Under the $1.2 million settlement in U.S. District Court in Indianapolis, the lending institution -- Flagstar Bank of Troy, Mich. -- admitted "no wrongdoing, liability or improper conduct." But its internal loan pricing instructions distributed in writing to loan officers explicitly required them to charge different fees to different racial groups.

What is unusual, though, is that the instructions required loan officers to limit the fees they charged black and Hispanic home buyers while allowing higher fees to be charged to white borrowers. Here is what Flagstar's "Revenue Per Loan Procedure" policy required of loan officers:

Minority home buyers could be charged no more than 3 percent in loan origination fees or "points," but white applicants could be charged up to 4 percent.

Loan officers whose "revenue per loan average" from mortgages made to minority applicants exceeds their "non-minority [white] average" will be subject to disciplinary actions, including probation and termination

...

DeBrota said Flagstar's policy was discovered when one of its loan officers resisted following the pricing instructions and was fired. The loan officer "felt that any sort of preferential treatment to one racial group over others violated the law," said DeBrota. "She refused to do that."

DeBrota, a specialist in employment and fair housing issues with the law firm of Young Riley Dudley & DeBrota, sued the bank on the loan officer's behalf.

But when the implications of the underlying discriminatory pricing requirements began to sink in, DeBrota realized that potentially large numbers of non-minority borrowers had possibly been charged higher fees than minority applicants. She located a nucleus of plaintiffs and filed a class action on their behalf.

...

The irony behind the Flagstar loan pricing policy? Though not confirmed by Flagstar, DeBrota said the dual-standard loan fee policy originally was put into place as a way to avoid any appearance of discrimination against black and Hispanic borrowers.

Auditors from the federal Office of Thrift Supervision had warned the bank about a possible pattern of higher fees to minority applicants, DeBrota said. The resulting policy instruction to loan officers -- the "Revenue Per Loan Procedure" -- had a subtitle: "Monitoring Fair Lending Practices."

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