Joint agency Redlining Settlement marks revival of federal fair lending law enforcement – Finance and Banking


Three federal agencies today announced a coordinated settlement with a Mississippi-headquartered bank for allegedly marking predominantly black and Hispanic neighborhoods in the Memphis, Tennessee area. The action was the result of the OCC’s review of the bank’s lending activities from 2014 to 2016. The OCC found that the bank had engaged in a “pattern or practice” of discriminatory discrimination. of the Fair Housing Act, which prompted the OCC to refer it last year to the Justice Department and CFPB for investigation.

The bank reportedly denied residents of majority and large minority neighborhoods in Memphis equal access to mortgages, which the OCC says has been demonstrated by mortgage application and origination activity banking, branches, loan officer operations and marketing. As a result, the OCC imposed a civil fine of $ 4 million.

In a separate but related action, the CFPB and the Justice Department together alleged that the bank violated the Fair Housing Act and Equal Credit Opportunity Act by avoiding neighborhood mortgages. predominantly black and Hispanic, discouraging potential applicants residing or seeking credit. for properties located in these neighborhoods to apply for credit.

As evidence to support these claims, the government pointed out the following from the bank:

Only four of the bank’s 25 branches in the Memphis area were located in predominantly black and Hispanic communities, while 50% of the Memphis MSA census tracts are predominantly black and Hispanic. According to the regulations, two of the four branches were originally in white neighborhoods and are only now found in majority minority neighborhoods due to changing demographics. The bank also closed a limited-service branch located in a majority minority neighborhood in 2015.

  • Loan officer assignments.

No loan officer was assigned to any of the four branches in majority minority areas, so mortgage loan services were not available to walk-in customers. The CFPB found it significant that the bank relied almost entirely on its loan officers (on site in other branches) to carry out awareness-raising actions among potential customers.

Before the OCC began its review in 2018, the bank did not conduct comprehensive equity loan risk assessments or put in place internal governance to oversee equitable lending.

  • Disproportionate application volume.

From 2014 to 2018, other lenders located in the same situation (v. Memphis MSA as the bank.

As part of the CFPB / DOJ settlement, the bank is ordered to pay a penalty of $ 5 million to the CFPB, which will credit the penalty of $ 4 million collected by the OCC for the satisfaction of this amount. The bank is also to invest $ 3.85 million in a loan subsidy program to help borrowers buy properties in predominantly black and Hispanic neighborhoods of Memphis, and allocate $ 200,000 for targeted advertising. He will also open a new loan office in a predominantly black and Hispanic neighborhood.


We expect a significant increase in the fair application of loans from each of these agencies, as the Department of Justice took this opportunity to announce the launch of its new “Combatting Redlining Initiative” today. The Department’s initiative will be led by the Housing and Civil Law Enforcement Section of the Civil Rights Division, in partnership with U.S. prosecutors’ offices. A notable aspect of this initiative is that the Ministry specifically called on non-bank mortgage lenders, who traditionally have not been targets of law enforcement. The Department also noted its intention to increase coordination with state attorneys general on potential violations of equitable loans.

For the CFPB, today’s settlement marked the first fair loan execution measure under the leadership of new director Rohit Chopra, who made it clear that he would have a fair loan-focused program. Earlier this week, news broke that Chopra would appoint Eric Halperin to head the enforcement division of the CFPB. Halperin is a longtime civil rights attorney who served under Tom Perez as special counsel for fair lending in the civil rights division of the DOJ at a time when the DOJ was active in pursuing claims of ” inverted red line ”. With Halperin’s civil rights record, we can expect to see even more attention given to the fair application of loans.

We can also expect a return to heavily worded CFPB press releases. The Bureau’s announcement of the settlement calls the bank’s violations “willful”, with Chopra saying the bank “has deliberately excluded and discriminated against black and Hispanic communities.” Although he had no connection with the regulation, he also returned to a subject he has already raised: algorithmic bias: “The federal government will work to rid the market of racist business practices, including those using discriminatory algorithms ”.

With markedly increased attention at the federal level and a promise of coordination with states, all lenders should take note of today’s action and review their own request and origin activity as well as policies, procedures. and monitoring compliance with fair loan laws.

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