August 17, 2023Client Alert

Federal Court of Appeals Rejects a County’s Use of the Fair Housing Act Against a Lender

The U.S. Court of Appeals for the Seventh Circuit held that a county in Illinois could not sue Bank of America for lost tax revenue, transfer fees and expenses incurred to address vacant properties under the Fair Housing Act, or FHA.  The Court reasoned that borrowers, who in many cases lost their homes through foreclosures, were the actual damaged parties.  The County suffered only collateral damage.  The case is County of Cook v. Bank of America, Case No. 22-1407 (Aug. 16, 2023). 

The FHA is a federal civil rights statute that prohibits discrimination in, among other things, mortgage lending on the basis on race, religion, and other protected classes.  See 42 U.S.C. § 3601 et. seq.  In this case, Cook County alleged Bank of America loosened its lending standards and made “unchecked or improper credit approval decisions” and thereby effectively made home loans that borrowers could not afford.  This was, according to Cook County, predatory lending that targeted African American and Hispanic homebuyers. 

The Court of Appeals never reached the question of discrimination because the Court held the County failed to show it was directly damaged; any injury to the County was derived from injuries to the borrowers and banks.  In other words, borrowers lost housing and money; banks lost interest and in some case loan principal, which were both direct injuries, known as “first-step” damages under Supreme Court precedent.  See Bank of America Corp. v. Miami, 581 US 189 (2017).  Under Miami, the FHA requires some direct relation between the injury asserted and the conduct alleged, to state a claim.  Cook County’s case did not meet that standard.   

For more information on this case or on bank lending issues generally, please contact John D. Finerty, Jr. at Michael Best & Friedrich LLP.

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