Summary of a Recent
Judicial Development in
Finance & Credit

Equal Credit Opportunity Act Prohibits Discrimination by Lending Institutions

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Love v. Johanns, 439 F.3d 723 (D.C. Cir. 2006), the United States Court of Appeals for the District of Columbia Circuit held that the district court did not err in denying plaintiffs' class certification since they had not shown a "common policy" of discrimination, and also affirmed the lower court's dismissal of the plaintiffs' claim of "failure to investigate" against the United States Department of Agriculture (USDA) because it lacked jurisdiction to hear the matter.

Background

Female farmers brought a class-action suit against the USDA alleging that it discriminatorily administered its lending programs, and that it failed to properly investigate women's discrimination complaints over the last quarter-century. Id. at 724-25. The district court denied class certification, and the plaintiffs appealed. Id. at 725.

Arguments

Plaintiffs argued that the USDA violated the Equal Credit Opportunity Act (ECOA), 15 U.S.C. §§ 1691-1691f, by employing subjective loan-making criteria, which enabled decentralized decision-makers to discriminate among loan applicants on the basis of gender. Id. They further claimed that the USDA violated both the ECOA and the Administrative Procedure Act (5 U.S.C. § 706(2)(A)) by systematically dismantling its complaint-processing systems and failing to investigate discrimination claims filed by women farmers. Id.

Analysis and Holdings

Class certification
The court affirmed the district court's ruling and denied class certification for the plaintiffs because they had failed to show that there were questions of law or fact common to the class. Id. at 727-28. They had no statistical proof that women's requests for loan applications were treated differently from men's; they relied solely on a large amount of affidavits from women who had been rejected for loans or had been refused a loan application from Farm Service Agency. Id. at 728. The court stated that merely showing that people had been discriminated against was not enough, and that to show commonality for purposes of class certification, "plaintiffs must make a significant showing to permit the court to infer that members of the class suffered from a common policy of discrimination." Id. Since the plaintiffs had offered no proof of a "common policy" of discrimination, the appellate court held that the lower court had not abused its discretion in denying class certification. Id. at 729.

Failure to investigate
The plaintiffs also brought a claim against the USDA for "failure to investigate" their complaints. Id. at 732. The ECOA makes it "unlawful for any creditor to discriminate against any applicant with respect to any aspect of a credit transaction" on the basis of sex. Id. The district court concluded that the claim was not reviewable under the ECOA because a failure to investigate does not fit within the plain meaning of a "credit transaction." Id. The appellate court agreed that even a liberal interpretation of "credit transaction" does not encompass "failure to investigate a discrimination complaint," and therefore affirmed the lower court's holding dismissing the plaintiffs' claim of "failure to investigate," but remanded the case on other grounds. Id. at 732-33.

The case was decided on March 3, 2006.