The suit, Adkins et al. v. Morgan Stanley, was brought on behalf of black homeowners and alleges that Morgan Stanley collaborated with now-bankrupt New Century Financial to target black borrowers disproportionately with high-risk loans. The ACLU claims that Wall Street created the “racially uneven consequences of the foreclosure crisis” by making discriminatory lending profitable.
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“The foreclosure crisis has hurt communities and families all over the country, but its impact has not been equal,” said the ACLU. “Black and Latino families have absorbed especially harsh consequences, and the effects have rippled through entire communities and exacerbated wealth gaps between white and minority families.”
Morgan Stanley has denied the accusation. “We believe these allegations are completely without merit and plan to defend ourselves vigorously,” said spokeswoman Mary Claire Delaney in an email to Reuters.
The complaint has been filed in the U.S. District Court in Manhattan on the behalf of five Detroit residents, but according to the ACLU, as many as 6,000 black homeowners were affected by the discriminatory practices. The union has asked the court to certify the case as a class action because so many in the Detroit area were involved.
“It’s reverse red-lining. It violates the Fair Housing Act,” Elizabeth Cabraser, a co-counsel for the plaintiffs, told Reuters. “These loans were mass produced and they were built to order, not to serve homeowners.”
According to the ACLU, this lawsuit is the first case to directly accuse an investment bank rather than a lender over loans that violate federal civil rights laws. However, in recent weeks, numerous cases have been brought against Wall Street by U.S. federal and state authorities over the banks’ role in the 2008 financial crisis. Last week, JPMorgan (NYSE:JPM) was sued by New York State Attorney General Eric Schneiderman for alleged subprime mortgage abuses and two weeks ago, the U.S. attorney in Manhattan filed fraud charges against Wells Fargo (NYSE:WFC) for making questionable home loans.
The plaintiffs will be represented by the National Consumer Law Center and Lieff Cabraser Heimann & Bernstein, a San Francisco-based law firm.
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