(5th Cir.), cert. denied sub nom, Simms v. First Madison Bank, FSB, 136 L. Ed. 2d 535, 117 S. Ct. 610 (1996)); See also Sayers, 522 F. Supp. at 839 (To make out the prima facie case, plaintiff must show that the defendant's requirements for accepting credit applications result in the acceptance of credit applicants in a pattern significantly different from that of the general pool of applicants.) Plaintiffs traditionally establish this prima facie case by making "a statistical comparison of the representation of the protected class in the applicant pool with representation in the group actually accepted from the pool." Id. "If the statistical disparity is significant, then plaintiff is deemed to have made out a prima facie case." Cherry, 490 F. Supp. 1026 at 1030. However, courts have found that "proof of disparate impact need not be shown by statistics in every case nor need it be shown by proof of actual disproportionate exclusion from the applicant pool." Id. at 1031. The Cherry court commented that some Title VII cases have permitted reference to the general population on the assumption that the applicant pool would possess approximately the same characteristics. But this assumption is not valid in every case. Plaintiff must demonstrate why the use of general population statistics would be valid. Cherry, 490 F. Supp. at 1031 n.9.
Once the plaintiff has made the prima facie case, the defendant-lender must demonstrate that any policy, procedure, or practice has a manifest relationship to the creditworthiness of the applicant. See Sayers, 522 F. Supp. at 839 ("manifest relationship to creditworthiness"); Carroll v. Exxon Company, U.S.A., 434 F. Supp. 557, 563 (E.D.La. 1977)(same); Cragin v. First Federal Sav. and Loan Ass'n, 498 F. Supp. 379, 384 (D.Nev. 1980)(because the plaintiffs failed to make out the prima facie case, the defendants were not obligated to show that the practice was "legitimately related to the extension of credit".) In other words, the onus is on the defendant to show that the particular practice makes defendant's credit evaluation system more predictive than it would be otherwise. Cherry, 490 F. Supp. 1026 at 1031.
I. Prima Facie Case
Courts have held that the use of general population statistics is insufficient to make out a prima facie case under the ECOA. In Saldana, the plaintiff, loan-applicant, sued Citibank claiming it denied her loan based on its policy of redlining. Saldana, No. 93 C 4164, 1996 WL 332 451 at *1. Saldana tried to make her case under the disparate impact theory. Id. at *4. Specifically, she claimed that Citibank had an unwritten policy that set the minimum amount for a rehab loan at $ 100,000. This policy, she claims, disproportionately impacted the African-American community because few African-Americans could meet this financial test based on their income and net-worth. Id. Saldana offered statistical evidence regarding 1) the bank's loan approval rate for loans over $ 100,000 in the Austin area; 2) the bank's loan rejection rate for white and African-American applicants in comparison with their representation in the greater Chicago community; and 3) the bank's average refinancing approval and average rejection rate in Austin in comparison to the City of Chicago's average approval and rejection rates. Id. at *4-5. While the court found that this last set of statistics successfully presented some statistical evidence comparing the Austin community to the greater Chicago community, the court still found that "these statistics are of a very general nature and do not relate specifically to the policy identified as having a discriminatory impact. Thus, Saldana has failed to establish her claim under a disparate impact analysis." Id. at *5.
Similarly, in Cherry, the credit-card applicant sued Amoco Oil Company, alleging that Amoco's use of zip code ratings in Atlanta, which assigned low-ratings to those zip code areas where Amoco had unfavorable delinquency experience, adversely effected black applicants disproportionately. Cherry, 490 F. Supp. 1026 at 1027-28. The plaintiff's witness testified that he compiled statistics that proved that there is a significant correlation between acceptance rate/percentage of white population or conversely rejection rate/percentage of non-white population. Id. at 1028. Following the guidance of Griggs, 401 U.S. 424, 28 L. Ed. 2d 158, 91 S. Ct. 849 (1971), the court held that this statistical evidence did not make out a prima facie case.
