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McGlawn v. Pennsylvania Human Relations Commission

Commonwealth Court of Pennsylvania
891 A.2d 757 (2006)
ELI5:

Rule of Law:

The Pennsylvania Human Relations Act prohibits "reverse redlining," which is the practice of extending credit with predatory and unfair terms to individuals on the basis of their race or the racial composition of their neighborhood.


Facts:

  • McGlawn and McGlawn, Inc. (Broker), an African American-owned company, specialized in arranging sub-prime mortgage loans and advertised heavily in media oriented toward African American audiences.
  • Between 1998 and 2000, several African American homeowners, including Lucrecia Taylor and Lynn Poindexter, contacted Broker in response to its advertisements to obtain loans for home repairs or debt consolidation.
  • Taylor, who sought a $10,000 loan, was arranged a $20,500 loan that replaced her 3% interest rate with a 13.09% rate and included an undisclosed $1,200 fee.
  • Poindexter, who owned her home free and clear and wanted a small loan, received a mortgage with an undisclosed balloon payment and pre-payment penalty.
  • To secure Poindexter's loan, Broker falsified her application to indicate she had a second job that she did not actually have.
  • Broker engaged in similar practices with at least eight other African American complainants, arranging loans with onerous terms such as high interest rates, high broker fees, undisclosed costs, and balloon payments.
  • A review of Broker's loan applications showed that of 66 applicants whose race was identified, 65 were African American.
  • A geographic analysis showed that nine of the eleven properties involved in the case were located in neighborhoods with at least a 90% African American population.

Procedural Posture:

  • Lucrecia Taylor filed a verified complaint with the Pennsylvania Human Relations Commission (Commission) alleging housing discrimination by McGlawn and McGlawn, Inc. (Broker).
  • Lynn Poindexter filed a similar complaint with the Commission, which then consolidated the two cases.
  • After Broker failed to comply with a request for documents, a court ordered the production of its loan records.
  • Using the produced records, the Commission identified eight other similarly situated persons affected by Broker's practices.
  • A hearing was held before a panel of three Commissioners.
  • The Commission issued a final order holding that Broker had violated the Pennsylvania Human Relations Act and awarded actual damages, damages for humiliation, and a civil penalty.
  • Broker and Reginald McGlawn (Respondents) petitioned the Commonwealth Court of Pennsylvania, an intermediate appellate court, for review of the Commission's decision.

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Issue:

Does a mortgage broker's practice of reverse redlining—targeting African American communities with predatory and unfair loan terms—violate the housing discrimination provisions of the Pennsylvania Human Relations Act?


Opinions:

Majority - Judge Simpson

Yes. A mortgage broker's practice of reverse redlining violates the housing discrimination provisions of the Pennsylvania Human Relations Act (Act). Although an issue of first impression in Pennsylvania, the court adopts the reasoning of federal courts interpreting the similar Fair Housing Act (FHA). The court applies the two-pronged test from Hargraves v. Capital City Mortgage Corp., which requires a plaintiff to show that (1) the defendant's lending practices and loan terms were predatory and unfair, and (2) the defendant either intentionally targeted borrowers on the basis of race or the practices had a disparate impact on the basis of race. Here, substantial evidence supported the Commission's findings on both prongs. Broker engaged in predatory practices by arranging onerous loans with excessive fees, falsifying documents, and breaching its fiduciary duty. Broker's targeted advertising, overwhelmingly African American clientele, and the location of the properties in predominantly African American neighborhoods established both intentional targeting and disparate impact. The court rejected Broker's argument that its practices were not discriminatory because it did not offer better terms to non-African Americans, stating that injustice cannot be permitted merely because it is visited exclusively upon a single protected class.



Analysis:

This decision formally establishes that "reverse redlining" constitutes illegal housing discrimination under the Pennsylvania Human Relations Act, broadening the statute's protection beyond the denial of credit (traditional redlining) to include the targeting of minority communities with exploitative credit. By adopting the two-part Hargraves test, the court provided a clear analytical framework for adjudicating future predatory lending claims in Pennsylvania. The ruling solidifies the principle that mortgage brokers can be held liable for their role in arranging discriminatory and predatory loans, reinforcing their fiduciary duty to act in the best interests of their clients.

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