Navy Federal Credit Union Denied Over 50% of Black Loan Applicants in 2022 | February 2024
February 2024 | Volume 15, Issue 7
Watch the full video and find the accompanying article from CNN Business.
According to the article, more than four dozen members of Congress recently signed on to two letters expressing concern about the lending practices of the nation’s largest credit union, citing a media investigation into racial disparities in the lender’s mortgage approvals.
A Letter to HUD and the CFPB
In a letter to the Department of Housing and Urban Development (HUD) and the Consumer Financial Protection Bureau (CFPB), ten Democratic U.S. senators asked the regulators to investigate Navy Federal Credit Union’s mortgage lending for compliance with federal anti-discrimination laws.
The credit union, which has more than 13 million members, lends to military service members, defense personnel, veterans, and their families.
“Navy Federal’s members have made countless sacrifices in their service to our country,” the senators wrote in the letter. “We must do all we can to ensure illegal barriers are not placed on their path to homeownership.”
The letter’s authors include the chairs of the Senate Banking and Finance committees, Senator Sherrod Brown, D-Ohio, and Senator Ron Wyden, D-Oregon.
In addition, 40 members of the Congressional Black Caucus recently wrote a separate letter to Navy Federal requesting a meeting with the credit union’s CEO and asking for answers and additional data about racial disparities in its mortgage lending.
Results of the Media Investigation
A recent media investigation found that Navy Federal approved more than 75 percent of the White borrowers who applied for a new conventional home purchase mortgage in 2022 while approving less than 50 percent of Black borrowers who applied for the same type of loan, according to the most recent federal data available.
The nearly 29-percentage-point gap in Navy Federal’s approval rates was the widest of any of the 50 lenders that originated the most mortgage loans in 2022. The disparity remained even after accounting for variables such as applicants’ income, debt-to-income ratio, property value, and down payment percentage.
The senators cited the media’s reporting in their letter, as well as a separate analysis of Navy Federal’s public mortgage lending data conducted by banking committee staff. That analysis found the credit union denied conventional mortgage applications from Black and Latino applicants at substantially higher rates than the national average. The racial disparity was also present for VA loans, the senators said.
“When denial rates for Black and Hispanic applicants at one institution appear to be drastically higher than the national average and higher than their rates for similarly situated white borrowers, it raises questions about whether its mortgage lending practices comply with federal fair housing and fair lending laws and regulations,” the letter reads.
In the other letter from the Congressional Black Caucus members, which also cited the media’s reporting, the signatories requested a meeting with Navy Federal CEO Mary McDuffie before the end of the month “to discuss how such striking disparities occurred and what immediate actions are being taken to remedy harmful policies, practices, and procedures.” The letter was authored by Reps. Emanuel Cleaver and Steven Horsford, the former and current chairs of the caucus, and the signatories also include Rep. Hakeem Jeffries, the House Minority Leader.
“Navy Federal should explain its increasingly widening racial lending gap and how more than half of the Black service members, veterans, and their families who applied for a conventional mortgage in 2022 were rejected and denied homeownership and wealth building opportunities,” the letter states.
Navy Federal’s Response
In a recent statement, a Navy Federal spokesperson said the credit union was already reviewing its mortgage practices and noted that it provided a higher percentage of its loans to Black borrowers than most other large lenders.
“Navy Federal is committed to serving each and every one of our members fairly, and we strive every day to expand economic opportunity and access to credit for our diverse community of members,” the spokesperson said. “Because these issues are core to who we are, we have also already initiated a review to assess our mortgage lending policies and practices.”
The credit union has previously argued that the media’s analysis is incomplete because it did not include applicants’ credit scores or information about their available cash deposits or relationship history with the lender – none of which is publicly available in the federal data. The credit union declined to provide the media with any additional data that would make it possible to analyze those factors.
Action by the House Financial Services Committee
In addition to the two letters, Maxine Waters, the top Democrat on the House Financial Services Committee, has previously publicly urged federal regulators to examine Navy Federal’s mortgage practices.
A CFPB spokesperson said the agency had received the senators’ letter and is reviewing it. A HUD spokesperson said in a statement that the agency is “deeply concerned about racial disparities in mortgage lending opportunities,” especially because racial gaps in homeownership are larger today than they were decades ago.
Related Class-Action Lawsuits
Navy Federal is also facing two class-action lawsuits from Black borrowers who were denied loans and are accusing the lender of racial discrimination.
Lawyers for the plaintiffs – including the civil rights lawyer Ben Crump – moved late last month to combine the two cases, which were filed in a Virginia federal court. Navy Federal has not yet responded to the lawsuits in court.
Discussion Questions
- As mentioned in the article, a recent media investigation found that Navy Federal Credit Union approved more than 75 percent of the White borrowers who applied for a new conventional home purchase mortgage in 2022 while approving less than 50 percent of Black borrowers who applied for the same type of loan. In your reasoned opinion, is this prima facie (i.e., “on its face”) evidence of race discrimination? Explain your response.
