In the lead-up to the change in administration, the CFPB and DOJ have settled redlining claims against non-depository mortgage companies.  On January 17, 2025, the CFPB settled redlining claims against a non-depository mortgage company, Draper & Kramer Mortgage Corporation, based on activity from 2019 to 2021 in the Chicago-Naperville-Elgin and Boston-Cambridge-Newton metropolitan statistical areas (Chicago and Boston MSAs, respectively).  The CFPB’s settlement includes a $1.5 million civil money penalty and a prohibition against the company from engaging in any residential mortgage lending activities for five years. 

The week prior, on January 7, 2025, the Department of Justice (DOJ) settled redlining claims against a non-depository mortgage company, The Mortgage Firm, Inc., based on activity from 2016 to 2021 in the Miami-Fort Lauderdale-Pompano Beach Metropolitan Statistical Area (Miami MSA).  The DOJ’s action resulted from a CFPB referral to the DOJ in 2022.  The DOJ’s settlement includes a $1.75 million loan subsidy fund that the company is required to offer to qualified applicants for down payment assistance, closing cost assistance, and other similar purposes.

Both cases involve the typical allegations of modern-day redlining lawsuits, which I’ll briefly summarize below.  I’ll also provide some thoughts as to why, despite the change in administration, redlining should still be a focus of lenders during the next administration.

I.  CFPB Settlement

The CFPB’s complaint in this case is typical of past modern-day redlining actions, including a Home Mortgage Disclosure Act (HMDA) data peer analysis that shows statistically significant disparities in the percentage of applications and originations from majority-minority census tracts between the company and peer lenders.  Essentially, the CFPB alleged that the mortgage company’s peer lenders generated applications from majority-Black and Hispanic areas (where a majority of residents identity as either Black or Hispanic) at over 2.5 times the rate and over 3 times the rate of the company in the Chicago and Boston MSAs, respectively.  The CFPB alleged certain other statistically significant disparities as well.  In addition to the HMDA peer analysis, the CFPB made the allegations described below regarding the company’s marketing.

A. Office Locations

The CFPB alleged that the company’s office locations (13 in the Chicago MSA and six in the Boston MSA) were “based on where its loan officers lived,” and that none of the company’s loan officers in the Chicago and Boston MSAs lived in majority-Black and Hispanic neighborhoods during the years in question.  The CFPB alleged that the company did not try to compensate for its lack of offices in majority-Black and Hispanic areas, such as assigning loan officers to solicit applications in, or incentivizing lending in these areas. 

B. Loan Officer Demographics

The CFPB also went back to another typical redlining card: the race and ethnicity of the loan officer staff.  The CFPB alleged that the “vast majority” of the company’s loan officers in both MSAs were white.  The CFPB stated that of the company’s 89 loan officers in the Chicago MSA, 76 of them were white, eight were Hispanic, and none were Black.  And in the Boston MSA, the CFPB stated that of the company’s 29 loan officers, 27 were white, and none were Black or Hispanic.   The CFPB alleged that the company relied almost entirely on its loan officers to develop referral sources, conduct outreach to potential customers, and conduct other marketing.  The CFPB also stated that the company’s marketing displayed its loan officers, all of whom appeared to be white.  The CFPB also alleged that the company did not make efforts to hire loan officers that serve or had ties to referral sources in majority-Black and Hispanic areas. 

C. Marketing

The CFPB alleged the following facts about the company’s marketing:

• The company’s direct mail was concentrated in majority-white areas. Only 9.31% and 4.68% of the company’s direct mail in the Chicago and Boston MSAs, respectively, were to majority-Black and Hispanic areas.

• “Virtually all” of the models in its newspaper and magazine advertisements “appeared to be white.”

• The company did not target magazines or newspapers outside of majority white communities until April 2021, and the advertisements were unlike those in majority-white areas as they only contained text.

• The company provided an annual marketing budget to its loan officers, but did not monitor where the loan officers marketed.

• The most frequently used pre-approved advertisements only contained images of “white-appearing” loan officers, and other models were almost all “white-appearing.”

• The company advertised at open houses in the Chicago MSA, almost all of which were in majority-white areas, and almost all of the flyers included images of “white-appearing loan officers and real estate agents.”

• The company marketed to past customers using a customer relationship management service, and over 91% and 96% of those past customers marketed to using this service were outside of majority-Black and Hispanic areas in the Chicago and Boston MSAs, respectively.

• The company did not circulate any marketing materials in Spanish, or have any Spanish-language marketing until May 2021, and only provided those materials to two loan officers in the Chicago MSA who spoke Spanish. This was only the second time LEP issues were used by the government in a redlining lawsuit against a non-bank mortgage company, the DOJ’s settlement discussed in this blog post being the first.

