and property type) that National City used in developing the par rates set forth in its rate sheets. These disparities are statistically significant and mean that an African-American borrower paid approximately $228 more than a similarly-situated White borrower during each year that he or she held the loan. These differences cannot be explained by factors unrelated to race. 46.

These disparities result in approximately 14,000 African-American borrowers having paid higher upfront mortgage loan fees or continuing to pay additional interest because of Case 2:13-cv-01817-CB Document 1 Filed 12/23/13 Page 10 of 15

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race in each monthly mortgage payment they make until their loans are paid off, which may be as many as 30 years after origination.

47.

From 2003-2008, with respect to wholesale loans, National City charged Hispanic borrowers nationwide, on average, approximately 10 basis points more than it charged similarlysituated White borrowers as measured through the APR, after accounting for the credit risk factors (e.g., credit score) and terms of the loan (e.g., loan-to-value ratio and property type) that National City used in developing the par rates set forth in its rate sheets. These disparities are statistically significant and mean that a Hispanic borrower paid approximately $154 more than a similarly-situated White borrower during each year that he or she held the loan. These differences cannot be explained fully by factors unrelated to national origin. 48.

These disparities result in approximately 23,000 Hispanic borrowers having paid higher upfront mortgage loan fees or continuing to pay additional interest because of national origin in each monthly mortgage payment they make until their loans are paid off, which may be as many as 30 years after origination.

49.

The higher APR that National City charged to African-American and Hispanic borrowers in its wholesale channel (borrowers whom National City determined had the credit characteristics to qualify for a home mortgage) were a result of National City’s policy or practices that a) allowed mortgage brokers subjective and unguided discretion in setting prices for wholesale loans unrelated to credit risk characteristics and the terms of the loan; b) did not require mortgage brokers to justify or document the reasons for the amount of broker fees and prices set above the par rate; c) failed to adequately monitor or control for disparities based on race or national origin resulting from its policies and practices; and d) created a financial incentive for mortgage brokers to charge higher discretionary fees and interest rates above the par rates National City had set based on objective credit risk characteristics and the terms of the loan.

Case 2:13-cv-01817-CB Document 1 Filed 12/23/13 Page 11 of 15

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50.

National City’s policies and practices identified in the previous paragraph were not justified by business necessity or legitimate business interests. There were also less discriminatory alternatives available to National City than these policies or practices. EQUAL CREDIT OPPORTUNITY ACT VIOLATIONS 51.

National City’s policies and practices, as alleged herein, constitute discrimination against applicants with respect to credit transactions on the basis of race and/or national origin in violation of the Equal Credit Opportunity Act, 15 U.S.C. § 1691(a)(1). 52.

National City’s policies and practices, as alleged herein, constitute a pattern or practice of resistance to the full enjoyment of rights secured by the Equal Credit Opportunity Act, 15 U.S.C. §§ 1691-1691f.

53.

Over 76,000 persons nationwide overpaid for loans as a result of National City’s pattern or practice of discrimination and denial of rights as alleged herein. In addition to higher direct economic costs, some of the victims of discrimination suffered additional consequential economic damages resulting from having an excessively costly loan, including possible increased risk of credit problems, and other damages, including emotional distress. FAIR HOUSING ACT VIOLATIONS 54.

National City’s residential lending-related policies and practices, as alleged herein, constitute:

a) discrimination on the basis of race and national origin 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 and national origin in the terms, conditions, or privileges or the provision of services in connection with the sale of a dwelling, in violation of the Fair Housing Act, 42 U.S.C. § 3604(b); and 55.

National City’s residential lending-related actions, policies and practices, as alleged herein, constitute Case 2:13-cv-01817-CB Document 1 Filed 12/23/13 Page 12 of 15

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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 b) a denial of rights granted by the Fair Housing Act to a group of persons – both African Americans and Hispanics – that raises an issue of general public importance 56.

