The DOJ Hits Yet Another Institution for Redlining – Don’t Allow This to Happen to You!
Written by: Bill Dolan, CMB, AMP
The DOJ appears to like the number “9” as yet another state-chartered bank entered a consent order to resolve redlining. While the court has not yet approved and entered the consent order, the Bank agreed to pay the $9 million towards various initiatives to promote homeownership in majority Black and Hispanic census tracts.
Following its 2022 investigation into whether the Bank had engaged in discriminatory lending practices in the Jacksonville, Florida metropolitan area, the DOJ filed a complaint for violations of the Fair Housing Act and ECOA. The DOJ alleged discriminatory lending practices related to the operation of the Bank’s 18 branches in the area. During this relevant time period, the Bank had not operated a branch in a majority-Black or Hispanic census tract. And it closed two branches in census tracts that it had identified as having relatively higher non-white populations.
The DOJ alleged discriminatory lending practices by the Bank’s mortgage loan officers. The mortgage loan officers had primarily serviced majority-white communities. Since the Bank had not monitored where its MLOs had developed referral sources or distributed marketing materials, it had no way to ensure such activities were occurring in all communities. Relatedly, the DOJ alleged discriminatory marketing practices, finding that the Bank’s marketing specifically targeted majority-white communities.
The DOJ also alleged that the Bank’s conduct was intentional, willful, or in reckless disregard because it had failed to address known redlining risks. In a 2018 internal report, the Bank had identified majority-Black and Hispanic tracts where other lenders had originated loans in 2017. However, in those same tracts, the Bank had not originated any loans. HMDA data for 2016 through 2021 also showed that the Bank’s competitors had outperformed it in majority-Black and Hispanic tracts. And during that same time period, the Bank had not received any loan applications from one-third of the majority-Black and Hispanic tracts.
As part of the settlement, the Bank will pay $7.5 million toward a loan subsidy fund aimed at increasing credit in the impacted communities. The Bank will also pay $1.5 million for outreach initiatives and marketing in those communities. Additionally, the Bank must develop a fair lending plan, which addresses, amongst other things, policies and practices related to the location of branches, loan officer solicitation of applications, outreach, training, oversight, compensation, marketing, and advertising. The Bank must also make reasonable efforts to open or acquire a branch in a community with a majority-Black and Hispanic census tract within 24 months of the effective date of the consent order. The Bank denies the allegations.
Don’t say that this can’t happen to you. Many of these institutions thought the same thing….not me!
Let SCA Help and Support You; and Here’s How:
SCA’s senior compliance consultants can eliminate these types of concerns and potential risk by applying techniques employed by the Federal Reserve and FFIEC in their examination procedures, most notably, the FFIEC Inter-Agency Fair Lending Exam Procedures and the Federal Reserve “Intermediate Small Bank” CRA Performance Evaluation Method, Federal Reserve - supervised financial institutions subject to CRA requirements. Intermediate small bank refers to a bank with assets of at least $376 million as of December 31st, of the prior two calendar years, and less than $1.05 billion as of December 31st of the same two prior calendar years.
If you are unsure how examiners will evaluate your financial institution’s Fair Lending plan or CRA assessment area, analyzing potential redlining risk using REMA (reasonably expected market area), or if you are unsure as to just how strong your CRA/Fair Lending policies and procedures are, let SCA provide a 30-minute presentation using your data to analyze your CRA Assessment Area and determine whether your institution is providing equal access to credit within your REMA. There is no better time to address these and other compliance issues than now, so why wait? Pick up the phone and contact Bill Dolan at: (617) 694-2617 or email Wdolan@scapartnering.com. Let this be one less project to worry about with SCA in your corner.
