On December 28, the US Department of Justice (DOJ) issued a press release announcing that it entered into a consent order with two Ohio-based banks to resolve allegations of lending discrimination. The DOJ complaint alleged that Union Savings Bank and Guardian Savings Bank both engaged in a pattern or practice of “unlawful redlining by structuring its business so as to avoid the credit needs of majority black neighborhoods in its residential mortgage lending.”“Redlining” is the discriminatory practice by financial institutions of denying or avoiding providing credit services to consumers based upon the racial demographics of certain neighborhoods. The Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA) prohibit creditors from engaging in discriminatory lending in connection with credit.
In March 2015, the DOJ launched an investigation into whether Union had engaged in unlawful redlining. The DOJ alleged that, from at least 2010 through 2014, Union and Guardian discouraged applicants in majority-black neighborhoods in Cincinnati, Dayton, Columbus, and Indianapolis, from applying for credit.
According to the complaint, the banks discouraged consumers from applying for credit by engaging in the following practices:
- locating their branches to avoid serving majority-black neighborhoods
- instructing and incentivizing employees to focus on predominantly white neighborhoods and avoid majority-black neighborhoods
- failing to effectively market mortgage product offerings to minority neighborhoods
- knowingly failing to address substantial disparities in their lending.
Terms of the Settlement
Both banks are headquartered in Cincinnati, Ohio and are under common ownership and management. As part of the consent order, Union and Guardian will open loan offices to service the credit needs of residents in minority neighborhoods. Together, the banks will contribute $7 million to a loan subsidy fund designed to increase the amount of credit the two banks will extend to residents and small businesses operating in minority neighborhoods. The banks also agreed to invest $2 million in advertising, outreach and financial education activities. Finally, the settlement also requires that both banks develop and implement internal controls and compliance monitoring programs to ensure future compliance with fair lending requirements.
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