The term “redlining” may evoke images of 1930s bankers and real estate men drawing segregated maps in smoke-filled back rooms, but a growing log of settlements announced by the Civil Rights Division of the U.S. Department of Justice (DOJ) suggests that redlining is a persistent and pernicious practice. Occurring in both the past and present, redlining deprives neighborhoods of color access to capital, generational wealth and the ability to achieve the American Dream of homeownership.
According to the DOJ, “Redlining occurs when lenders discourage loan applications, deny equal access to home loans and other credit services or avoid providing home loans and other credit services to neighborhoods based on the race, color or national origin of the residents of those neighborhoods.” Today, such practices are illegal under the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA).
In 2021, the DOJ’s Civil Rights Division launched its Combating Redlining Initiative. There have been 12 settlements, and the DOJ has secured over $122 million to address lending discrimination since the initiative began. The DOJ claimed in its filings that lenders avoided and neglected to offer mortgage services to majority-Black and Hispanic neighborhoods.
A few complaints noted that “even when loan applications were generated from majority-Black and Hispanic areas, the applicants themselves were disproportionately white.” Other len-ders went so far as to exclude “all majority-Black and Hispanic census tracts” from their self-designated “assessment area(s),” circumventing their obligations under the Community Reinvestment Act (CRA).
The majority of the $122 million is allocated for loan subsidy funds, supporting over 7,000 borrowers in the impacted communities. The settlements also require the establishment of new full-service branches in majority-Black and Hispanic neighborhoods, assigning dedicated loan officers to serve those communities, and hiring community lending officers to oversee compliance with the consent orders. Each settlement also includes dedicated funds for advertising, outreach, consumer education and community partnerships.
The lenders implicated in these settlements have financial footprints far beyond the 12 named communities, and the broader impact could benefit borrowers nationwide.
Lenders should consider assessing community credit needs and review loan products offered by competitors. They could also develop special purpose credit programs that target historically marginalized buyers and fund loan subsidies to address the needs of borrowers in their communities.
Additionally, lenders should evaluate their physical footprint in the communities they serve and take action to compensate for any gaps by opening or acquiring full-service branches in underserved areas.
Community partnerships and intentional advertising, outreach and consumer education are critical investments to demonstrate commitment to equal credit access throughout the community.
Commenting on a recent settlement, Attorney General Merrick B. Garland said, “We recognize how much work we have left to do, and we are not letting up in our efforts to combat discrimination in lending wherever it occurs.”
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