The Department of Justice (DOJ) announced that Patriot Bank (Patriot or Bank) has agreed to pay $1.9 million to resolve allegations that the Bank engaged in a pattern or practice of redlining majority-Black and Hispanic neighborhoods in Memphis, Tennessee from 2015 to at least 2020, in violation of the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA).

According to the complaint, Patriot’s self-designated assessment area consists of three contiguous counties in southwest Tennessee (Fayette, Shelby, and Tipton). Shelby County, where the City of Memphis is located, contains 97.8% of the majority-Black and Hispanic census tracts and 95.9% of the Black and Hispanic population in Patriot’s assessment area.

The DOJ alleged that Patriot engaged in the following discriminatory practices, among others:

• Locating nearly all branches, loan production offices, and mortgage officers in majority-white neighborhoods and avoiding having branches, offices or loan officers serve majority-Black and Hispanic areas. Although 57.5% of the census tracts in the Bank’s assessment area are majority-Black and Hispanic, only two of Patriot’s six branches were located in a majority-Black and Hispanic neighborhood.
• Adding Shelby County to its assessment area in 2012, but failing to open another loan production office until 2017, followed by a branch in 2019, both of which were located in majority-white areas.
• Concentrating outreach and marketing to majority-white neighborhoods.
• Advertising on social media that the Bank serves “markets of North and East Shelby County, Tipton County, and West Fayette County” although western Shelby County (where the city of Memphis is located) is also within the assessment area.
• Assigning all its loan officers to branches and production offices in majority-white areas, which provided those branches and offices with walk-in mortgage-lending services. These services were not available at either of the two branches located in a majority-Black and Hispanic neighborhoods.
• Marketing on radio stations, billboards, and other mediums in a manner that targets majority-white areas, and avoiding marketing in majority-Black and Hispanic neighborhoods.
• Receiving only 8.4% of the Bank’s mortgage applications from majority-Black and Hispanic areas, while the Bank’s peers generated 29.6% of their applications from these same majority-Black and Hispanic neighborhoods.
• Making only 7.6% of the Bank’s mortgage loans in majority-Black and Hispanic areas, while the Bank’s peers made 22.6% of their mortgage loans in the same majority-Black and Hispanic neighborhoods.

The consent order includes common remedies required by the DOJ to settle redlining allegations. Specifically, Patriot has agreed to:

• Submit a report on the Bank’s efforts to assess community credit needs, and continue to monitor and assess the lending opportunities in the majority-Black and Hispanic census tracts in the Memphis lending area.
• Maintain the fair lending compliance management program, which was implemented based on a consultant’s 2021 assessment.
• Offer fair lending training to staff and officers, and implement a system for each individual to acknowledge that they completed the training and had opportunity to ask questions.
• Allow the Director of Community Lending to monitor the Bank’s compliance with the consent order, and provide reports on at least a quarterly basis to the Bank’s Board of Directors and Chief Executive Officer regarding the Bank’s compliance.
• Maintain at least one full-time loan officer in the Bank’s recently opened full-service branch in a majority-Black and Hispanic census tract in the City of Memphis, and maintain at least one full-time mortgage loan officer responsible for the two branches in a majority-Black and Hispanic census tract in the City of Covington.
• Invest a minimum of $1.3 million in a loan subsidy fund to increase credit for home mortgage loans made in majority-Black and Hispanic census tracts in its Memphis lending area.
• Spend a minimum of $125,000 per year (at least $375,000 over the term of this consent order) on advertising, outreach, consumer financial education, and counseling initiatives targeted to majority-Black and Hispanic census tracts in the Memphis lending area.

Based on recent redlining consent orders, it appears both the bank’s asset size and lending volume are factors that contribute to the amount of the loan subsidy fund and other monetary elements provided for in the consent orders, with loan volume appearing to be the more significant factor. Compared to other redlining settlements, Patriot’s required monetary commitments is relatively low. It appears that after the DOJ notified the Bank of the investigation, the Bank initiated efforts to address the fair lending concerns, such as completing a community credit needs assessment, receiving a consultant’s report on the effectiveness of its fair lending compliance program, opening a full-service branch in a majority-Black and Hispanic census tract, and creating a special purpose credit program for home purchase and home improvement loans in majority-Black and Hispanic census tracts. As a result, the consent order provides for the Bank continuing various remedial measures that it had implemented, rather than implementing the measures. This may have contributed to the relatively low monetary commitments. Significantly, the term of the consent order is only for three years instead of the typical five years.

As previously reported, in the case CFPB v. Townstone Financial, the U.S. Court of Appeals for the Seventh Circuit is currently considering whether the ECOA applies to prospective applicants, thus creating uncertainty as to whether redlining claims may be brought under the statute. Despite this uncertainty, the DOJ asserted in the complaint against the Bank that redlining is one type of discrimination prohibited by the ECOA.

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