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Financial Services Law Insights and Observations

DOJ settles with bank for $31 million to resolve alleged redlining allegations

Federal Issues DOJ Enforcement Redlining Discrimination Consumer Finance Fair Housing Act ECOA

Federal Issues

On January 12, the DOJ announced a more than $31 million settlement with a national bank over redlining allegations. Calling the action the largest redlining settlement agreement in the department’s history, the DOJ’s complaint alleged that the bank violated the Fair Housing Act and ECOA by, among other things, failing to provide mortgage lending services to majority-Black and Hispanic neighborhoods in Los Angeles County. The DOJ contended that because the bank’s internal fair lending oversight, polices, and procedures allegedly failed to ensure that it was able to provide equal access to credit to residents of majority-Black and Hispanic neighborhoods, the bank generated disproportionately low numbers of loan applications and home loans from these neighborhoods compared to similarly-situated lenders.

Under the terms of the consent order (which was finalized January 30), the bank (which denies the allegations) has agreed to invest a minimum of $29.5 million in a loan subsidy fund to increase credit for home mortgage loans, home improvement loans, and home refinance loans extended to residents of majority-Black and Hispanic neighborhoods in Los Angeles County. The bank has also agreed to spend at least half a million dollars on advertising and outreach targeted toward residents of these neighborhoods, while it will spend at least another half a million dollars on a consumer financial education program to increase residents’ access to credit. An additional $750,000 is earmarked for use in developing community partnerships to provide services for increasing access to residential mortgage credit.

Additionally, the bank agreed to (i) open one new branch in a majority-Black and Hispanic neighborhood and explore future opportunities for expansion within Los Angeles County; (ii) dedicate at least four mortgage loan officers to serving majority-Black and Hispanic neighborhoods; and (iii) employ a full-time community lending manager to oversee the continued development of lending in majority-Black and Hispanic neighborhoods. A community credit needs research-based market assessment will also be conducted by the bank to identify financial services’ needs for majority-Black and Hispanic census tracts within Los Angeles County. According to the DOJ’s announcement, the bank stated it is proactively taking measures to expand its lending services in other markets around the county to improve access to credit in communities of color. Measures include “creating a residential mortgage special purpose credit program to cover geographic areas in various locations throughout the country, including New York, Georgia, Nevada, and Tennessee,” and launching “a small business lending program that will be aimed at assisting underserved business owners in operating and growing their business.” The bank also agreed to spend at least $100,000 per year on advertising and outreach in the identified areas and $100,000 on a consumer financial education program.