Can They Do That? (Part 3): Reversing Modern-Day Redlining

By John Spangler
Associate Editor, Volume 23
Production Editor, Volume 24

Patrick Miles Jr. – Michigan candidate for Attorney General

Detroit remains the most segregated metropolitan areas in the United States.^[1]  This is in part thanks to historical practices such as “redlining” where majority African-American neighborhoods were deemed “too risky” for mortgage lending.^[2]  Though overt discrimination in housing has been outlawed^[3], the systems created for that purpose often remain, in whole or in part.  One Democratic candidate for Michigan Attorney General, Pat Miles, has pledged to use the office to combat modern-day redlining.^[4]  Patrick Miles Jr., who prefers to go by Pat, is the former U.S. Attorney for the Western District of Michigan, serving from 2012 to 2017.  Prior to that appointment, his experience was largely in private sector and telecommunications law.  As part of our ongoing series examining the campaign pledges of candidates for that office, we have to ask: can he do that?

The study Mr. Miles cited in his pledge to defend consumers was conducted by Reveal, a project of the Center for Investigative Journalism.  Its analysis of data from 61 metro areas across 2015 and 2016 resulted in a blunt conclusion: “Fifty years after the federal Fair Housing Act banned racial discrimination in lending, African Americans and Latinos continue to be routinely denied conventional mortgage loans at a rate far higher than their white counterparts.”^[5]  In Detroit, that trend meant an African-American applicant was almost twice as likely to be denied a conventional home mortgage.^[6]

Defenders of current mortgage practices point to what they believe are flaws in that data.  They argue that high rejection rates are a result of large lenders and technology, making applying for a mortgage easier and leading to more applicants with subpar credit.^[7]  Yet this explanation ignores that federal housing policy codified racial minority populations as a lending risk for years, and those policies’ effects persist today.^[8]  Without the access to long-term investment and wealth from generations ago, today’s minority borrowers are still subject to these trends.[9]     But what can the attorney general do to fix this problem?  Reveal’s reporting has already prompted response from several.  Attorneys general in Pennsylvania, Delaware, Washington, Iowa, and the District of Columbia have opened investigations into lending practices.^[10]   These new initiatives are happening at a time when federal enforcement of regulations and the Fair Housing Act by the Consumer Financial Protection Bureau and the Department of Housing and Urban Development are being deliberately curtailed by the current administration.^[11]

At the state level, these kinds of investigations are pursued under what are broadly called “unfair and deceptive acts and practices” laws, or UDAP for short.  A recent article in the Harvard Journal on Legislation reviewed the varying approaches between different states to enforce these laws.^[12]  It discusses consumer lending as a specific area of enforcement for attorneys general, given the impact of the 2008 Financial Crisis on lending markets.[13]  These laws are especially important for attaining compensation for victims of widespread bad action.  Unfortunately, the review makes clear that Michigan is one of the more neglectful actors when it comes to going after unfair lending practices.  Michigan is nearly considered a “non-enforcer” state,^[14] saved from being classified that way by only by a few cases.[15]  This is in part because of the political priorities of the current attorney general, Bill Schuette,^[16] but also because of the relative weakness of Michigan’s UDAP statute.

To quote the Michigan Bar Journal: “The Michigan Consumer Protection Act^[17] is virtually dead.”^[18]  The original legislation was considered quite powerful, both for public and private action, and it applied to a wide swath of businesses.^[19]  But in 1999, the Michigan Supreme Court interpreted one of the law’s narrow exemptions^[20] so broadly that any business subject to any regulation was exempt from the remedies of consumer protection.  Smith v. Globe Life Ins. Co.^[21] found that the question was not whether a specific fee or act was “authorized by law” (such as a statute setting commissions for real estate brokers) but whether the whole of the transaction was “authorized by law.”  Even the dissent at the time recognized that this would render the vast majority of private transactions exempt from the Consumer Protection Act and immune from justice.^[22]  If your business, say home lending, is touched on by statute or regulation, you are exempt from any action under the MCPA and any complaint relying on that statute will be summarily dismissed.

So, if elected, can Pat Miles follow in the steps of the AG’s in other states to go after lending practices that perpetuate segregation and gloss over racism in the guise of “credit risk”?  No.  The law as it stands will not support the scope of action he wants to bring.  But, the attorney general is more than a lawyer, they are also an elected official with the power to advocate for change.  Despite the sweeping scope of just how this decision gutted the law (later affirmed in Liss v. Lewiston-Richards, Inc.^[23]) the underlying statute has gone uncorrected by the state legislature.  In fact, it has been added to and amended as if it were still a forceful piece of law.^[24]  Given the high rate of turnover caused by term limits, this could be ascribed to ignorance of an obscure decision on a relatively unknown statute.  Or it could be that upholding consumer protections in-name-only fits the political agenda of its members.