Over 76,000 persons nationwide have been victims of National City’s pattern or practice of discrimination and denial of rights as alleged herein. In addition to higher direct economic costs, some of the victims of discrimination suffered additional consequential economic damages resulting from having an excessively costly loan, including possible increased risk of credit problems, and other damages, including emotional distress. They are aggrieved persons as defined in the Fair Housing Act, 42 U.S.C. § 3602(i), and have suffered injury and damages as a result of National City’s conduct. CONSUMER INJURY 57.

Consumers have suffered substantial injury as a result of National City’s violations of the ECOA and the FHA. In addition, National City and PNC have been unjustly enriched as a result of their unlawful acts or practices. THIS COURT’S POWER TO GRANT RELIEF 58.

The CFPA empowers this Court to grant any appropriate legal or equitable relief including, without limitation, a permanent or temporary injunction, rescission or reformation of contracts, the refund of moneys paid, restitution, disgorgement or compensation for unjust enrichment, monetary relief, and civil money penalties, to prevent and remedy any violation of any provision of law enforced by the Bureau. 12 U.S.C. § 5565. 59.

The ECOA empowers this Court to grant such relief as may be appropriate, including actual and punitive damages and injunctive relief. 15 U.S.C. § 1691e(h). 60.

The FHA empowers this Court to grant legal or equitable relief necessary to ensure the full enjoyment of the rights granted by the FHA, including a temporary or permanent injunction, restraining order, and monetary damages to aggrieved persons. 42 U.S.C. § 3614(d). Case 2:13-cv-01817-CB Document 1 Filed 12/23/13 Page 13 of 15

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PRAYER FOR RELIEF WHEREFORE, the Consumer Financial Protection Bureau and the Department of Justice pray that the Court enter an ORDER that:

(1) Declares that the policies and practices of National City constitute violations of the Equal Credit Opportunity Act, 15 U.S.C. §§ 1691-1691f and the Fair Housing Act, 42 U.S.C. §§ 3601-3619;

(2) Enjoins National City, through its successor in interest, as well as its agents, employees, and successors, and all other persons in active concert or participation with it, from: a) Failing or refusing to take such affirmative steps as may be necessary to restore, as nearly as practicable, the victims of National City’s unlawful conduct to the position they would have been in but for the discriminatory conduct; and b) Failing or refusing to take such affirmative steps as may be necessary to prevent the recurrence of any such discriminatory conduct in the future; to eliminate, to the extent practicable, the effect of National City’s unlawful practices; and to implement policies and procedures to ensure that all borrowers have an equal opportunity to seek and obtain loans on a non-discriminatory basis and with non-discriminatory terms and conditions; and (3) Awards equitable relief and monetary damages to all the victims of National City’s discriminatory policies and practices for the injuries caused by National City, including direct economic costs, consequential damages, and other damages, pursuant to 15 U.S.C. §§ 1691c(a)(9) and 1691e(h), 12 U.S.C. § 5565, and 42 U.S.C. § 3614(d)(1)(B) .

The Plaintiffs pray for such additional relief as the interests of justice may require. Case 2:13-cv-01817-CB Document 1 Filed 12/23/13 Page 14 of 15

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Case 2:13-cv-01817-CB Document1 Filed 12/23/13 Page 15 of 15

Dated: December 23, 2013

, PATRICE FICKLIN Fair Lending Ditector

ANTHONY ALEXIS Assistant Enforcement Director:

Deputy Fair Lending Director

LUCY MORRIS Deputy Enforcement Director

SARAH AUCHTERLONIE

Assistant Litigation Deputy

Consumer Financial Protection Bureau (Email: Sarah,[email protected] (Phone: 202-435-7687)

/s/ Je.Yon Jung.

JE-YON JUNG

Fair Lending Senior Counsel:

(Phone: : 415-645-6626) DC Bar #495154

MICHAEL POSNER

Fair Lending Counsel

(Email: [email protected]) (Phone: 202-435-7866)

Consumer Financial Protection Bureau 1700-G Street NW

Washington, DC 20552

Fax: (202) 435-7722

Respectfully submitted,

ERICH. HOLDER, JR.

