The Consumer Financial Protection Bureau (“CFPB”), the Department of Justice (“DOJ”), and the Office of the Comptroller of the Currency (“OCC”) today, October 22, 2021, announced a redlining settlement with Trustmark National Bank, based in Jackson, Mississippi.  The settlement resolves allegations by the agencies that Trustmark engaged in the discouragement of prospective applicants in majority Black and Hispanic neighborhoods in the Memphis, Tennessee metropolitan statistical area from applying for mortgage loans, in violation of the Fair Housing Act (“FHA”) and the Equal Credit Opportunity Act (“ECOA”).

The complaint by the CFPB and DOJ alleges in support of the claim of intentional discrimination:

1. Bank Branch Locations. The bank operated only 4 of its 25 branches in majority Black and Hispanic areas, with the rest in majority white areas.  And while 3 of the bank’s branches located in majority-Black and Hispanic neighborhoods were full-service branches, “two were established or acquired at a time when the surrounding neighborhoods were majority-white but are now located in majority Black and Hispanic neighborhoods, due to population-shifting demographics rather than actions by the Bank to serve Black and Hispanic communities.”  In addition, only 1 of the bank’s 7 limited-service branches was located in a majority-Black and Hispanic neighborhood, and the bank closed that limited-service branch during the relevant time period.

2. Loan Officer Locations. The bank assigned all of its mortgage loan officers to its branches in majority-white areas.  It did not assign a single loan officer to a branch in a majority-Black or Hispanic area.  Thus, walk-in services were not available in majority-Black or Hispanic areas. 

3. Marketing. The bank did not monitor or document where its loan officers developed referral sources or distributed marketing or outreach materials to ensure distribution occurred in all areas.  In addition, the bank’s marketing strategy in Memphis was focused on developing commercial business, with an emphasis on “brand messaging,” or generic advertising emphasizing the bank’s “brand” as a reliable community institution.  The majority of advertisements were placed in business-focused publications, including Chamber of Commerce publications distributed primarily in majority-white neighborhoods. The bank’s advertisements did not regularly appear in Black or Hispanic-targeted media.

4. HMDA Data Peer Analysis.  The bank received 10% of its mortgage applications from majority-Black and Hispanic census tracts, while its peers generated almost 24%, almost 2.5 times the bank’s amount, which was statistically significant.  The bank originated 8.3% of its mortgage loan to residents of majority-Black and Hispanic census tracts, while its peers made about 19%, more than double the rate of the bank, which was statistically significant.

 The over $9 million settlement requires the bank to:

1. Establish an almost $4 million loan subsidy program for consumers applying for loans in majority-Black and Hispanic census tracts.  The subsidy can be used for down payment assistance, closing cost assistance, payment of mortgage insurance premiums, and other approved measures.

2. Spend $400,000 over the term of the Consent Order on services to residents of majority-Black and Hispanic census tracts in the Memphis lending area that increase access to residential mortgage credit (and partner with non-profit or government organizations that provide the services).

3. Open a new loan production office in a majority-Black and Hispanic neighborhood.

4. Spend $200,000 in targeted advertising and outreach per year to generate applications for mortgage loans in majority-Black and Hispanic neighborhoods.

5. Pay a $4 million civil money penalty to the OCC.

6. Pay a $1 million civil money penalty to the CFPB (the total cited in the settlement was $5 million, but credits the $4 million penalty to the OCC). 

Interestingly, most of these types of “marketing discrimination” cases against banks cite the bank’s own drawing of its assessment area under the Community Reinvestment Act (“CRA”), which the government alleges supports a claim that the bank intentionally excluded majority-minority neighborhoods.  But this complaint does not cite the bank’s CRA assessment area.  Instead, the complaint noted that the bank’s assessment area “contains 90 percent of the majority-Black and Hispanic census tracts in the entire Memphis MSA.” 

It appears that the government is continuing its approach to marketing discrimination claims that it began in the CFPB’s Townstone Financial, Inc. lawsuit (note that our firm represents Townstone Financial, Inc.), divorcing the legal theory from the government’s typical reliance on the CRA assessment area.  It appears that the government’s view of marketing discrimination is that it can be alleged solely based on a HMDA peer analysis, and a couple of other business decisions, like a lender’s branch office locations and marketing practices (including marketing solely to the general public).  We’ve written about the Townstone Financial lawsuit here, here, and here.

In related news, the DOJ also today announced a new initiative called “Combatting Redlining Initiative.”  The initiative “represents the department’s most aggressive and coordinated enforcement effort to address redlining, which is prohibited by the Fair Housing Act and the Equal Credit Opportunity Act.”  The DOJ stated in its press release that it will expand its focus to non-bank companies.  Specifically, the DOJ stated that the initiative, “will expand the department’s analyses of potential redlining to both depository and non-depository institutions,” and noted that non-banks make the majority of mortgages in this country.  In addition, Attorney General Garland stated that, “we are committing ourselves to addressing modern-day redlining by making far more robust use of our fair lending authorities. We will spare no resource to ensure that federal fair lending laws are vigorously enforced and that financial institutions provide equal opportunity for every American to obtain credit.” The DOJ will also “strengthen” its “partnership” with other financial regulatory agencies, like the CFPB and the federal banking agencies, on fair lending investigations and referrals.

You can find the agency press releases here:

DOJ: https://www.justice.gov/opa/pr/justice-department-announces-new-initiative-combat-redlining

CFPB: https://www.consumerfinance.gov/about-us/newsroom/cfpb-doj-and-occ-take-action-against-trustmark-national-bank-for-deliberate-discrimination-against-black-and-hispanic-families/

OCC: https://www.occ.treas.gov/news-issuances/news-releases/2021/nr-occ-2021-109.html

Redlining (in the form of these marketing discrimination claims) will continue to be a focus of the CFPB, DOJ, and other agencies in this current administration and climate.  It would be beneficial at this time for all depository and non-depository mortgage lenders to consider the heightened fair lending risk under this current administration and CFPB leadership. 

Our firm has been at the forefront of these issues.  We have worked and are currently working on fair lending investigations and enforcement actions, including the Townstone Financial, Inc. case (as noted above).  We also conducted a webinar about these types of cases, and you can receive a recording by emailing us. Please contact Rich at rich@garrishorn.com to discuss the issues in this settlement or fair lending generally.