Id. 490 F. Supp. 1026 at 1030. Specifically, plaintiff did not demonstrate why the court should assume that the applicant pool possessed approximately the same characteristics as the general population surveyed. Id. at 1031 n.9.
In the Title VII context, courts have also held that the use of general population statistics is insufficient to make out a prima facie case under Title VII. See Matthews v. Runyon, 860 F. Supp. 1347 (E.D.Wis. 1994); Hill v. U.S. Postal Service, 522 F. Supp. 1283 (S.D.N.Y. 1981).
In Matthews, the applicant claimed that the U.S. Postal Service's ("USPS") practice of considering an applicant's criminal charges adversely impacts blacks. Matthews, 860 F. Supp. at 1356. The applicant offered general statistical evidence of higher arrest rates among blacks than whites in the Milwaukee area to prove that the USPS' practice has a disproportionate impact on employment opportunities for blacks. Id. at 1357. The court held that this evidence, standing alone, fails to provide the requisite causal link between the challenged employment practice and the disparate impact. Id.
Similarly, in Hill, the applicants claimed that the USPS' policy regarding employment of individuals with criminal records has a significant and disproportionate impact on minority group members. Hill, 522 F. Supp. at 1288. They submitted statistical evidence of the proportion of minorities in the general population and the proportion of minority arrests and convictions in the general population for a number of different time periods and geographic areas. Id. at 1294. The court found this evidence to be problematic because it assumes that all convicted felons apply to the postal service, pass the necessary competitive examination, and then are rejected because of their criminal record. But there is no evidence in the record that discloses the proportion of convicted persons, either black or white, that could successfully complete the postal service exam. Id. at 1302. The court also indicated that this evidence was undermined by the fact that the defendant's policy was not consistently applied to disqualify applicants with criminal records. The court held that the statistical evidence is not sufficient to establish a prima facie case that defendant's policy had a disparate impact upon minorities. Id. at 1303.
Plaintiffs claim that South Shore Bank's practice of considering an applicant's criminal record in making commercial lending decisions has a disparate impact on African-Americans. To make the prima facie case plaintiffs offer the testimony of Dr. Jaslin U. Salmon. Dr. Salmon testified that any decision that is based on arrest records would militate against people of color. He suggests that, based on his research, there are many cases in which the black applicant is qualified, credit worthy, but was not given the loan for other reasons and among those reasons, arrest records had been taken into consideration. (Pl.'s 12(m) Stmt. PP 14, 15.) However, the bank disputes this point because Dr. Salmon was unable to identify a single study showing that consideration of arrest records has a disproportionate impact on African-American applicants for any type of credit, much less any study addressing the impact on business loan applicants. (Def.'s 12(n) Stmt. P 15.)
In addition to Dr. Salmon's testimony, plaintiffs offer the general population statistics of arrest rates by race in 1990. (See Pl.'s Ex. 7.) Considering these general population statistics, the court finds that, like both the Matthews, Hill, Cherry, and Saldana courts found, these statistics are insufficient to make out a prima facie case under the ECOA. The court recognizes that the ECOA prohibits creditors from inquiring into the race, sex or marital status of an applicant. This in turn places plaintiffs in a difficult position of trying to prove disproportionate impact without any access to a creditor's statistical lending profile. However, as the Cherry court held, plaintiffs can refer to the general population as long as plaintiffs clearly demonstrate that the applicant pool would posses approximately the same characteristics. Considering the statistical proof and the testimony of Dr. Salmon, the court finds that plaintiffs have not made this showing that the applicant pool possesses approximately the same characteristics as the general population.
Both the statistics and Dr. Salmon's supporting testimony do not answer the following questions raised in Carolina Freight Carriers Corp. and Hill : 1) how many African-Americans with convictions or arrests are otherwise qualified for the loan; and 2) how many African-Americans are deterred from applying because of the bank's practice. Plaintiffs' evidence is further undermined, as it was in Hill, by the fact that the bank's practice of considering an applicant's criminal record was not consistently applied to disqualify applicants with criminal records. (Def.'s 12(m) Stmt. P 24.) Rather, the bank has made at least three business loans to applicants with criminal records. One of these three applicants with criminal records is African-American. (Def.'s 12(m) Stmt. PP 28, 29.)