Attorney General

TOCELYN SAMERLS, Acting Assistant Attorney General. Civil Rights Division

STHVENM, pee”

United States Attorney: Northern District of Ohio

SVEN HL. ROSENBAUM - Chief Housing and Civil Enforcement Section

AOR ea ne

JON M. SEWARD “Deputy Chief Housing and Civil Enforcement Section. PATRICIA O’BEIRNE

. Trial Attorney Housing and Civil Enforcement-Section (Smail: Patricia. O’[email protected]) (Phone: 202-307-6264)

United States Department of Justice Housing and Civil Enforcement Section 950 Pennsylvania. Ave. NW ~G St. Washington, DC 20530

Fax: (202).514-1116

Consent order

PDF of this document (14 pages)

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Case 2:13-cv-01817-CB Document 1-2 Filed 12/23/13 Page 1 of 14 IN THE UNITED STATES DISTRICT COURT WESTERN DISTRICT OF PENNSYLVANIA CONSUMER FINANCIAL PROTECTION BUREAU) and UNITED STATES OF AMERICA, ) ) Plaintiffs, ) CIVIL ACTION NO.

v.

) ) ) /3-1811 NA TIONAL CITY BANK, ) through its Successor in Interest, ) ) Defendant.

) ) CONSENT ORDER I. INTRODUCTION This Consent Order is submitted jointly by the parties for the approval ofand entry by the court, simultaneously with the filing ofthe Complaint of the Consumer Financial Protection Bureau and the United States (collectively, "Plaintiffs") in this matter. This Consent Order resolves the claims in the Plaintiffs' Complaint that, during and between 2002 and 2008, National City Bank engaged in a pattern or practice of discrimination on the basis of race and national origin in residential mortgage lending in violation ofthe Equal Credit Opportunity Act ("ECOA"), 15 U.S.c. §§ 1691-1691f, and the Fair Housing Act ("FHA"), 42 U.S.C. §§ 3601­ 36 19. On December 31, 2008, National City Bank was acquired by The PNC Financial Services Group, Inc. and in 2009 was merged with and into PNC Bank, National Association ("Successor"), which is the successor-in-interest to National City Bank. Case 2:13-cv-01817-CB Document 3 Filed 01/09/14 Page 1 of 14

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Case 2:13-cv-01817-CB Document 1-2 Filed 12/23/13 Page 2 of 14 The Plaintiffs' allegations against National City Bank relate solely to loans originated by National City Bank prior to the acquisition ofNational City Bank by the parent holding company of Successor. There has been no factual finding or adjudication with respect to any matter alleged by the Plaintiffs. Successor neither admits nor denies Plaintiffs' allegations. Since PNC acquired National City Bank, PNC no longer utilizes third-party mortgage brokers to submit loans through a wholesale channel and has implemented revised policies and procedures related to its retail mortgage channeL PNC does not use National City Bank's residential mortgage origination policies and procedures. The parties have entered into the Consent Order to avoid the risks, expense, and burdens of litigation and to resolve voluntarily the claims in the Plaintiffs' Complaint.

II. BACKGROUND In 2012, the Plaintiffs opened ajoint investigation ofNational City Bank's mortgage origination pricing practices from 2002-2009, and Successor's mortgage origination pricing practices from 2009-2010. The Complaint alleges that during and between 2002 and 2008, National City Bank engaged in a pattern or practice ofdiscrimination on the basis of race and national origin in the pricing ofresidential mortgage loans originated through retail and wholesale channels in violation of both the ECOA and the FHA. Specifically, the Plaintiffs allege that: 1) National City Bank's business policies and practices allowed its employees who originated mortgage loans through its retail channel during and between 2002 and 2008, and third-party mortgage brokers that submitted loans through its wholesale channel during and between 2003 and 2008, to vary a loan's interest rate, fees, and other costs associated with the loan from the price initially set based on the borrower's objective credit-related factors; 2) National City Bank's compensation and incentive policies encouraged -2­ Case 2:13-cv-01817-CB Document 3 Filed 01/09/14 Page 2 of 14

