Banking Law

ACLU Suit Accuses Morgan Stanley of Encouraging Predatory Loans

The American Civil Liberties Union claims in a lawsuit that Morgan Stanley encouraged predatory loans when it lent money to the New Century Financial Corp.

The would-be class action suit claims Morgan Stanley encouraged New Century to make risky loans with high costs that disproportionately targeted African American borrowers, report the New York Times and Reuters. Morgan Stanley then bundled the loans and sold them to investors.

The suit, filed on behalf of five Detroit residents, claims violations of the Fair Housing Act and the Equal Credit Opportunity Act. One of the name plaintiffs is Rubbie McCoy, who says the broker encouraged her to “fudge” her income when she took an adjustable rate loan with starting interest of 12.14 percent, the Times says.

The ACLU says the suit is the first to claim racial bias against an investment bank in the securitization of subprime mortgage loans. The plaintiffs are also represented by the National Consumer Law Center and Lieff Cabraser Heimann & Bernstein.

Earlier this month, Wells Fargo was accused of reckless lending practices in a suit filed by federal prosecutors. The suit claimed the Federal Housing Administration was left on the hook when buyers couldn’t pay.

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