The Justice Department announced that it has entered into an agreement with Lakeland Bank to settle the DOJ’s claims that Lakeland engaged in unlawful redlining in the Newark, New Jersey metropolitan area.  The DOJ’s lawsuit against Lakeland, filed in a New Jersey federal district court, is part of the DOJ’s nationwide “Combating Redlining Initiative” launched in October 2021.  According to the DOJ, the settlement represents the third-largest redlining settlement in the DOJ’s history.

The key allegations in the DOJ’s complaint are the following:

• During the relevant time period (2015-2021), the Newark, New Jersey-Pennsylvania Metro Division (Newark MD) as delineated in 2015 included Essex, Somerset, Union, Sussex, and Morris counties in New Jersey (Newark Lending Area).
• As of 2021, Lakeland’s Community Reinvestment Act (CRA) assessment area included majority-white areas of Essex, Somerset, and Union counties and excluded the portions of those counties that contain majority-Black and Hispanic neighborhoods.  None of the majority-Black and Hispanic census tracts in Somerset and Union Counties were included in Lakeland’s assessment area, and only a small fraction of the majority-Black and Hispanic tracts in Essex County were included.
• All of Lakeland’s full-service branches in the Newark Lending Area during the relevant time period were located in majority-white census tracts and none of the loan officers at those branches were assigned to target customers within majority-Black and Hispanic neighborhoods.
• In the majority-white neighborhoods in the Newark Lending Area, residential mortgage services were available at branches to walk-in customers.  Those services were not available in majority-Black and Hispanic neighborhoods in the Newark Lending Area.
• During the relevant time period, Lakeland relied almost entirely on mortgage loan officers, all but one of whom were assigned offices in branches in majority-white neighborhoods, to develop referral sources, conduct outreach to potential customers, and distribute mortgage lending marketing materials.
• Lakeland took no meaningful steps to supplement the efforts of mortgage loan officers to general mortgage applications from majority-Black and Hispanic neighborhoods in the Newark Lending Area.
• Based on its own fair lending assessment, Lakeland was aware of shortfalls in applications between itself and its peer lenders in majority-Black and Hispanic neighborhoods and shortfalls in applications from individuals identifying as Black or Hispanic compared to the local demographics and aggregate HMDA averages. 
• During the relevant time period, Lakeland significantly underperformed its peer lenders in generating home loan applications from majority-Black and Hispanic neighborhoods in the Newark Lending Area and in making HMDA-reportable residential mortgage loans in those neighborhoods.  The disparities between Lakeland’s rate of applications from and home loan volume in majority-Black and Hispanic areas and the rate and volume of its peers were both statistically significant (i.e. unlikely to be caused by chance) and sizeable.

Based on these allegations, the DOJ alleged violations of the Fair Housing Act and Equal Credit Opportunity Act by Lakeland.  For purposes of its FHA claim, the DOJ alleged:

• Lakeland’s policies and practices (1) constitute the unlawful redlining of majority-Black and Hispanic communities in the Newark Lending Area on account of the communities’ racial and ethnic composition, (2) were intended to deny, and had the effect of denying, equal access to home loans to residents of majority-Black and Hispanic communities, and (3) were not justified by a business necessity or legitimate business considerations.
• Lakeland’s actions constitute (1) discrimination on the basis of race, color, and national origin in making available residential real-estate related transactions in violation of the FHA, and (2)  a pattern or practice of resistance to the full enjoyment of rights secured by the FHA, and (3) a denial of rights granted by the FHA to a group of persons that raises an issue of general importance.
• Lakeland’s pattern or practice of discrimination was intentional and willful and implemented with reckless disregard for the rights of individuals based on their race, color, and national origin.

For purposes of its ECOA claim, the DOJ alleged:

• Lakeland’s policies and practices constitute (1) unlawful discrimination against applicants and prospective applicants, including by redlining majority-Black and Hispanic communities in the Newark Lending Area and engaging in acts and practices directed at prospective applicants that would discourage prospective applicants from applying for credit on the basis of race, color, and national origin, and (2) a pattern or practice of discrimination and discouragement and resistance to the full enjoyment of rights secured by the ECOA.
• Lakeland’s pattern or practice of discrimination was intentional and willful and implemented with reckless disregard for the rights of individuals based on their race, color, and national origin.

The DOJ’s claim that redlining violates the ECOA raises the issue of whether such a claim can be brought under the ECOA.  The CFPB has also taken the position that redlining violates both the FHA and ECOA.  However, the ECOA focuses on the treatment of applicants, and a redlining claim addresses individuals who are not applicants.  In alleging that Lakeland violated the ECOA because its policies and practices constitute engaging in acts and practices directed at prospective applicants that would discourage prospective applicants from applying for credit on the basis of race, color, and national origin, the DOJ is attempting to rely on Regulation B, the ECOA’s implementing regulation, to establish an ECOA violation.  Regulation B provides that a creditor shall not make any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application.  However, the ECOA itself does not set forth such a prohibition.  Additionally, ECOA lacks the language in the FHA that prohibits “discrimination against any person in making available” a residential real estate-related transaction.  Whether a redlining claim can be brought under the ECOA may well be an issue that will eventually come before the U.S. Supreme Court.

The actions that Lakeland must take under the proposed consent order include the following:

• Invest at least $12 million in a loan subsidy fund for residents of Black and Hispanic neighborhoods in the Newark area; $750,000 for advertising, outreach and consumer education; and $400,000 for development of community partnerships to provide services that increase access to residential mortgage credit.
• Open two new branches in majority-Black and Hispanic census tracts in the Newark Lending Area, including at least one in the city of Newark; assign at least four mortgage loan officers to solicit mortgage applications in majority-Black and Hispanic census tracts in the Newark Lending Area; and employ a full-time Community Development Officer to oversee the continued development of lending in majority-Black and Hispanic census tracts in the Newark Lending Area.
• Conduct using a third-party consultant a Community Credit Needs Assessment for majority-Black and Hispanic census tracts in the Newark Lending Area
• Conduct using a third-party trainer an annual fair lending training of all employees with substantive involvement in mortgage lending, marketing, or fair lending or CRA compliance, or who have management responsibility over such employees, senior management with fair lending and marketing oversight, and members of the Board of Directors.

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