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Case 2:13-cv-01817-CB Document 1-2 Filed 12/23/13 Page 3 of 14 its employees who originated loans through its retail channel, and third-party mortgage brokers who originated loans through its wholesale channel, to charge higher interest rates, fees, and other costs; and 3) National City Bank failed to implement or maintain adequate internal controls to identity and prevent discrimination prohibited by the ECOA and the FHA from occurring. The Complaint alleges that these policies and practices resulted in African-American and Hispanic borrowers paying higher interest rates, fees, and other costs than similarly-situated non- Hispanic White borrowers that could not be explained fully by factors unrelated to race and nation origin, in violation of the ECOA and the FHA.

III. REMEDIAL ORDER I.

The Effective Date ofthis Consent Order will be the date on which it is approved and entered by the Court.

2.

Within seven (7) days ofthe Effective Date of this Consent Order, Successor will establish an interest-bearing qualified settlement fund in the total amount ofthirty-five million dollars ($35,000,000.00) to compensate affected borrowers for monetary damages, equitable relief, and other damages that they may have suffered as a result of National City Bank's alleged violations ofthe ECOA and the FHA (the "Settlement Fund"). Title to this account shall specity that it is "for the benefit ofallegedly affected borrowers pursuant to the Order ofthe Court in Consumer Financial Protection Bureau and United States v. National City Bank through its -€Y1k,¥u:C Successor in Interes~n l#J.J&." Successor shall provide written verification of the deposit to the Plaintiffs within five (5) days ofdepositing the funds described in this paragraph. Any interest that accrues will become part ofthe Settlement Fund and will be utilized and disposed ofas set forth herein.

3.

Within thirty (30) days of the Effective Date ofthe Consent Order, Successor shall identity to Plaintiffs a Settlement Administrator ("Administrator") to conduct the activities -3­ Case 2:13-cv-01817-CB Document 3 Filed 01/09/14 Page 3 of 14

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Case 2:13-cv-01817-CB Document 1-2 Filed 12/23/13 Page 4 of 14 set forth in Paragraphs 4 through 15 and Paragraph 17. The selection ofthe Administrator and the terms ofthe Administrator's contract related to the Administrator's duties pursuant to the Consent Order shall be subject to the approval of the Plaintiffs. Within thirty (30) days of the approval ofthe Administrator by Plaintiffs, Successor shall enter into a contract retaining the Administrator to conduct the activities set forth in Paragraphs 4 through 15 and Paragraph 17. Successor shall bear all costs and expenses of the Administrator for conducting the activities set forth in Paragraphs 3 through 15 and Paragraph 17. Successor's contract with the Administrator shall require the Administrator to comply with the provisions ofthe Consent Order as applicable to the Administrator. 1 The Administrator's contract shall require the Administrator to work cooperatively with the Plaintiffs in the conduct of its activities, including reporting regularly to and providing all reasonably requested information to the Plaintiffs. The Administrator's contract shall require the Administrator to comply with all confidentiality and privacy restrictions applicable to the party who supplied the information and data to the Administrator. 4.

The Administrator's contract shall require the Administrator, as part of its operations, to establish cost-free means for affected borrowers to contact it, including an email address, an internet site, a toll-free telephone number, and means for persons with disabilities to communicate effectively, including TTY. The Administrator's contract shall require the Administrator to provide live English and Spanish-speaking operators to speak to individual borrowers who call the toll-free telephone number during business hours, 8:00 am ET to 5:00 pm PT, and request a live operator. In addition, the Administrator's contract shall require the In the event that the Plaintiffs have reason to believe that the Administrator is not materially complying with the terms of its contract with Successor, the Plaintiffs and Successor shall meet and confer for the purpose of mutually agreeing upon a course of action to effect the Administrator's material compliance with its contract with Successor. In the event that the Plaintiffs and Successor are unable to agree upon a course ofaction to effect the Administrator's material compliance with its contract with the Successor, the parties shall present the matter to the Court.