Democrat Pat Miles will be likely to face at least one chamber in the legislature hostile to his party, as Republicans have controlled the Michigan Senate since 1984.^[25]  If his election goes well but Democrats do poorly, and given Michiganders’ penchant for ticket-splitting, he could even potentially face a Republican State House and Governor.  With no prior experience as an elected official or legislative background, Mr. Miles may find it difficult to shepherd through the reforms needed for the Michigan Consumer Protection Act to be effective again.  But should the election favor the Democrats, correcting the egregious errors of Smith v. Globe Life Insurance ought to be among his first and most vocal priorities.  Without effective consumer protection laws, fighting back against years of segregation, redlining, and latent biases will be a heavy lift indeed.

To read Part I of this series, click here.
To read Part II of this series, click here.

^[1] Michael Sauter, Evan Comen, and Samuel Stebbins, 16 Most Segregated Cities in America, 24/7 Wall Street (Jul. 21, 2017), https://247wallst.com/special-report/2017/07/21/16-most-segregated-cities-in-america/5/.

^[2] Mike Wilkinson, Michigan’s segregated past – and present, Bridge Magazine (Aug. 8, 2017), https://www.bridgemi.com/public-sector/michigans-segregated-past-and-present-told-9-interactive-maps.

^[3] See Fair Housing Act, Title VIII of the Civil Rights Act of 1968.

^[4] Pat Miles, Facebook post (March 14, 2018),  https://www.facebook.com/PatMilesMI/posts/614153245592561.

^[5] Aaron Glantz and Emmanuel Martinez, For people of color, banks are shutting the door to homeownership, Reveal (Feb. 15, 2018), https://www.revealnews.org/article/for-people-of-color-banks-are-shutting-the-door-to-homeownership/.

^[6] Id.

^[7] Michigan Radio, Data analysis: “Modern Day Redlining” happening in Detroit and Lansing (Febr. 15, 2018), http://michiganradio.org/post/data-analysis-modern-day-redlining-happening-detroit-and-lansing.

^[8] Wilkinson, supra note 2.

[9] Id.

^[10] Aaron Glantz and Emmanuel Martinez, State attorneys general probe lending disparities (March 13, 2018), https://www.revealnews.org/blog/state-attorneys-general-probe-lending-disparities/.

^[11] Id.

^[12] Prentiss Cox, Amy Widman, & Mark Totten, Strategies of UDAP Enforcement, 55 Harvard J. Leg. 37, also available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2942406.

[13] Id. at 39.

^[14] Id. at 88 n. 184

[15] The Cox, Widman, & Totten article counts only 2 cases in Michigan seeking award under their classified UDAP criteria in 2014.  Id. at 85.  According to the most recent biennial Attorney General’s Report, the Office of the Attorney General prosecuted just 20 cases total under their classification of “Consumer Protection” in 2014, but does not comment on the legal mechanism for prosecution.  Biennial Report of the Attorney General of the State of Michigan for the Biennial Period Ending December 31, 2014, at 75.  This is a steep drop from previous years.

^[16] Mark Totten, Bill Schuette failed consumers as Michigan Attorney General, Bridge Magazine (Jan. 9, 2018),  https://www.bridgemi.com/guest-commentary/bill-schuette-failed-consumers-michigan-attorney-general.

^[17] MCL 445.901 et seq.

^[18] Gary M. Victor and Ian B. Lyngklip, The Michigan Consumer Protection Act is Virtually Dead, Michigan Bar Journal (Aug. 2012), https://www.michbar.org/file/journal/pdf/pdf4article2070.pdf.

^[19] Id.

^[20] MCL 445.904(1)(a).

^[21] 597 N.W.2d 28 (Mich. Sup. Ct. 1999).

^[22] Id. at 43 (J. Cavanagh, dissenting).

^[23] 732 N.W.2d 514 (Mich. Sup. Ct. 2007).

^[24] Victor and Lyngklip, supra note 15, at 27.

^[25] Political party strength in Michigan, Wikipedia, last accessed 4:15pm March 17, 2018, https://en.wikipedia.org/wiki/Political_party_strength_in_Michigan.