WBK Industry News - Litigation Developments

CFPB and DOJ Settle Redlining Claims with Mortgage Company for $24 Million

A non-depository mortgage company recently entered into a proposed consent order with the CFPB and DOJ to settle the agencies’ claims that the company unlawfully discriminated by redlining majority-minority neighborhoods. Among other requirements, the consent order imposes a civil money penalty of $4 Million and requires the company to establish an $18.4 Million loan subsidy fund intended to provide borrowers in majority-minority neighborhoods with affordable loans and spend a combined $2 Million on advertising, financial education, and community development programs targeting majority-minority neighborhoods.

The Complaint filed by the CFPB and DOJ alleges that the company, which discontinued mortgage origination operations in 2021, avoided lending in majority-minority neighborhoods and discouraged applicants and prospective applicants from these areas by maintaining nearly all of the company’s offices and loan officers in majority-white neighborhoods, where the company also concentrated its outreach, advertising, and marketing. As a result, the Complaint alleges, the company’s rates of applications received from and loans made in majority-minority and high-minority neighborhoods were disproportionately lower than those of its peers.

The alleged practices, according to the DOJ, constituted discrimination on the basis of race, color, and national origin in violation of the Fair Housing Act. Both agencies allege violations of ECOA and its implementing Regulation B, which prohibit acts or practices that would discourage prospective applicants from applying for credit on the basis of race, color, or national origin. The CFPB also alleges a violation of the CFPA’s prohibition on committing any act or omission in violation of a federal consumer financial law such as ECOA.

Apart from the monetary penalties and among other requirements, the consent order permanently enjoins the company from engaging in redlining and requires the company to conduct an assessment of credit needs in surrounding majority-minority neighborhoods and implement ongoing staff training related to discrimination. Under the terms of the consent order, the company must also ensure that the lender with which it contracts to facilitate its loan subsidy fund and other required programs maintains physical locations and personnel to serve surrounding majority-minority neighborhoods, including the employment of a full-time Manager of Community Lending.

In stipulating to the consent order, the company neither admitted nor denied the allegations in the Complaint except for jurisdictional purposes. The proposed consent order, which has not yet been approved by a court, represents the CFPB’s first redlining resolution involving a non-depository mortgage company. In addition to the CFPB and DOJ’s enforcement action, the company and its real estate services affiliate have also entered into concurrent settlement agreements with the states of Pennsylvania, New Jersey, and Delaware.