-4­ Case 2:13-cv-01817-CB Document 3 Filed 01/09/14 Page 4 of 14

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Case 2:13-cv-01817-CB Document 1-2 Filed 12/23/13 Page 5 of 14 Administrator to provide Spanish language translations for written (including email and telephone script) communications with affected borrowers. 5.

Within thirty (30) days of the Effective Date of the Consent Order, the Plaintiffs shall provide to the Administrator and Successor a list of loans originated to African-American and Hispanic borrowers allegedly affected by the conduct set forth in the Complaint. 6.

Within thirty (30) days after the date the Plaintiffs provide the list of loans referenced in Paragraph 5, Successor will provide to Plaintiffs and the Administrator the name, property address, mailing address, and Social Security number for the primary borrower and each co-borrower (if any) on each listed loan. Such information and data shall be used by the Plaintiffs and the Administrator only for the purposes ofenforcing and implementing the Consent Order. Successor shall supply the requested information that is within its control, or the control of any affiliated entity of Successor. To the extent that the requested data is not within the control ofthose parties, Successor shall supply any data that is within the control of those parties that identifies other entities that may have the requested data. 7.

Within sixty (60) days after the date the Plaintiffs receive the data required to be provided by Paragraph 6, the Plaintiffs shall provide the Administrator with a list of borrowers eligible to receive a monetary award from the Settlement Fund ("Identified Borrowers") and the initial estimate ofthe amount each Identified Borrower will receive from the Settlement Fund if all Identified Borrowers are located. No individual may request that the Court, the Plaintiffs, the Successor, or the Administrator review the selection of Identified Borrowers or the amount to be received.

8.

Throughout the term of this Consent Order the Plaintiffs or Administrator may request from Successor data they do not already have and that the Plaintiffs or Administrator -5­ Case 2:13-cv-01817-CB Document 3 Filed 01/09/14 Page 5 of 14

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Case 2:13-cv-01817-CB Document 1-2 Filed 12/23/13 Page 6 of 14 reasonably believe will assist in identifYing affected borrowers and detennining any monetary damages, equitable relief, and other damages. Such data shall be used by the Plaintiffs or Administrator only for the law enforcement purposes of implementing this Consent Order. Within fifteen (15) business days ofany such request under this Paragraph, Successor shall supply to the requestor the requested data that is within its custody or control, or the custody or control ofany current or former affiliated entity of Successor or National City Bank. 9.

The Administrator's contract shall require the Administrator to adopt effective methods, as directed by the Plaintiffs, to confirm the identities ofldentified Borrowers and provide to the Plaintiffs a list of Identified Borrowers whose identities have been confinned within one hundred twenty (120) days from the date the Plaintiffs provide the infonnation described in Paragraph 7.

10.

Within sixty (60) days after the date the Administrator provides to Plaintiffs the list ofIdentified Borrowers required by Paragraph 9, the Plaintiffs shall provide to the Administrator a list containing the final payment amount for each Identified Borrower on the list. Payment amounts are to be paid on a per-loan basis; if there is more than one Identified Borrower listed on the loan, they will share the compensation equally. The parties agree that the total amount of the Settlement Fund shall not be altered based on the number ofldentified Borrowers whose identities are confirmed pursuant to Paragraph 9. No individual may request a review by the Court, the Plaintiffs, Successor or the Administrator of the final payment amounts. 11.

