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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.
On December 21, NYDFS proposed guidance for regulated banking and mortgage institutions to support efforts for responding to evolving risks stemming from climate change. The proposed guidance—which was developed to align with the climate-related work of federal and international banking regulators—will aid institutions in identifying, measuring, monitoring, and controlling material climate-related financial risks, consistent with existing risk management principles. Institutions should “minimize and affirmatively mitigate adverse impacts on low- and moderate-income communities while managing climate-related financial risks,” NYDFS said, explaining that the proposed guidance focuses on areas of risk management related to corporate governance, internal control frameworks, risk management processes, data aggregation and reporting, and scenario analysis that also accounts for unknown future risks. Among other things, the proposed guidance warned institutions of the importance of ensuring fair lending is provided to all communities, including low- to moderate-income neighborhoods that may face heightened risks, when managing climate-related financial risks. The proposed guidance also outlined tools institutions should use to measure and protect against climate change risks. NYDFS warned institutions that they may have to directly absorb a greater portion of losses and should plan for insurance coverage premiums to either increase or be withdrawn entirely in areas where climate risks are prevalent.
NYDFS commented that the proposed guidance serves as a basis for supervisory dialogue and instructed interested parties to provide input as it undertakes a data-driven approach to formulating the final guidance. Comments are due by March 21, 2023. A webinar will be held on January 11, 2023 to provide an overview of the proposed guidance.
“Regulators must anticipate and respond to new risks to operational resiliency and safety and soundness, jeopardizing an institution’s future,” Superintendent Adrienne A. Harris said. “NYDFS is committed to working with all stakeholders to further refine expectations and finalize guidance appropriate for institutions to address material climate-related financial risks.”
On December 8, NYDFS announced a second report in an ongoing statewide inquiry into redlining and other forms of housing discrimination by mortgage lenders, particularly non-depository lenders. This report focuses on racial disparities in mortgage lending in Long Island, Rochester, and Syracuse, and follows one on Buffalo (covered by InfoBytes here). The report maps lending activity and details individual institutions' lending in majority-minority neighborhoods and to borrowers identifying as members of a minority group.
Analyzing HMDA data, NYDFS’s recent report concluded that: “ In Nassau county, where the population is 41.8 percent non-white, on average, lenders make 35.32 percent of their loans to borrowers identifying as people of color. Among lenders operating in the county, lending to borrowers identifying as people of color ranges from 14.9 percent to 50.22 percent. In Suffolk county, where the population is 33.7 percent non-white, on average, lenders make 22.44 percent of their loans to borrowers identifying as people of color. Among lenders operating in the county, lending to borrowers identifying as people of color ranges from 13.07 percent to 36.85 percent. In the Rochester metro area, where 23.9 percent of the population is non-white, on average lenders make 11.32 percent of their loans to borrowers identifying as people of color, less than half of what would be expected based solely on population make-up. Similarly in the Syracuse metro area, 18.7 percent of the population is non-white, but on average lenders make 8.67 percent of their loans to borrowers identifying as people of color.”
In the announcement, NYDFS noted that it is currently developing regulations to implement the updated New York Community Reinvestment Act, which expands oversight to non-depository mortgage lenders operating in the state. The insights uncovered through these reports’ investigations will be reflected in these proposed regulations which will be published for public comment in 2023.
On September 28, the DOJ announced a settlement with a New Jersey bank to resolve allegations that the bank engaged in a pattern or practice of lending discrimination by engaging in “redlining” in the Newark metropolitan area in violation of the Fair Housing Act and ECOA. The DOJ’s complaint alleges that from at least 2015 to 2021, the bank failed to provide mortgage lending services to Black and Hispanic neighborhoods in the Newark metropolitan area. The DOJ also alleges that all of the bank’s branches were located outside of majority-Black and Hispanic neighborhoods and that these neighborhoods were also largely excluded from the bank’s marketing and outreach efforts.
Under the proposed consent order, the bank will, among other things, (i) invest a minimum of $12 million in a loan subsidy fund for majority-Black and Hispanic census tracts in the Newark metropolitan area, of which at least $150,000 per year will go towards advertising, outreach, consumer education, and credit counseling, and $400,000 will be spent on services to increase access to residential mortgage credit; (ii) establish new branches in neighborhoods of color, including at least one in the city of Newark, that will provide a full range of mortgage products; (iii) assign at least four mortgage loan officers dedicated to serving all neighborhoods in and around Newark; (iv) employ a full-time community development officer to oversee the continued development of lending in neighborhoods of color in the Newark area; and (iii) provide ECOA and fair lending training to employees and officials. The announcement cited the bank’s cooperation with the DOJ to remedy the identified redlining concerns. According to the announcement, this settlement represents the third-largest redlining settlement in DOJ’s history.