D. Emails

The CFPB also alleged that loan officers sent and received emails “containing racist content or otherwise reflecting discriminatory animus.”  The CFPB likely reviewed thousands of emails, but cited only four emails from three loan officers: two emails from one loan officer, and two emails from two other loan officers. 

E. Failure to Address Redlining Risks and Conclusion

The CFPB notified the company in 2019 in a Supervisory Letter of its redlining risks, but the CFPB stated that the company did not adequately address the deficiencies.  The company did not perform any internal redlining analyses, or adequately train its employees with respect to redlining.  The company allegedly did not analyze its HMDA data for redlining risk until 2022.  The CFPB concluded in the complaint that the company discriminated and discouraged applicants and prospective applicants in the majority-Black and Hispanic census tracts in the Chicago and Boston MSAs.  The CFPB alleged that the company’s “discriminatory practices…were intentional and had the effect of discriminating on the basis of race, color, or national origin.”   

II.  DOJ Settlement

The DOJ’s complaint generally contained similar facts as the CFPB’s, as both were typical of the modern-day redlining theory.  In addition to the same type of HMDA peer analysis, the DOJ made allegations regarding the company’s marketing, as described below.

A. Office Locations

The DOJ alleged that, of the company’s nine offices in the Miami MSA that were open during most of the time period in question, eight were located in majority-white neighborhoods.  And the one office that was in a majority-Black and Hispanic neighborhood was surrounded by majority-white neighborhoods.  Interestingly, of the five offices open only briefly during the time period, three were in majority-minority neighborhoods: one was in a majority-Black and Hispanic neighborhood and two were in high-Black and Hispanic neighborhoods.  But the DOJ alleged that “these offices were only open for a few months and received only a small number of mortgage applications” (seems like it would be basic business sense to close an office that only generated a small number of applications, but that’s not how fair lending works).  The DOJ alleged that “by concentrating nearly all its offices in majority-white areas,” the company discriminated against, and discouraged, residents of majority-Black and Hispanic neighborhoods. 

The DOJ also alleged that the company assigned all of its loan officers to its office locations, and “did not direct, train, or incentivize its loan officers or other staff to take steps to compensate for its lack of a physical presence in majority- or high-Black and Hispanic areas or to otherwise serve the credit needs of these communities.”  The DOJ noted that the company “established new offices and hired new loan officers based on their preexisting and potential books of business,” and did not make efforts to hire loan officers serving these majority-minority neighborhoods.

B. Loan Officer Demographics

The DOJ, like the CFPB, used the race and ethnicity of the loan officer staff in its complaint.  The DOJ alleged that none of the company’s 46 loan officers in the Miami MSA were Black, despite the MSA’s 20% Black population.  The DOJ also alleged that, although company did have 15 Hispanic loan officers in the MSA, only four were employed for at least one year, despite the MSA’s 45% Hispanic population.  The DOJ also took issue with the company advertising its loan officers on its website, because they were mostly non-Hispanic white.  The DOJ said that “the advertising of mostly white loan officers on [the website]…discriminated against” and discouraged residents of majority-Black and Hispanic neighborhoods. 

C. Marketing

Regarding marketing efforts, the DOJ alleged that the company relied on referral networks that were centered in majority-white census tracts. The DOJ said that the company did not make efforts to develop referral networks in these majority-minority neighborhoods, and did not monitor where its loan officers distributed marketing materials.  In addition, the DOJ alleged that the company’s website featured stock images of people who only appeared to be non-Hispanic white.

D. Lack of Spanish Language Access

What is also noteworthy, in light of the government’s recent focus on limited English proficiency (LEP), is that the DOJ called out that the company did not translate its website into Spanish or indicate on its website which offices could assist Spanish-speaking clients. The DOJ also alleged that the company knew its referral partners would refer Spanish-speaking customers elsewhere, but failed to take steps to solicit these referrals.  The DOJ has focused on LEP issues in other redlining settlements, so this is not an entirely new issue.  But this was the first time this issue was used by the government in a non-bank redlining lawsuit.

E. Emails

The DOJ also cited emails between company employees that contained allegedly derogatory terms, such as “ghetto” and “hood.”  The DOJ likely reviewed thousands of emails from the company, and cited only five emails from three loan officers.  The DOJ also took issue with the fact that the company only warned the loan officers about the emails and did not discipline them.

F. Fair Lending Monitoring and Training

The DOJ alleged that the company did not monitor for fair lending risk until 2020 and only began addressing fair lending risk after the CFPB informed the company that it found evidence of redlining.  The company also allegedly did not enforce any fair lending training requirements.

