In the largest redlining settlement in the department’s history, the U.S. Department of Justice (DOJ) announced that an agreement has been reached to resolve redlining allegations against a Los Angeles-based bank. Under the terms of the proposed consent order, the bank will pay more than $31 million to resolve the allegations that it engaged in a pattern or practice of redlining in violation of the Fair Housing Act and the Equal Credit Opportunity Act.

In the complaint, which was filed in the district court for the Central District of California on January 12, 2023, the DOJ alleged that from 2017 through 2020, the bank “avoided” providing mortgage lending services to majority-Black and Hispanic neighborhoods in Los Angeles County. The complaint also alleged that the bank only maintained three of its 37 branches in majority-Black and Hispanic neighborhoods despite the fact that over 50 percent of its census tracts in Los Angeles County are majority-Black and Hispanic. In addition, the DOJ alleged that the bank only opened one branch in a majority-Black and Hispanic neighborhood in the past 20 years, despite having opened or acquired 11 branches in other neighborhoods during that same time period. Further, unlike at its branches in majority-white areas, the bank allegedly did not assign any employee to generate mortgage loan applications at that branch. Of its residential mortgage loans in the relevant time period, only 7% were made to residents of majority-Black and Hispanic neighborhoods as compared to its peers’ 44% average. In the consent order, the bank maintained that it was in compliance with applicable law at all times, but agreed to the settlement in order to avoid prolonged litigation.

In the press release announcing the settlement, Attorney General Merrick Garland noted that “[s]o far, the Combating Redlining Initiative has secured over $75 million dollars in relief for communities that have suffered from lending discrimination.” This settlement is the fourth redlining settlement reached by the DOJ since launching its initiative in October 2021.

The proposed order, if entered by the court, would require the bank to:

  • Invest at least $29.5 million in a loan subsidy fund for residents of majority-Black and Hispanic neighborhoods in Los Angeles County.
  • Spend at least $1.75 million in advertising, community outreach, and consumer financial education programs to help increase access to credit for residents of majority-Black and Hispanic neighborhoods.
  • Open one new full-service branch in a majority-Black and Hispanic neighborhood and ensure that at least four mortgage loan officers are dedicated to serving majority-Black and Hispanic neighborhoods.
  • Employ a full-time community lending manager who will oversee the continued development of lending in majority-Black and Hispanic neighborhoods.
  • Conduct a research-based market study to help identify the needs for financial services for majority-Black and Hispanic census tracts within Los Angeles County.
  • Establish a Fair Lending Oversight Committee to monitor its fair lending risks and coordinate the bank’s adherence to the consent order.

Our Take

With the “whole of government” redlining initiative in full swing, we fully expect numerous additional redlining cases to be pursued by the DOJ, the CFPB, and the federal banking regulators. Mortgage lenders should pay careful attention to their own posture regarding a potential redlining claim, including analyzing their HMDA data against that of peers and examining the kind of branch location and loan origination factors cited in this newest complaint. The elements that the federal regulators examine to analyze redlining have remained stable over many years, with this newest case being no exception, and so the “playbook” for bank and non-bank mortgage originators to assess their own operations is well-established. We urge mortgage lenders to take advantage of the opportunity to perform this analysis themselves before a regulator does so for them.