The American Civil Liberties Union, along with several Detroit homeowners, filed a lawsuit against investment bankers Morgan Stanley on Monday over allegations of racial discrimination regarding the targeting of minority neighborhoods in Detroit with predatory loans. The lawsuit is the first to link high risk lending practices, linked to the financial crisis of 2008, to racial discrimination.
In a new report "Justice Foreclosed" ACLU reveals that investment bankers at Morgan Stanley actively convinced lender New Century Financial Corp to specifically target black borrowers with high risk sub-prime loans, which included extremely high rates and fees and thus had a strong possibility of foreclosure. As Morgan Stanley provided mortgage-backed securities to New Century, both of the financial institutions stood to make large amounts of money off of the inability of the families to keep up with their payments.
According to the suit, the banks violated federal civil rights law through the Fair Housing Act of 1968 and the Equal Credit Opportunity Act, which outlaw racial discrimination in housing and credit transactions.
"With this lawsuit, real victims of the sub-prime lending scandal are stepping forward to hold investment banks like Morgan Stanley accountable for the devastation the banks wrought in their lives and in our economy. Illegal practices surrounding mortgage-backed securities robbed people of their homes, violated our civil rights laws and left all Americans holding the bag as our economy teetered on the brink of another Great Depression,” stated Anthony D. Romero, ACLU executive director.
According to the ACLU, these practices were most common in the black and Latino neighborhoods across the US. Nearly 8 percent of both blacks and Latinos who took out mortgages recently have lost their homes to foreclosure in comparison to 4.5 percent of whites.
The lawsuit, Adkins v. Morgan Stanley, was filed in U.S. District Court in New York by the ACLU, National Consumer Law Center, and Lieff Cabraser Heimann & Bernstein, a San Francisco-based law firm, on behalf of five Detroit residents and Michigan Legal Services.
The suit is the first to go directly after an investment bank, Morgan Stanley, rather than the sub-prime lender.
In court today, the ACLU requested the ability to turn the case into a class action suit, which could include up to 6,000 black homeowners, specifically in the Detroit area, and could set a precedent for future suits.