This is an opinion question, so student responses may vary. Federal anti-discrimination law recognizes two types of discrimination: 1) Disparate treatment; and 2) Disparate impact. Disparate treatment discrimination is intentional discrimination, and the article does not reveal any evidence that would suggest that is the case regarding the lending practices of Navy Federal Credit Union. Disparate impact discrimination is unintentional discrimination that results from organizational policies and/or practices that result in discrimination against a protected class of individuals.
In terms of proving disparate impact (unintentional) discrimination, the “four-fifths rule” of employment discrimination law could shed some light in the subject case. According to the “four-fifths rule”:
“A selection rate for any race, sex, or ethnic group which is less than four-fifths ( 4/5) (or eighty percent) of the rate for the group with the highest rate will generally be regarded by the Federal enforcement agencies as evidence of adverse impact, while a greater than four-fifths rate will generally not be regarded by Federal enforcement agencies as evidence of adverse impact. Smaller differences in selection rate may nevertheless constitute adverse impact, where they are significant in both statistical and practical terms or where a user's actions have discouraged applicants disproportionately on grounds of race, sex, or ethnic group (Emphasis added). Greater differences in selection rate may not constitute adverse impact where the differences are based on small numbers and are not statistically significant, or where special recruiting or other programs cause the pool of minority or female candidates to be atypical of the normal pool of applicants from that group. Where the user's evidence concerning the impact of a selection procedure indicates adverse impact but is based upon numbers which are too small to be reliable, evidence concerning the impact of the procedure over a longer period of time and/or evidence concerning the impact which the selection procedure had when used in the same manner in similar circumstances elsewhere may be considered in determining adverse impact. Where the user has not maintained data on adverse impact as required by the documentation section of applicable guidelines, the Federal enforcement agencies may draw an inference of adverse impact of the selection process from the failure of the user to maintain such data, if the user has an underutilization of a group in the job category, as compared to the group's representation in the relevant labor market or, in the case of jobs filled from within, the applicable work force.”
As indicated in the article, a recent media investigation found that Navy Federal Credit Union approved more than 75 percent of the White borrowers who applied for a new conventional home purchase mortgage in 2022 while approving less than 50 percent of Black borrowers who applied for the same type of loan. Using simple math, Navy Federal Credit Union’s approval rate of Black applicants is approximately 66.7 percent of White applicants (50 percent divided by 75 percent). This meets the four-fifths rule (i.e., the approval rate for Black applicants is less than 80 percent of the approval rate for White applicants), and if a court of law were to apply the four-fifths rule to the subject case, such evidence would be prima facie (presumptive) evidence of lending discrimination.
That presumption could be overcome by convincing evidence that the selection rate disparity was due to other factors (for example, objective standards of borrower creditworthiness). - As indicated in the article, Navy Federal Credit Union has responded to the allegations of race discrimination by noting that it provides a higher percentage of its loans to Black borrowers than most other large lenders. Further, the credit union has previously argued that the media’s analysis is incomplete because it did not include applicants’ credit scores or information about their available cash deposits or relationship history with the lender. Assess the relative strength of this defense.
In your author’s opinion, this is vital evidence for Navy Federal Credit Union should the case be litigated. As mentioned in response to Video 2, Discussion Question 1, presumptive evidence of disparate impact discrimination can be overcome by convincing evidence that the selection rate disparity was due to other factors, such as objective standards of borrower creditworthiness. An applicant’s credit score, information regarding an applicant’s available cash deposits, and the applicant’s relationship history with the lender are all relevant, non-race-based factors that can impact the lending decision. - Describe the Department of Housing and Urban Development (HUD) and the Consumer Financial Protection Bureau (CFPB). Are you confident that if the U.S. Supreme Court overturns the Chevron doctrine (see Article 1 of this newsletter) and HUD’s and the CFPB’s investigative powers are weakened as a result, the U.S. federal court system will “fill the void” in terms of addressing racially discriminatory lending practices? Explain your response
The Department of Housing and Urban Development (HUD)is the federal agency responsible for national policy and programs that address U.S. housing needs, that improve and develop the nation’s communities, and enforce fair housing laws. It was created in 1965 as part of President Lyndon B. Johnson’s War on Poverty.
As mentioned in response to Article 2, Discussion Question 3 of this newsletter, the Consumer Financial Protection Bureau (CFPB) is an independent administrative agency of the U.S. government that is responsible for consumer protection in the financial sector. According to its website (www.consumerfinance.gov), the CFPB is “dedicated to making sure you are treated fairly by banks, lenders and other financial institutions.”
Your author is not convinced that if the U.S. Supreme Court overturns the Chevron doctrine and HUD’s and the CFPB’s investigative powers are weakened as a result, the U.S. federal court system will adequately “fill the void” in terms of addressing racially discriminatory lending practices. It is important to understand that by conducting preliminary investigations regarding alleged discriminatory lending practices, HUD and the CFPB plays a vital role in taking considerable “weight” off the federal trial court systems by encouraging the parties to resolve their dispute without the need for litigation. Your author is not convinced that the federal court system would be able to effectively handle the case load if such cases were not preliminarily addressed (and hopefully resolved) by HUD and the CFPB acting as intermediaries. The same could be said for the overwhelming number of employment discrimination cases that would be filed in the federal court system if the Equal Employment Opportunity Commission (EEOC) were not involved in investigating and settling a large percentage of such cases prior to trial.