LunaKate/iStock via Getty Images
As the U.S. Department of Justice cracks down against redlining, banks are working to ensure there is no discrimination in their lending operations, according to S&P’s (NYSE:SPGI) market analytics unit.
Lenders have been stepping up efforts to ensure their operations are in line with government regulation, attorneys and banking advisers told S&P Global Market Intelligence.
Redlining refers to the illegal practice of not providing services to individuals based on race or ethnicity.
The DoJ began its Combating Redlining Initiative in 2021. “The DoJ has a large number of redlining cases under investigation now,” Chris Willis, co-leader of the financial services industry group at Troutman Pepper, told S&P. “It is important for lenders to get a handle on their risk level as rapidly as possible, before they become the subject of a regulatory examination.”
Many banks have begun marketing in minority communities, engaging with communities and offering varied products, according to Jeff Naimon, a partner who works with banks and nonbanks at law firm Orrick.
The proportion of loans in minority communities compared to total loans, branch locations, number of minority loan officers, as well as outreach and advertising in communities of color are all under the DoJ’s scanner. Emails and other communications within banks are also being reviewed.
The DoJ is also scrutinizing nonbanking entities as they have gained mortgage market share over the years, according to K&L Gates partner Olivia Kelman.
Additionally, regulatory scrutiny is expected from multiple agencies. “I would expect coordination among DoJ, the Consumer Financial Protection Bureau, prudential regulators and state attorneys general is going to continue,” Kelman said. “That just broadens the firepower that could accompany these claims.”
Settlements so far
- The first settlement to be announced was with Trustmark National Bank (TRMK) in October 2021, which had to pay ~$9M.
- In July 2022, Trident Mortgage, the first nonbank company to settle a redlining case, agreed to invest over $20M in lending opportuinities for minorities as well as a $4M fine.
- Last month, the agency announced a $31M settlement – the largest of its kind – with RBC (RY) unit City National Bank to resolve allegations of lending discrimination.
Dear readers: We recognize that politics often intersects with the financial news of the day, so we invite you to click here to join the separate political discussion.
