WASHINGTON — The U.S. Court of Appeals for the Fourth Circuit has revived class allegations challenging Navy Federal Credit Union’s mortgage lending practices.
In a split opinion the three-judge panel’s majority vacated a portion of U.S. District Judge Leonie M. Brinkema’s 2024 decision that barred Laquita Oliver and eight other named plaintiffs from pursuing their discrimination case against the credit union as a class, Law360 reported.
According to the Law360 analysis, the majority found that while wide variation in the loan products and borrower circumstances at issue made it reasonable to shut down class claims for damages at the pleading stage, their allegations that Navy Federal relied on a uniformly applied underwriting algorithm could still plausibly support class treatment for injunctive relief.
“We hold that the complaint contains a sufficient prima facie showing to establish commonality and that the district court acted prematurely in concluding otherwise,” U.S. Circuit Judge Toby Heytens wrote for the majority.
Allegations First Raised by CNN
Allegations of lending discrimination at Navy Federal first surfaced in December of 2023 when CNN published an analysis it said showed significant racial disparities in mortgage approval rates, with Black and Latino applicants approved at much lower rates than white applicants, even after controlling for typical credit factors, according to CNN.
The case drew widespread media coverage as well as the attention of Congress. Litigation was soon filed alleging the credit union’s underwriting system generated racially disparate outcomes nationwide and disadvantaged minority borrowers across service branches and their families.
Navy FCU later responded with its own analysis that it said showed the CNN findings were flawed.
‘Significant Ruling’
In what it called a “significant appellate ruling for minority borrowers seeking systemic relief,” DiCello Levitt, co-counsel for the plaintiffs, said the Court held that borrowers alleging discriminatory mortgage lending practices plausibly asserted common, class-wide claims for injunctive and declaratory relief that should not have been dismissed at the pleading stage before discovery.
DiCello Levitt serves as co-lead counsel in the case with Tycko & Zavareei and Ben Crump Law.
‘There for All to See’
“This ruling reaffirms that courts should not shut down civil rights cases before plaintiffs have any opportunity to access the evidence,” Partner Daniel Schwartz, who argued the appeal on behalf of the borrowers, said in a statement. “The apparent disparate impact is there for all to see—black and brown borrowers at Navy Federal were denied home mortgages far more often, and charged significantly higher rates, than similarly-situated white applicants. When a lender’s mortgage decisions are allegedly driven by a common underwriting process, plaintiffs are entitled to discovery to determine whether that system operates in a manner that causes a discriminatory result.”
According to DiCello Levitt, the consolidated case, Navy Federal Mortgage Discrimination Litigation, alleges that Navy Federal employed a semi‑automated mortgage underwriting process that disadvantaged Black, Latino, and Native American home loan applicants, including service members, veterans, and their families.
According to the complaint, the underwriting system relied on inputs that can function as proxies for race and produced disparate outcomes in mortgage approvals, pricing, and processing times nationwide, the firm said.
‘Full Factual Record’
“The Fourth Circuit recognized that claims of systemic discrimination deserve to be evaluated on a full factual record,” DiCello Levitt Founding Partner Adam Levitt said in a statement. “Our clients allege that Navy Federal’s mortgage lending practices denied them equal access to homeownership. This decision ensures those claims will be tested through discovery rather than dismissed at the outset.”
The case now returns to the U.S. District Court for the Eastern District of Virginia for further proceedings, including discovery into Navy Federal’s mortgage underwriting practices.
The case is In re: Navy Federal Mortgage Discrimination Litigation, Case No. 1:23‑cv‑01731‑LMB‑WEF (E.D. Va.).
Navy FCU Responds
In response, Navy Federal told the CU Daily in a statement, “The Fourth Circuit was required to take plaintiffs’ allegations as true, and we look forward to demonstrating their claims are false. As a leading mortgage lender to Black Americans and all members, we remain confident in the integrity of our mortgage lending practice.”
Earlier Rulings
In mid-2024, a federal judge narrowed the litigation: intentional discrimination claims and proposed class action status were struck or dismissed, but disparate‐impact claims under the FHA and ECOA were allowed to proceed. Plaintiffs must link specific underwriting practices to the observed disparities during discovery.
In February of this year the U.S. Court of Appeals for the Fourth Circuit revived certain class action aspects of the case, saying the lower court erred in foreclosing class status too early, sending parts of the case back for further proceedings.
