DOJ Rings in 2017 with Redlining Actions Against Community Banks
The Department of Justice welcomed 2017 with Redlining actions directed toward three banks. In this post, we will briefly discuss those recent actions, and share a few simple tips for analyzing your Redlining risk.
For the past 18 months, Redlining has ranked near the top of the list of regulatory priorities. Based on recent news, Redlining is poised to remain there through 2017.
On the cusp of the new year, the Department of Justice announced a $9M Redlining settlement with two Ohio banks. The DOJ alleged that Union Savings Bank and Guardian Savings Bank, which share common ownership, had "policies and practices had the effect of denying or discouraging an equal opportunity to the residents of majority African-American census tracts in the Cincinnati, Columbus, Dayton and Indianapolis [metro areas] to obtain residential home loans on account of the racial composition of those tracts," according to the consent order.
As a result of the settlement, the banks have agreed to:
- Create a $7M loan subsidy fund designed to increase the amount of credit extended to majority African-American census tracts, and
- Spend $2M on outreach, advertising, community partnerships and financial education.
The settlement also includes requirements that the banks improve their policies and procedures to prevent Redlining issues in the future.
Louis Beck, chairman of both banks, said in an emailed statement to National Mortgage News that they "have a decades-long history of serving the needs of our diverse communities. While we strongly disagree with the government's assessment of our activity, we entered into a cooperative agreement that creates even more opportunities to improve the financial futures of individuals, families and our communities. We look forward to creating additional initiatives for accessible and affordable lending and to the ongoing collaboration with our employees, customers and community partners."
These two banks weren't the only ones to disagree with the DOJ about Redlining allegations. Another bank that strongly disagreed with the DOJ's assessment of their activity, KleinBank, made waves in January by saying that they will take the Redlining case to court. KleinBank has passed multiple Fair Lending evaluations of its performance in the past.
“We will not admit to wrongdoing when we have done nothing wrong,” said Doug Hile, KleinBank’s president and chief executive, in an email interview with the Minneaplis StarTribune.
“At the end of the day, we’re confident that a fair review of our actual practices and procedures will vindicate us...We helped the dentist set up his practice or get the grocer’s business going. Our job is to participate in our communities and build a better quality of life.”
4 Tactics to Analyze Redlining Risk
If nothing else, these recent actions prove that the regulators are serious about prioritizing Redlining. All lenders should be aware of their Redlining risk exposure. Here are just a handful of the actions a financial institution can take to evaluate Redlining risk:
- Geocode your lending and deposit activity in your market by census tract to visualize performance in majority-minority and LMI census tracts.
- Comparing your lending activities to your peers' lending.
- Reviewing your Assessment Area to make sure that it isn't shaped like a croissant or a donut.
- Evaluate your marketing efforts to make sure it covers your entire REMA (Reasonably Expected Market Area).
[Free eBrief: 3 Simple Steps to Understanding Your Redlining Risk]
TRUPOINT Viewpoint: As you can tell, data analysis is central to evaluating your Redlining risk.
We developed Redlining Analytics to help financial institutions quickly and easily identify Redlining risk. It's an easy-to-use cloud-based data analytics software featuring maps, tables, charts and graphs of your performance. Export the analysis into a report with the click of a button and share it with your Board, CEO, senior management and regulators. Every subscription to TRUPOINT Analytics comes with guided reviews with a compliance analyst, so that you can ask questions and gain insight about your risk exposure.
If you want to see how it works, what we will analyze, and how you will get the results of the analysis, fill out the form below to get a sample Redlining Analytics report preview kit.
- DOJ Redlining Settlement Press Release
- DOJ Settles Redlining Case with Ohio Banks for $9M (National Mortgage News)
- Redlining Suit Tests Limits of Bias Laws (Minneapolis StarTribune)