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Bank of America must face Chicago-area predatory lending lawsuit

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03/20/2015 | 05:38pm EDT

(Reuters) - A federal judge rejected Bank of America Corp's request to dismiss a lawsuit in which Cook County, Illinois, accused the lender of targeting black and Hispanic borrowers in the Chicago area with subprime mortgages.

In a decision dated Thursday, U.S. District Judge Elaine Bucklo in Chicago said Cook County could pursue allegations that the bank steered minority borrowers into an outsized number of high-cost home loans, resulting in more foreclosures, lower property taxes and greater urban blight.

"The county has asserted an adequate injury-in-fact that is plausibly connected to defendants' alleged discriminatory lending," Bucklo wrote. She did not rule on the case's merits.

Cook County, the nation's second most populous county after Los Angeles, had accused Bank of America of "reverse redlining," in which credit is often extended on unfair terms in specific geographic areas based on borrowers' race, ethnicity or income.

The county said Bank of America made about 95,000 home loans to minority borrowers on less favorable terms than loans to similar white borrowers, and that about 60 percent of the loans in question were or could prove at risk of default.

Bank of America in a statement said, "The factual and legal issues in this case will be very complex," adding that its record "demonstrates a firm commitment and strong record for fair and responsible lending and community revitalization."

The Charlotte, North Carolina-based bank sought to dismiss the case on the grounds that Cook County lacked standing, waited too long to sue, and did not show violations of the federal Fair Housing Act.

Bucklo noted that the U.S. Supreme Court is expected to decide by June whether to narrow the scope of discrimination claims made under that law, and that its decision could affect Cook County's case.

Cook County's lawsuit is one of many in which municipalities such as Los Angeles, Baltimore, Cleveland and Providence, Rhode Island, have sought to hold mortgage lenders responsible for mounting foreclosures. Cook County last March also brought one such case against HSBC Holdings Plc.

The case is County of Cook v. Bank of America Corp et al, U.S. District Court, Northern District of Illinois, No. 14-02280.

(Reporting by Jonathan Stempel in New York; Editing by Leslie Adler)

By Jonathan Stempel

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