Plainiffs urge this court to consider several EEOC decisions,
specifically EEOC decision 6357, which cites to Gregory v. Litton Systems, Inc., 316 F. Supp. 401, 403 (C.D.Cal. 1970), modified by, 472 F.2d 631 (1972). The court recognizes that the Gregory court held that the policy of automatically rejecting an applicant because of his significant arrest record is illegal because it has been shown to eliminate black applicants at a higher rate than white applicants and it is usually irrelevant as a predictor of job performance. See Smith v. American Service Company of Atlanta, Inc., 611 F. Supp. 321, 326-27 (N.D. Ga. 1984), aff'd in part and vacated in part, 796 F.2d 1430 (11th Cir. 1986)(citing Gregory, 316 F. Supp. 401); Hill, 522 F. Supp. at 1301 (same). However, the facts of this case, as in both Smith and Hill, are distinct from the facts in Gregory because South Shore Bank does not have a blanket policy of excluding applicants with criminal records. Therefore, the holding of Gregory does not apply to this case.
II. Manifest Relationship to Creditworthiness
Generally when the plaintiff has failed to make out a prima facie case, courts do not require the defendant-lender to show that the practice has a manifest relationship to creditworthiness. Cragin, 498 F. Supp. at 384; Carroll, 434 F. Supp. at 563. In the present case, assuming, arguendo, that plaintiff did set forth enough evidence to make out the prima facie case, the court must then determine whether South Shore Bank has demonstrated that its practice of considering an applicant's criminal record is legitimately related to the extension of credit.
South Shore Bank's practice of inquiring into a credit applicant's criminal history is legitimately related to its extension of credit for two reasons. First, the regulations require the SBA, in evaluating a loan guarantee application, to consider "the character, reputation, and credit history of the applicant, its associates, and guarantors." 13 C.F.R. § 120.150. As a participant in the SBA loan guarantee program, South Shore Bank is obligated to consider an applicant's criminal record provided on SBA Form 912 in its evaluation of a loan applicant's character. Following the guidance of Cragin, the court finds that, because the bank's practice of considering criminal record information is required by the SBA to participate in the SBA loan guarantee program, the practice is legitimately related to the extension of credit and, therefore, permissible.
Secondly, the bank's inquiry into an applicant's criminal record provides relevant information about an applicant's creditworthiness, particularly his judgment and character. Plaintiff Bonner admits that several of the incidents described in his completed SBA Form 912: possession of a controlled substance, domestic abuse, and disorderly conduct, reflected negatively on his judgment and character. Specifically, Bonner admits that these incidents involved an exercise of bad judgment. Therefore, because an applicant's judgment and character may legitimately be considered in making commercial lending decisions, South Shore Bank's practice of considering criminal history as it relates to character and judgment bears a legitimate and manifest relationship to the extension of credit. Therefore, the court finds that the bank has successfully demonstrated that its practice of inquiring into a credit applicant's criminal record is legitimately related to the extension of credit.
Plaintiffs have failed to make out a prima facie case of discrimination in violation of the ECOA under the disparate impact theory. Despite the fact that plaintiffs have not made their prima facie case, defendant, on the other hand, has demonstrated that its practice has a manifest relationship to the extension of credit.
For the foregoing reasons, the court grants defendant South Shore Bank's motion for summary judgment and denies plaintiff Bonner and AB&S's motion for summary judgment.
Ann Claire Williams, Judge
United States District Court
Dated: MAR 24 1997
JUDGMENT IN A CIVIL CASE
Decision by Court. This action came to a hearing before the Court. The issues have been heard and a decision has been rendered.
IT IS ORDERED AND ADJUDGED that pursuant to the court memorandum opinion and order dated March 24, 1997 that defendant South Shore Bank's motion for summary judgment is granted. Plaintiff Bonner and AB & S's motion for summary judgment is denied and that plaintiff take nothing and that the case is dismissed on the merits.
March 24, 1997