As the US Justice Department fights redlining, banks are working to ensure there is no discrimination in their lending operations, according to S&P (NYSE: SPGI) market analytics unit.
Lenders stepped up efforts to ensure that their business is in compliance with government regulations, lawyers and banking advisors told S&P Global Market Intelligence.
Redlining refers to the illegal practice of not providing services to individuals based on race or ethnicity.
The Justice Department launched its Anti-Redlining Initiative in 2021. “The DoJ has a large number of redlining cases that are being investigated now,” Chris Willis, co-head of the financial services industry group at Troutman Pepper, told S&P. “It is important that lenders understand their level of risk as early as possible, before they become subject to regulatory scrutiny.”
Many banks have started marketing to minority communities, partnering with communities and offering different products, according to Jeff Naimon, a partner who works with banks and non-banks at the Orrick law firm.
The share of loans in minority communities compared to total loans, branch locations, the number of minority loan officers, as well as outreach and advertising in communities of color, are all under the DoJ’s scanner. Electronic mail and other communications within the banks are also reviewed.
The DoJ is also scrutinizing non-bank entities as they have gained a stake in the mortgage market over the years, according to K&L Gates partner Olivia Kelman.
In addition, regulatory oversight by multiple agencies is expected. “I would expect coordination between the DoJ, the Consumer Financial Protection Bureau, credit regulators and state attorneys general to continue,” Kelman said. “It just expands the firepower that could accompany these claims.”
- The first settlement that was announced was with Trustmark National Bank (TRMK) in October 2021, which had to pay ~$9 million.
- In July 2022, Trident Mortgage, the first non-bank company to settle the redlining case, agreed to invest more than $20 million in minority lending opportunities, as well as a $4 million penalty.
- Last month, the agency announced a $31 million settlement — the largest of its kind — with RBC’s ( RY ) City National Bank unit to resolve allegations of lending discrimination.
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