A Minnesota community bank accused of redlining reached a deal with the Department of Justice (DOJ) with a promise to expand its presence and outreach in minority neighborhoods but pay no civil penalties. The settlement offers a glimpse of how the current DOJ is resolving Obama-era legacy actions.
Shortly before the change in administrations, the DOJ filed suit against a Minnesota bank for alleged violations of the federal Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA). Over a five-year period, the bank allegedly engaged in a pattern or practice of unlawful redlining of the majority-minority neighborhoods in the Minneapolis-St. Paul metro area.
According to the lawsuit, the bank largely avoided providing residential mortgage loans in majority-minority census tracts over a five-year period (2010–15), carving out a “horseshoe-shaped” Community Reinvestment Act (CRA) assessment area that included the majority white suburbs but omitted urban areas with higher proportions of minority populations. The result: The bank excluded 78 of the 97 majority-minority census tracts in the metro area, the DOJ alleged.
“[S]tatistical analyses of [the bank’s] residential real estate-related loan applications and originations show that the Bank served the credit needs of the residents of majority-white census tracts to a significantly greater extent than it served the credit needs of the residents of majority-minority census tracts,” according to the Minnesota federal court complaint. “During that time period, comparable lenders generated applications in majority-minority tracts at over five times the rate of [the bank], and originated loans in majority-minority tracts at over four times the rate of [the bank].”
Although the bank has branch offices in majority-white census tracts, it never opened or operated a branch in a majority-minority census tract, the DOJ alleged, and engaged in limited marketing outside its CRA assessment area.
Characterizing the bank’s discriminatory practices as “intentional and willful, and implemented with reckless disregard for the rights of individuals on the basis of their race and/or national origin,” the complaint requested declaratory relief, monetary damages and a civil penalty.
President Trump’s DOJ has now settled the Obama-era suit with the bank. Pursuant to the deal, the bank “has committed to meet the credit needs of residents in majority-minority census tracts in Hennepin County, Minnesota.”
More specifically, the bank promised to refrain from future violations of the ECOA and FHA and revise its CRA assessment area to include the entirety of Hennepin County, encompassing the majority-minority census tracts previously excluded. Within one year, the bank will also open one full-service brick-and-mortar office within a majority-minority census tract, providing the range of services typically offered at other full-service branches (such as a full-time on-site residential lending officer).
Of critical interest here, the DOJ agreed to impose no civil penalties. Instead, the bank will continue to develop partnerships with organizations to help establish a presence in majority-minority neighborhoods pursuant to a written proposal and spend a minimum of $300,000 on advertising, outreach, education and credit repair initiatives over the next three years. Advertising should include the bank’s full range of mortgage loan products, at least two outreach programs will be held annually, and the bank will provide a consumer financial education and credit repair program.
A full-time community development officer and executive lender will be tasked with overseeing the development of the bank’s lending in majority-minority census tracts and provide quarterly reports to the bank’s board of directors regarding its performance. Fair lending training will be provided to all employees, including officers, and will cover redlining.
The bank also agreed to invest $300,000 in a special purpose credit program that will offer residents of majority-minority census tracts residential mortgage loans and home improvement loans on a more affordable basis to remedy the harm alleged in the complaint.
The agreement will remain in effect for three years.
To read the DOJ’s complaint, click here.
To read the settlement agreement, click here.
Why it matters
The DOJ could have dropped this suit, but instead pursued it to closure, obtaining meaningful relief. Filed in the last days of the Obama administration, the DOJ suit was one of many fair lending suits brought by a more activist department. As the first fair lending settlement reached during President Trump’s administration, the agreement provides some insight into the new DOJ’s take on the issue. Most notably, while the Minnesota bank must make changes to its CRA assessment area and spend hundreds of thousands of dollars on advertising and a special purpose credit program, the bank was not hit with a civil penalty.