WBK Industry News - Litigation Developments

Bank Agrees to Pay $5 Million Penalty and $3.85 Million to Community Investment for Alleged Redlining Violations

A bank recently agreed to pay $5 million in a civil money penalty and $3.85 million to a loan subsidy program to resolve redlining allegations brought jointly by the United States and the CFPB.  The complaint alleges that the bank discriminated against majority-Black and Hispanic neighborhoods in the Memphis, Tennessee-Mississippi-Arkansas Metropolitan Statistical Area (the Memphis MSA) by failing to market, offer, or originate home loans in those neighborhoods.

The OCC examined the bank in 2018 and identified potential redlining, which resulted in a referral and investigations by the CFPB and DOJ, which then jointly filed suit in the U.S. District Court for the Western District of Tennessee.  The joint complaint alleged that the bank violated the Fair Housing Act, Equal Credit Opportunity Act and Regulation B, and the Consumer Financial Protection Act of 2010.  These laws and regulations prohibit covered entities from discriminating against prospective applicants based on race, color, or national origin.

The joint complaint alleged that only four of twenty-five branches in the Memphis MSA were in majority-Black and Hispanic neighborhoods, despite the census showing 50% of the neighborhoods in the Memphis MSA were majority-Black and Hispanic. The bank also did not assign a mortgage loan officer to any of its branches located in majority-Black and Hispanic neighborhoods, preventing lending services to walk-in customers.  All marketing efforts were completed by existing loan officers located in majority-White neighborhoods.  The complaint also alleged that the bank failed to ensure its fair lending policies were adequate to ensure equal access to credit, and that it did not establish an internal committee following the OCC’s examination.  Furthermore, the bank selected three counties in the Memphis MSA to offer credit services in as part of its obligations under the Community Reinvestment Act.  Yet, the complaint alleged that these counties received 2.5 times more mortgage loan applications from the Bank’s “peer lenders.”

The parties’ motion for a joint consent order was granted on October 27, 2021.  In addition to a $5 million civil penalty ($4 million offset to the OCC), the Bank must take remedial efforts, including reporting and training, to improve its fair lending compliance program.  The agreement also provides an investment of $3.85 million into a loan subsidy program to increase access to credit for majority-Black and Hispanic neighborhoods in its Memphis lending area.  Finally, the bank will be required to open a new lending office and fund advertising in a majority-Black and Hispanic Memphis MSA neighborhoods.

The bank neither admitted nor denied the substantive allegations.