The Administrator's contract shall require the Administrator to deliver payment to each Identified Borrower in the amount detennined by the Plaintiffs as described in Paragraph 10, within ten (10) days ofits receipt. Given the specific facts and circumstances related to this action, including, but not limited to, the age of the loans, the result of prior private litigation, the -6­ Case 2:13-cv-01817-CB Document 3 Filed 01/09/14 Page 6 of 14

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Case 2:13-cv-01817-CB Document 1-2 Filed 12/23/13 Page 7 of 14 legacy nature ofthese loans that were originated by a prior entity whose loan program is no longer operative, and the joint nature ofthis action between the two federal agencies, the Plaintiffs have agreed to require each Identified Borrower to effectuate a mutually agreeable release as a condition of payment under the Settlement Fund that will release all claims ofevery type accruing prior to the Effective Date related to the allegations in the Complaint which this Consent Order resolves that the Identified Borrower may have against National City Bank, PNC Bank, N.A., all related entities, parents, predecessors, successors, subsidiaries, and affiliates, and all oftheir past and present directors, officers, agents, managers, supervisors, shareholders, and employees and their heirs, executors, administrators, successors, or assigns. 12.

The Administrator's contract shall require the Administrator to set forth deadlines, subject to approval ofthe Plaintiffs, so that the final payments described in Paragraph 10 are distributed and checks are presented for payment or become void, prior to the date that is 24 months from the date the Plaintiffs provide the list of final payment amounts to the Administrator in accordance with Paragraph 10.

13.

The total amount paid by Successor to the Identified Borrowers collectively shall not exceed the amount of the Settlement Fund, including accrued interest. 14.

Successor will not be entitled to a set-off, or any other reduction, ofthe amount of final payments to Identified Borrowers because ofany debts owed by the Identified Borrowers. 15.

All money not distributed to Identified Borrowers from the Settlement Fund, including accrued interest, shall be distributed by the Administrator to one or more organizations that provide services including credit and housing counseling (including assistance in obtaining loan modification and preventing foreclosure), legal representation of borrowers seeking to obtain a loan modification or to prevent foreclosure, financial literacy, and other related -7­ Case 2:13-cv-01817-CB Document 3 Filed 01/09/14 Page 7 of 14

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Case 2:13-cv-01817-CB Document 1-2 Filed 12/23/13 Page 8 of 14 programs, targeted at African-American and Hispanic potential and former homeowners ("Qualified Organization"). Before selecting the Qualified Organization(s), Successor will I) obtain proposals from the Organization(s) on how the funds will be used consistent with the above-stated purpose, and 2) submit selected proposals from the Organization(s), and the proposed amount of funds each Organization would receive, to the Plaintiffs within thirty (30) days of the date that the Administrator completes the delivery ofthe payments under Paragraph 11. Successor shall consult with and obtain the non-objection ofthe Plaintiffs to the proposals submitted within thirty (30) days of Successor's submission. The Plaintiffs and Successor may request modification of an Organization's proposal before approving the Organization(s). Qualified Organization(s) must not be affiliated with Successor, Successor's parent, or any affiliated entity of Successor's parent.

16.

The parties shall obtain the Court's approval ofthe selection of the Qualified Organizations and the amount to be distributed to each Qualified Organization prior to distribution as provided by Paragraph 15. Within fifteen (15) days ofthe Plaintiffs' non­ objection to the Qualified Organizations, the parties shall move the Court to order the distribution of the funds. The parties shall provide the Court with information regarding how the Qualified Organizations meet the requirements set forth in Paragraph 15. 17.

The Administrator shall require each Qualified Organization to submit to the Administrator a report detailing that funds are utilized for the purposes identified in Paragraph 15 within one year after the funds are distributed and every year thereafter until the funds are exhausted. For any Qualified Organization that does not provide such a report, the Administrator shall require that the funds be returned to the Administrator for redistribution to the other organization(s) approved to receive funds.

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Case 2:13-cv-01817-CB Document 1-2 Filed 12/23/13 Page 9 of 14 IV. RECORD KEEPING AND REPORTING REQUIREMENTS 18.

