Fifth Circuit Rules that Government Denial of Loan to White

FAIR LENDING ALERT No. 95-8-7
August 7, 1995

Fifth Circuit Rules that Government Denial of Loan to White Couple Violated
ECOA's Racial discrimination Prohibition

A recent Fifth Circuit decision, Moore v. Department of Agriculture, 55
F.3d 991 (5th Cir. 1995) ("Moore"), found a government agency, the Farmers
Home Administration (the "FmHA") illegally discriminated against a white
couple because of their race, in effect rejecting any argument that whites
are not a protected group under the Equal Credit Opportunity Act, (the
"ECOA"). The plaintiffs in Moore alleged that the FmHA's refusal to extend
credit to them because of their race violated, among other things, the ECOA.
The FmHA designates certain properties held by the Department of Agriculture
("DOA") for sale exclusively to "socially disadvantaged applicants"
("SDAs"). DOA regulations state that socially disadvantaged groups consist
only of "Women, Blacks, American Indians, Alaskan Natives, Hispanics, Asians
and Pacific Islanders." Mr. Moore's application to purchase an SDA-
designated property was rejected by the FmHA because he "failed to provide
proof that [he met] the criteria of SDA. (No Whites)."

The Fifth Circuit had previously reversed a district court holding that
the Moores lacked standing to sue the FmHA under the ECOA because Mr. Moore
never completed his application. Moore v. Department of Agriculture, 993
F.2d 1222, 1223 (5th Cir. 1993). On remand, the district court dismissed
the Moores' suit again, holding that the ECOA does not include a waiver of
sovereign immunity and that the Moores failed to establish a prima facie
case of discrimination because they could not establish that Mr. Moore was
qualified for the credit for which he applied. Moore v. Department of
Agriculture, 857 F. Supp. 508, 515 (W.D. La 1994).

On appeal, the Fifth Circuit vacated the district court's decision and
rendered judgment for the Moores, holding that the plain language of the
ECOA unequivocally expresses Congress' intention that governmental entities
may be liable under the ECOA because the definition of "person" includes a
"government or governmental subdivision or agency." With regard to the
Moores' ECOA claim, the FmHA conceded that its rejection of Mr. Moore's
application because he was white constituted direct evidence of racial
discrimination. However, it argued that the Moores could not establish a
prima facie case of discrimination i.e., (i) that they were members of a
protected class, (ii) that they applied and were qualified for credit and
(iii) that they were rejected despite their qualifications. The Fifth
Circuit held for the Moores because they presented direct evidence of racial
discrimination and could therefore bypass the requirements for a prima facie
case. Since the FmHA abandoned the defense that the SDA was a special
purpose credit program exempt from the ECOA, the Fifth Circuit never
determined whether a special purpose credit program must be designed so that
it will not discriminate against otherwise creditworthy applicants who do
not qualify for participation in the special purpose credit program, and how
such a program would operate.

The Federal Reserve Board (the "FRB") recently proposed to amend the
Official Commentary to Regulation B to provide that a special purpose credit
program should not deprive people who are not part of the class that the
program is designed to assist of rights or opportunities they otherwise
would have. See Equal Credit Opportunity, 59 Fed. Reg. 67,235, 67,238
(notice of proposed rulemaking, Dec. 29, 1994). The FRB ultimately chose not
to include this comment in the Official Commentary because "it is not clear
precisely how this condition applies in the credit context." See Equal
Credit Opportunity, 60 Fed. Reg. 29,965, 29,967 (final rule, official staff
interpretation, June 7, 1995). In light of the decision in Moore and the
Supreme Court's recent ruling in Adarand Constructors, Inc. v. Pena, 115 S.
Ct. 2097; 1995 U.S. LEXIS 4037 (1995), regarding minority preferences in
government contracting programs, creditors should be aware that decisions to
deny credit offered pursuant to a special purpose credit program to
applicants who do not qualify for participation in such a program because of
their race could be subject to challenge on the grounds that this
constitutes illegal discrimination.

Thomas P. Vartanian Robert H. Ledig David L. Ansell Alisa
Babitz
(202) 639-7200 fairlending@ffhsj.com

1995 Fried, Frank, Harris, Shriver & Jacobson.
All Rights Reserved.
FAIR LENDING ALERT is a trademark and servicemark
of Fried, Frank, Harris, Shriver & Jacobson.



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