On July 27, the CFPB and the DOJ jointly filed a lawsuit against a Delaware-based mortgage lender for engaging in unlawful discrimination. The complaint, filed in the U.S. District Court for the Eastern District of Pennsylvania, alleges that the defendant violated the Equal Credit Opportunity Act (ECOA) and its implementing Regulation B and the Consumer Financial Protection Act (CFPA) by, among other things, engaging in unlawful discrimination on the basis of race, color, or national origin against applicants and prospective applicants, including by redlining majority-minority neighborhoods, and by engaging in acts and practices directed at prospective applicants that would discourage prospective applicants from applying for credit. The DOJ also alleged a violation of the Fair Housing Act, including the “making unavailable or denial of dwellings to persons because of race, color, and national origin,” among other things.
The proposed consent order, if entered by the court, would be Bureau’s first nonbank mortgage redlining resolution. It would require the defendant, among other things, to: (i) deposit $18.4 million into a loan subsidy program; (ii) pay a $4 million penalty to the Bureau; and (iii) pay $2 million to fund advertising to generate applications in redlined areas. The proposed order also notes the defendant neither admits nor denies the allegations in the complaint. According to a statement released by CFPB Director Rohit Chopra, the Bureau “will continue to seek new remedies to ensure all lenders meet and fulfill their responsibilities and obligations and the CFPB continues to be on the lookout for emerging digital redlining to ensure that discrimination cannot be disguised by an algorithm.”
On June 13, the CFPB published a guide to assist a range of stakeholders accessing publicly available HMDA data on lending patterns that may result in racial and economic inequality due to redlining practices or other “unjustified disparities.” Through the Beginner’s Guide to Accessing and Using Home Mortgage Disclosure Act Data, stakeholders can better understand the sources and meanings of various HMDA data types as well as the financial institutions that are required to maintain, report, and publicly disclose loan-level information about mortgage applications and loans. According to the Bureau, HMDA data can provide insights on whether lenders are serving the housing needs of their communities and help guide policy decisions.
On May 6, the CFPB issued its annual fair lending report to Congress, which outlines the Bureau’s efforts in 2021 to fulfill its fair lending mandate. Much of the Bureau’s work in 2021 focused on addressing racial injustice and long-term economic consequences of the Covid-19 pandemic. According to the report, the Bureau continued to prioritize promoting fair, equitable, and nondiscriminatory access to credit, with a particular focus on fair lending supervision efforts in areas related to “mortgage origination and pricing, small business lending, student loan origination work, policies and procedures regarding geographic and other exclusions in underwriting, and  the use of artificial intelligence (AI) and machine learning models.” Fair Lending Director Patrice Alexander Ficklin said that while she is “encouraged by the possibility of utilizing vehicles like special purpose credit programs to expand access to credit,” she remains “skeptical of claims that advanced algorithms are the cure-all for bias in credit underwriting and pricing.” The report addressed enforcement and supervision work, highlighting four fair lending-related enforcement actions taken last year related to (i) illegal redlining practices; (ii) failure to provide accurate denial reasons on adverse-action notices; (iii) UDAAP violations related to the treatment of “gate money” for incarcerated individuals; and (iv) fees and payments associated with immigration bonds. The report also discussed initiatives concerning small business lending and data collection rulemaking, automated valuation models rulemaking, and a final rule amending certain provisions in Regulation X related to Covid-19 protections offered by mortgage servicers. Additionally, the report discussed an interpretive rule concerning ECOA’s prohibition on sex discrimination, stakeholder engagement on matters concerning fair lending compliance and policy decisions, HMDA reporting, and interagency engagement and reporting, among other topics. The report noted that going forward, the Bureau intends to sharpen its focus on digital redlining and algorithmic bias to identify emerging risks as more tech companies influence the financial services marketplace. According to CFPB Director Rohit Chopra, “[w]hile technology holds great promise, it can also reinforce historical biases that have excluded too many Americans from opportunities.”
