$200M Fair Lending Settlement Shows Why You Need to Know Your Numbers

A recent $200 million fair lending settlement between the US Department of Housing and Urban Development (HUD) and a community bank highlights the need for fair lending data analysis and HMDA benchmarking review. Below, we'll quickly summarize the details of the settlement and share some observations.

The US Department of Housing and Urban Development (HUD) announced an agreement with Associated Bank, NA to resolve a disparate treatment and redlining case. The $200 million settlement is the largest of its kind HUD has ever reached. It covers practices from 2008-2010, though the study period extended through 2013. The agreement requires Associated Bank to take several actions over the next three years.

A Brief Summary of the Settlement

HUD filed the complaint alledging that Associated Bank disproportionately denied loan applications on the basis that of race and national origin for African-American and Hispanic applicants. The complaint also alleged that the Bank underserved neighborhoods with significant African-American or Hispanic populations, despite demand for residential mortgage loans in these neighborhoods.

HUD conducted an analysis of Associated Bank’s lending activity between 2008-2011 and concluded that the Bank had a smaller share of the market in higher-minority population census tracts than elsewhere. 

Associated Bank denies any allegation that it engaged in discriminatory lending on a prohibited basis. Using outside parties, the Bank also conducted their own analysis and loan file review and found no evidence of disparate treatment on a prohibited basis.

HUD officials claim that the Bank made few loans, compared to other lenders in majority-minority census tracts, in five metropolitan areas, and that the difference was statistically significant. This benchmarking analysis is a key element of the settlement. There is no admission by the Bank of any violation (nor does the Agreement constitute evidence of a determination by HUD of any violation of the Federal Fair Housing Act (Act).  

What the Bank was Doing Right

Associate Bank was recognized for undertaking the following:

1. Opening new branches in or near majority-minority census tracts where a wide range of loan products will be made available;
2. Instituting a Corporate Fair Lending Committee to provide ongoing monitoring and oversight of fair lending compliance;
3. Implementing a second level review process for all denied residential applications;
4. Requiring all relevant employees to complete comprehensive fair lending training;
5. Targeting culturally diverse publications that highlight the diversity of the Bank’s customer base and its employees;
6. Making CRA-qualified investments, loan purchases, and CRA-eligible donations to community groups; and
7. Assisting with community education efforts.

Actions Required by the Settlement

The Bank has agreed to "invest nearly $200 million through increased home mortgage lending activity in majority-minority census tracts in these areas," according to the HUD press release. In addition, the Bank has agreed to undertake the activities below.

Compliance Management

• Training (Approved in Advance): All employees and agents having substantial involvement in residential lending will attend four (4) hours of Fair Lending Training (including the residential mortgage obligations of the Fair Housing Act, ECOA, and CRA).
• Future Locations: In addition to three full-service branches opened or opening in or near majority-minority census tracts, the Bank will open four additional loan production offices in majority-minority census tracks that offer a complete range of residential mortgage lending products and services.  In addition, the Bank will provide HUD a copy of any applications or notices submitted to open, acquire, relocate, or close any branches.
• CRA Assessment Area: The Bank shall provide written notice to HUD prior to implementing any changes to its current CRA assessment area.
• Second Reviews: The Bank will maintain a second-level review process for all denied residential loan applications.
• Ongoing Monitoring: The Bank agrees to retain all records relating to the obligations in the settlement (lending activities including applications, advertising, outreach, branching, any special programs, etc.) and make available to HUD upon request.   
• Reporting and Record Keeping: The Bank agrees to share the HMDA, CRA and Special Financing Program Loan data to HUD.  In addition, the Bank shall provide annual reports in regards to tracking of the bank’s compliance with the settlement.

• Chicago Market Area:
  • Associated Bank will make $7.2 million available as a subsidy fund for reduced interest rate, down payment and closing cost assistance in select majority-minority census tracts.
  • The Bank also agreed to originate, fund, or purchase $144 million in mortgage loans in majority-minority census tracts in the Chicago Market.
  • The Bank agreed to commit $2 million for affordable home repair grants, spend an aggregate of $1m for affirmative marketing/outreach in the Chicago Market, continue to conduct financial education programs, and spend $1 million to be used to increase CRA and fair lending education and training among the public and non-profit community based organizations.
• Milwaukee Market Area:
  • Associated Bank will make $1.8m million available as a subsidy fund for reduced interest rate, down payment and closing cost assistance in select majority-minority census tracts.
  • The Bank agreed to commit $530 thousand for affordable home repair grants, spend an aggregate of $250k for affirmative marketing/outreach in the Chicago Market, continue to conduct financial education programs, and spend $200 thousand to be used to increase CRA and fair lending education and training among the public and non-profit community based organizations.
• Other Markets (Minneapolis-St. Paul, MN; Racine, WI; Kenosha, WI; Lake County, IL): Similar subsidy funds, affordable home repair grants, and affirmative marketing outreach are required in various other markets served by Associated Bank.

Ncontracts Viewpoint: This settlement between HUD and Associated Bank highlights the importance of both data analysis and redlining risk. It showcases just how important data analysis is to the regulatory approach.

Ultimately, this settlement serves as a strong reminder that fair lending analysis should extend beyond analyzing only a financial institution's data. Fair lending analysis should also include comparisons to market benchmarks, which will help provide necessary context and insight. 

You've got to know your numbers and beware of redlining.

Related: How to Build a Strong Fair Lending & Redlining Compliance Management System