For the duration ofthe Consent Order, Successor shall retain all records relating to its obligations hereunder as well as its compliance activities as set forth herein. The Plaintiffs will have the right to review and copy such records upon request. 19.

Successor will submit semi-annual reports to the Plaintiffs on its progress in completing the requirements ofthe Consent Order. Each such report will provide a complete account of Successor's actions to comply with each requirement ofthe Consent 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 ofthe Consent Order. Successor shall submit its first report no later than 180 days after the Effective Date of the Consent Order, and every 180 days thereafter for so long as the Consent Order is in effect.

V. ADMINISTRATION 20.

The Consent Order will terminate three months after funds have been distributed in accordance with Paragraph 15, ifapplicable, ofthe Consent Order. Notwithstanding the above, the Consent Order may be extended further upon motion ofthe Plaintiffs to the Court, for good cause shown.

21.

Any time limits for performance fixed by the Consent Order may be extended by mutual written agreement of the parties without Court order. Additionally, Paragraphs 3-17 herein can be modified by agreement ofthe parties and without further Court approvaL Other modifications to the Consent Order may be made only upon approval ofthe Court, upon motion by either Successor or the Plaintiffs. The parties recognize that there may be changes in relevant -9­ Case 2:13-cv-01817-CB Document 3 Filed 01/09/14 Page 9 of 14

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Case 2:13-cv-01817-CB Document 1-2 Filed 12/23/13 Page 10 of 14 and material factual circumstances during the duration ofthe Consent 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 the Consent Order resulting therefrom. 22.

The Consent Order will be binding on Successor, including its officers, employees, agents, assignees, and successors in interest, and all those in active concert or participation with any of them. In the event Successor seeks to transfer or assign all or part of its residential mortgage operations,2 and the successor or assignee intends on carrying on the same or similar use, as a condition of sale, Successor will obtain the written accession of the successor or assignee to any obligations remaining under the Consent Order for its remaining term. 23.

Nothing in the Consent Order will excuse Successor's compliance with any currently or subsequently effective provision of law or order of a regulator with authority over Successor that imposes additional obligations on Successor. 24.

The parties agree that, as ofthe Effective Date ofthe Consent Order, litigation is not "reasonably foreseeable" concerning the matters described in the Consent Order. To the extent that either party previously implemented a litigation hold to preserve documents, electronically stored information, or things related to the matters described in the Consent Order, the party is no longer required to maintain such a litigation hold, with the exception of documents, electronically-stored information, or other things relating to residential mortgage loans originated by National City Bank during and between January 1,2002, and December 31, 2008.

For purposes of this paragraph, the requirements relating to the transfer or assignment of"residential mortgage operations" do not include the transfer or assignment of portions of Successor's portfolio of loans, accounts, receivables or servicing rights associated with loans to an independent third party entity. -10­ Case 2:13-cv-01817-CB Document 3 Filed 01/09/14 Page 10 of 14

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Case 2:13-cv-01817-CB Document 1-2 Filed 12/23/13 Page 11 of 14 25.

In the event that any disputes arise about the interpretation ofor compliance with the terms ofthe Consent Order, the parties will endeavor in good faith to resolve any such dispute between themselves before bringing it to this Court for resolution. If the Plaintiffs believe that Successor has violated any provision ofthe Consent Order, it will provide Successor written notice thereof and allow thirty (30) days to resolve the alleged violation before presenting the matter to this Court. In the event ofeither a failure by Successor to perform in a timely manner any act required by the Consent Order or an act by Successor in violation ofany provision hereof, the Plaintiffs may move this Court to impose any remedy authorized by law or equity.

26.

