On Monday, August 28, 2023, the Department of Justice (“DOJ”) announced a settlement with American Bank of Oklahoma based on alleged redlining violations of the Fair Housing Act (“FHA”) and the Equal Credit Opportunity Act (“ECOA”).  The DOJ alleged that the bank avoided providing mortgage services to the majority Black and Hispanic neighborhoods of the Tulsa, Oklahoma Metropolitan Statistical Area (“Tulsa MSA”) from 2017 through 2021.  The DOJ’s complaint specifically notes that the alleged redlined area “includes the historically Black neighborhoods in Tulsa that were the site of the 1921 Tulsa Race Massacre.”  The DOJ’s settlement order requires the bank to spend $950,000 on a loan subsidy program, $100,000 on community outreach and advertising, and $100,000 on community partnerships. 

 The matter arose out of a 2021 FDIC compliance examination.  The FDIC identified a pattern or practice of discrimination and referred the matter to the DOJ in January 2022, which opened an investigation into the bank in March 2022. 

 The DOJ’s complaint alleges the following facts to support a claim of redlining:

·      CRA Assessment Area.  The bank’s assessment area under the Community Reinvestment Act excluded all of the majority-Black and Hispanic census tracts in the Tulsa MSA.  The complaint noted that the excluded areas include “the neighborhoods destroyed during the 1921 Tulsa Race Massacre.” 

·      Brach Locations.  The bank’s two full-service branches and three loan production offices (“LPOs”) in Osage, Rogers, Tulsa, and Wagoner counties in the Tulsa MSA, which the complaint deems the “Tulsa Lending Area,” were only in majority-White areas. 

·      Loan Officers.  The bank assigned all of its loan officers (“LOs”) to its branches or LPOs, and did not assign a single LO to conduct outreach in majority-Black and Hispanic areas.  The bank did not employ or hire LOs with ties or relationships to majority-Black and Hispanic areas.  The bank did not incentivize its LOs to serve residents of majority-Black and Hispanic neighborhoods to compensate for its lack of offices in those areas.

·      Marketing Media Outlets.  The bank did not market, advertise, or take steps to generate loans from majority-Black and Hispanic neighborhoods.  The bank had weekly advertisements in local publications and billboards (the billboards were all in majority-White areas), but did not advertise in any publications that were intended for circulation within majority-Black and Hispanic areas.

·      White Models in Advertisements.  The bank’s advertisements “featured images of people, the images were of white-appearing loan officers and Bank employees.”  And the imagines on the bank’s website “were also of white-appearing individuals.”

·      Spanish-Language Outreach.  Despite the 11% Hispanic population in the Tulsa Lending Area, the bank did not circulate any marketing materials or advertisements in Spanish, had no website content in Spanish, and did not identify language abilities of any employees or direct potential customers to anyone who can speak Spanish.  The bank did not hire LOs with Spanish language skills to provide credit services to residents in some of these areas.

·      Community Engagement.  While the bank paid $270,000 during the time period for sponsorships in community events and school sporting events in the communities where its branches were located, the bank “did not sponsor any community events or school sporting events in majority-Black and Hispanic areas.”  The bank only sponsored “a modest financial literacy program throughout the region that began in 2021 and provided financial literacy curriculum to students at a small number of schools.” 

·      Fair Lending Reviews.  The bank did not engage in any fair lending assessments to identify redlining risk and did not have regular or systematic assessments regarding compliance with the FHA or ECOA.  The bank had no written policies, procedures, or guidelines to ensure compliance with fair lending laws.  The bank also took no action after the FDIC made recommendations in 2018 to manage and monitor for its fair lending risk.

·      HMDA Data.  From 2017 through 2021, 0.8% of the bank’s applications in the Tulsa Lending Area came from majority-Black and Hispanic census tracts, versus 4.2% for peer lenders, which was over 5 times the rate of the bank.  The percentages of originations from these areas were less than 0.6% for the bank, and 3.6% for the peer lenders, which was over 6 times the rate of the bank.  This disparity was statistically significant, and the bank, “had no legitimate, nondiscriminatory reason to draw so few” applications and originations from these areas. 

·      Emails.  The DOJ’s complaint cited five emails that the DOJ alleged “indicated racial and national origin animus.”  All but one of these emails appear to have been email “forwards” that employees forwarded to other employees of the bank.  The other email was by an employee and referred to a moderate-income area as the edge of the “ghetto.”

This recent settlement is part of the DOJ’s Combatting Redlining Initiative, which we’ve written about here.  It shows that the DOJ and other regulators are still on the war path and enforcing their “modern day” redlining theory.  Both banks and non-banks may find themselves in the crosshairs of these agencies.  As you can see above, the regulators will scrutinize many aspects of an organization’s lending and marketing, including HMDA data, the appearance of people in its advertisements, and multiple years of emails.  Lenders should consider conducting a fair lending review with experienced counsel to identify their redlining risks and deal with them before the government knocks on their door. As our readers may know, our law firm represented Townstone Financial throughout the CFPB’s redlining investigation and lawsuit against the company, and we (working with the Pacific Legal Foundation) were successful in having the case dismissed in federal district court.  The CFPB is appealing the district court’s decision in the 7th Circuit, and we have continued assisting Townstone with its defense.  We understand these issues and can assist with redlining reviews, examinations, and investigations.

You can find the DOJ’s press release here.

Feel free to email me at rich@garrishorn.com if your organization is facing a redlining examination or investigation, or if you’d like to discuss the issues in this blog post.