Bank Settles with DOJ for $9 Million to Resolve Redlining Allegations

The DOJ recently entered into a consent order with a state-chartered bank (Bank) to resolve allegations of redlining.  While a court has not yet approved and entered the consent order, the Bank agreed to pay $9 million toward 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 the relevant time period, the Bank had not operated a branch in a majority-Black or Hispanic census tract.  And it had closed two branches in census tracts that it had identified as having relatively higher non-white populations.

The DOJ also alleged discriminatory lending practices by the Bank’s mortgage bankers.  The mortgage bankers had primarily serviced majority-white communities.  Since the Bank had not monitored where its mortgage bankers 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 in 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, and compensation; and 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 DOJ’s allegations.