III. Another Recent DOJ Redlining Settlement Shows Even Credit Unions Are Not Immune

There was another recent DOJ settlement worth noting, because it was against a federal credit union, rather than against a bank.  On October 10, 2024, the DOJ announced a settlement of redlining claims against Citadel Federal Credit Union.  The settlement includes a $6 million loan subsidy program.  It marked a historic development in the DOJ’s Combating Redlining Initiative as it was the first redlining settlement involving a credit union.  The DOJ alleged that the credit union avoided offering home loans or providing mortgage services to majority-Black and Hispanic neighborhoods in the Philadelphia area from 2017 to 2021.  While Citadel is a credit union and therefore has a limited customer base subject to its charter, it is a community credit union that generally allows all people in Philadelphia and certain surrounding counties to join. 

The DOJ’s allegations involved similar facts as past redlining enforcement actions, including a HMDA peer analysis, only one branch outside of majority-white neighborhoods, and a failure to market to minority areas or in Spanish.  The DOJ also pointed to an internal report that warned Citadel of its potential redlining risks, which Citadel allegedly failed to address.  

This settlement shows that the government can and will use its modern-day redlining theory against any type of institution, whether a bank, credit union, or non-depository lender.

IV. Thoughts on Why Lenders Should Remain Focused on Redlining Risk

Aside from these actions being against non-banks, these are fairly typical redlining settlements for the DOJ and CFPB.  It is somewhat surprising that the companies did settle, rather than choose to defend themselves until the Trump administration.

Considering the change in administration, you may be wondering why you should pay attention to these settlements.  A lot of people think the Trump administration will shut down fair lending enforcement.  But that’s not what happened during the last Trump administration.  Recall that during the last Trump administration, the CFPB under former Director Kraninger filed the historic first federal redlining lawsuit against a non-bank mortgage company: Townstone Financial (which our law firm helped defend).  That Trump-era lawsuit not only aggressively extended redlining theory to non-bank mortgage companies, but also trampled all over the First Amendment rights of the company and its owner to engage in political speech and social commentary on AM talk radio.  Not only that, many of the CFPB’s redlining investigations that began under former Director Cordray involving non-bank mortgage companies were continued under both former Acting Director Mulvaney and former Firector Kraninger.  Many thought at that time that such investigations and cases would not move forward under a Republican administration.  For these reasons, it would be prudent to not take for granted that fair lending (or aggressive enforcement theories in general) will simply disappear under the next CFPB leadership. 

In addition, redlining can still be enforced at the state level and by private litigants (such as consumer advocacy groups).  The DOJ and CFPB’s long line of redlining settlements has given state agencies the appearance of a precedent that this theory is valid (and unfortunately, the 7th Circuit U.S. Court of Appeals made a terrible decision in the Townstone Financial litigation, which I spoke about on our firm’s podcast).  The only way this made-up redlining theory will go away is if it’s challenged in court. But as we’ve seen since this theory began in the 1990s, nearly all lenders have chosen to settle rather than fight. State agencies and attorneys general will likely take advantage of that and begin enforcing this redlining theory if they perceive even the slightest slowdown at the CFPB. And we’ve seen that states have already begun fair lending enforcement.  For example, in October 2024, the New Jersey Attorney General issued a report accusing an FDIC-shuttered bank, Republic First Bank, of redlining against Black, Hispanic, and Asian communities in New Jersey in violation of New Jersey’s anti-discrimination law.  Like in federal claims of redlining, the New Jersey Attorney General used HMDA peer analysis and office locations, but also looked at other factors not typically found in federal redlining claims, such as: a higher frequency of underwriting exceptions for jumbo loans (which were predominantly made to white borrowers) compared to conventional loans; and steering of minority and low-income borrowers to higher-cost loan products (such as FHA loans).  The New Jersey Attorney General filed a claim with the FDIC as receiver seeking recovery.  And recall that the states of Delaware, New Jersey, and Pennsylvania were also involved in the CFPB and DOJ’s Trident Mortgage enforcement action. 

Further, recall that the Equal Credit Opportunity Act’s (ECOA) statute of limitations is five years (and other statutes of limitations under federal and state law may be long enough for claims as well). This means that activity during the next four years could become the subject of an enforcement action if there is Democrat administration in four years.  And finally, the reputational risk from merely a claim of discrimination by a government agency or private litigant could be significant.

For these reasons, all lenders, including banks, credit unions, and non-depository mortgage companies, may find it prudent to remain focused on and monitor for redlining risk even during the next administration.  And as I’ve said before, it may be prudent to use outside counsel for such analyses because of attorney-client privilege.

Please email me at rich@garrishorn.com if you would like to discuss any of the issues in this blog post.