The American Civil Liberties Union has accused Morgan Stanley of using racially-biased mortgage sales practices, Reuters reported Monday.
The lawsuit accused the bank of targeting black customers for high-risk loan packages through a subprime lender, New Century Financial Corp. According to the suit, the bank made money selling the loans, which were especially susceptible to foreclosure and especially high rates, to investors.
“Morgan Stanley systematically disregarded basic guidelines for safe lending and signaled its willingness to purchase loans that placed borrowers at elevated risk of foreclosure,” the ACLU said in a statement on its website. “In fact, Morgan Stanley often purchased loans containing multiple high-risk factors, and the bank’s appetite for extremely risky loans incentivized New Century to favor predatory loans – high-cost loans, sometimes made fraudulently, with risky features and unreasonably high chances of foreclosure.”
According to The Wall Street Journal, a study earlier this year found that banks such as Citigroup, J.P. Morgan Chase, U.S. Bank and KeyCorp were more likely to charge high interest rates to minorities.
Morgan Stanley denied the allegations in a statement Monday, saying, “We believe these allegations are completely without merit and plan to defend ourselves vigorously.”
[“Sign of the Times – Foreclosure” by user “respres,” via Wikipedia Commons]