In the last three weeks, the U.S. Department of Justice (DOJ) reached two more settlements with lenders under its Combatting Redlining Initiative, which began in October 2021. On September 27, the DOJ announced that Washington Trust Company agreed to pay $9 million to resolve allegations that it engaged in redlining majority-Black and Hispanic neighborhoods in Rhode Island. On October 19, the DOJ announced a separate $9 million agreement with Ameris Bank to resolve allegations that it engaged in redlining predominately Black and Hispanic neighborhoods in Jacksonville, Florida. And, according to Attorney General Merrick Garland, this is just the beginning. “[T]he Justice Department currently has over two dozen active investigations into redlining, spanning neighborhoods across the country.”

The complaints’ allegations in the two cases are similar. The DOJ alleged that, from 2016 through 2021, Washington Trust never opened a branch in a majority-Black and Hispanic neighborhood despite expansion efforts across the state of Rhode Island. The complaint further alleged that, over the same six-year period, other banks received nearly four times as many loan applications each year in majority-Black and Hispanic neighborhoods in Rhode Island. The complaint also alleged that, even when Washington Trust generated loan applications from majority-Black and Hispanic areas, the applicants themselves were disproportionately white.

During that same period, the DOJ alleged Ameris’ home mortgage lending was focused disproportionately on white areas of Jacksonville while other lenders generated applications in majority-Black and Hispanic neighborhoods at three times the rate of Ameris. Although Ameris operates 18 branches in Jacksonville, Ameris never operated a branch in a majority-Black and Hispanic neighborhood in the city. The neighborhoods that the DOJ alleges Ameris redlined in Jacksonville are some of the same neighborhoods that were first redlined by federal Home Ownership Loan Corporation maps in the 1930s.

The proposed consent orders, if entered by the court, would require the banks to, among other things:

• Invest in a loan subsidy fund to increase access for home mortgage loans and lines of credit for residents of majority-Black and Hispanic neighborhoods.
• Invest in advertising, community outreach, and consumer financial education programs focused on residents of majority-Black and Hispanic neighborhoods.
• Invest in developing community partnerships to provide services that increase residential mortgage credit access for residents of those neighborhoods.
• Open new branches in majority-Black and Hispanic neighborhoods.
• Employ a full-time director of community lending to oversee the continued development of lending.

Our Take:

Since 2021, the DOJ has entered into 10 redlining settlements with banks and mortgage lenders and secured over $107 million in consumer relief for alleged redlining practices. With over 24 active redlining investigations currently pending, the Combating Redlining Initiative remains unprecedented in terms of a federal government crack-down on unlawful redlining practices.

Mortgage lenders should ensure that they are well-prepared for a redlining examination, which is most often the source of redlining referrals by the CFPB and federal banking agencies to the DOJ. To avoid a referral, lenders should also ensure that fair lending and redlining analyses (including root cause analysis) are routinely conducted, and that marketing, outreach efforts, and mortgage lending programs are adjusted, if warranted, based on those results.