Successor's compliance with this Consent Order shall fully and finally resolve all claims related to the allegations ofthe Complaint and the subject matter ofthe Plaintiffs' investigation, including under the ECOA and the FHA, that the Plaintiffs may have against National City Bank or Successor relating to discrimination against African-American and Hispanic borrowers based on racial or national origin disparities in pricing ofresidential mortgage loans during and between 2002 and 20 I 0, including without limitation all claims for monetary damages, equitable relief, other damages, and penalties arising from those claims, as well as any claims under any other legal theory based on the same allegations ofdiscriminatory conduct addressed in the Complaint.

27.

This Consent Order does not release claims for practices not addressed in the Complaint's allegations, or that were not within the subject matter of Plaintiffs' investigation, including claims that may be held or are currently under investigation by any federal agency, or any claims that may be pursued for actions that may be taken by the appropriate Federal Banking Agency ("FBA"), as defined in 12 U.S.c. § l8l3(q), against Successor, any of its affiliated -11­ Case 2:13-cv-01817-CB Document 3 Filed 01/09/14 Page 11 of 14

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Case 2:13-cv-01817-CB Document 1-2 Filed 12/23/13 Page 12 of 14 entities, and/or any institution-affiliated party of Successor, as defined in 12 U.S.C. § 1813(u), pursuant to 12 U.S.C. § 1818 or any other statute or regulation. 28.

Each party to the Consent Order will bear its own costs and attorneys' fees associated with this litigation.

29.

The Court will retain jurisdiction for the duration ofthe Consent Order for purposes ofconstruction, modification, and enforcement of the Consent Order, after which time the case will be dismissed with prejudice. IT IS DONE AND ORDERED this $ay of I~ ,20V U -12­ Case 2:13-cv-01817-CB Document 3 Filed 01/09/14 Page 12 of 14

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Case 2:13-cv-01817-CB Document 1-2 Filed 12/23113 Page 13 of 14 The undersigned hereby apply for and consent to the entry of the Agreement: On beha({ ofthe Plaintiffs: PATRICE FICKLIN Fair Lending Director ANTHONY ALEXIS Acting Enforcement Director REBECCAJ.K.GELFOND Deputy Fair Lending Director LUCY MORRIS Deputy Enforcement Director JOCELYN SAMUELS Acting Assistant Attorney General Civil Rights Division DAVID J. HICKTON United States Attorney Western District of Pennsylvania STEVEN M. DEITELBACH United States Attorney Northern District of Ohio SARAH AUCHTERLONIE Assistant Litigation Deputy (Email: [email protected]) (Phone: 202-435-7687) Is/Je Yon Jung JEYON JUNO Fair Lending Senior Counsel (Email: [email protected]) (Phone: 4 t5-645-6626) DC Bar #495154 MICHAEL POSNER Fair Lending Counsel (Email: Michael. [email protected]) (Phone: 202-435-7866) Consumer Financial Protection Bureau 1700 0 Street NW Washin!.,rton, DC 20552 Fax: (202) 435-7722 DATED: December 23,2013 Chief Housing and Civil Enforcement Section -:-2~--- - ~ ~~~­ JON M. SEWARD Deputy Chief PATRICIA O'BEIRNE Trial Attorney (Email: Patricia.O·Beirne@usdoj . gov) (Phone: 202-307-6264) United States Department ofJustice Civil Rights Division Housing and Civil Enforcement Section 950 Pennsylvania Ave. NW - 0 St. Washington, DC 20530 Fax: 202-514-l116 -13­ Case 2:13-cv-01817-CB Document 3 Filed 01/09/14 Page 13 of 14

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Case 2:13·cv·01817-CB Document 1-2 Filed 12/23/13 Page 14 of 14 On behalfofDefendant National City Bank through its Successor-in-Interest: ---.;£k Neil F. Hall Executive Vice President Retail Bank Andrew L. Sandler Kirk D. Jensen BuckleySandler LLP 1250 24th Street, N.W.

Washington, DC 20037 (202) 349-8000 [email protected] [email protected] DATED December 20, 2013 -14­ Case 2:13-cv-01817-CB Document 3 Filed 01/09/14 Page 14 of 14