On April 29, the National Fair Housing Alliance (NFHA) announced a settlement agreement with a real estate company resolving allegations that the company perpetuated redlining practices through its policies and procedures. NFHA, along with nine other fair housing organizations, sued the company following an investigation into its practices. The fair housing organizations alleged that the company’s minimum home price policy violated the Fair Housing Act by discriminating against sellers and buyers of homes in communities of color. Limiting or denying services for homes priced under a certain value can “perpetuate racial segregation and contribute to the racial wealth gap” the organizations claimed in the press release. According to the complaint, the company disproportionately withheld its services to homebuyers and sellers in these communities at a higher rate than in White zip codes in multiple major cities across the U.S, thereby disincentivizing homebuying within these communities, reducing housing demand and values, and perpetuating residential segregation. Under the terms of the settlement, the company will make several national operational changes and enhancements, including (i) expanding housing opportunities for consumers in communities of color in major cities throughout the country; (ii) eliminating its minimum housing price policy for a period of five years; and (iii) appointing a fair housing compliance officer, adopting an equal opportunity in housing policy, and developing a fair housing training program. The company will also pay $4 million to go towards expanding homeownership opportunities in the covered cities and to cover conduct monitoring, compliance efforts, litigation fees and costs.
On March 17, the U.S. District Court for the Northern District of Georgia agreed that claims against a group of mortgage lenders for conduct arising prior to November 2013 were barred under the two-year statute of limitations of the Fair Housing Act (FHA). Plaintiffs Cobb County, DeKalb County, and Fulton County, Georgia (collectively, “Counties”) alleged that the defendants “engaged in, and continue to engage in, discriminatory schemes that expose borrowers to unreasonable levels of risk; needlessly inflate interest rates, penalties, and fees; generate unauthorized and inflated charges for default related services; and lead to higher foreclosure rates among minority borrowers.” According to the Counties, these alleged practices have caused them to incur financial injury, including foreclosure-related costs, loss of property tax revenue, increased segregation, and organizational harm to County departments and authorities due to the forced reallocation of funds to address harms caused by the defendants’ actions. The Counties filed a complaint on November 20, 2015, asserting three counts related to disparate impact and disparate treatment theories under the FHA. Defendants moved for partial summary judgment on statute-of-limitations grounds, arguing that the Counties’ allegations are time-barred because they are based on allegedly discriminatory conduct occurring before November 20, 2013. Defendants further contended that the Counties could not “allege a ‘continuing violation’ that tolls the statute of limitations for each allegedly discriminatory act until the continuing violation ends because [a plaintiff’s] knowledge of a claim, or reason to have knowledge of a claim, cuts off equitable tolling of the statute of limitations for claims based on a continuing violation, and the Counties knew or should have known of their FHA claims at least as of May 2011.”
The court agreed with the defendants, pointing out that, among other things, there is “copious circumstantial evidence” that the Counties knew or should have known of their claims prior to May 2011, including well publicized allegations against the same defendants for similar conduct, and their retention of outside counsel in 2010 to investigate potential discrimination claims. According to the court, while a reasonable jury could find that the Counties themselves did not know of their claims, the record left no doubt that the outside counsel “knew of the claims prior to the statutory period, or would have known of the claims if he conducted himself with reasonable prudence.” Because the outside counsel’s “knowledge is imputed to his clients, no reasonable jury could find in the Counties’ favor on the statute-of-limitations issue.”
On November 1, the New York governor signed S5246A, which expands the New York Community Reinvestment Act (New York CRA) to cover non-depository lenders. Under the act, nonbank mortgage providers’ lending and investment in low- and moderate-income communities will be subject to NYDFS review. The anti-redlining law—which previously only measured banks’ activities in low- to moderate-income communities—is intended to “ensure everyone has fair and equal access to lending options in their pursuit of purchasing a home, especially in communities of color which continue to be impacted by the effects of the pandemic and have historically faced many more hurdles when seeking a mortgage,” Governor Kathy Hochul stated. The act follows a report issued by NYDFS in February, which examined redlining in the Buffalo metropolitan area and concluded that there is a “distinct lack of lending by mortgage lenders, particularly non-depository lenders” to majority-minority populations and to minority homebuyers in general. (Covered by InfoBytes here.) At the time, the report made numerous recommendations, including a recommendation to amend the New York CRA to cover nonbank mortgage lenders and a request that the OCC and the CFPB investigate federally regulated institutions serving the Buffalo area for violations of fair lending laws. The act takes effect in a year.