In this case review, we find a situation involving a bank that the Department of Justice alleged was engaged in illegal redlining. Specifically, the lawsuit claimed that the bank, in defining its service area, completely excluded Philadelphia County, a region with a predominantly Black and Hispanic population. What made this omission especially conspicuous was the fact that several of the bank’s branches were located near the border of Philadelphia County.
United States v. ESSA Bank (E.D. Pa.)
This exclusion essentially meant that a large portion of the nearby population was denied access to the bank’s services, particularly concerning home loans and credit opportunities. The lawsuit further alleged that branches in proximity to Philadelphia County had only one loan officer to serve seven different branches, making it extremely difficult for residents in those areas to access financial assistance.
What’s more, the bank was accused of not hiring any non-white or bilingual employees during the period in question and running problematic marketing campaigns that exacerbated the situation. The DoJ’s investigation concluded that these practices amounted to discrimination based on race and national origin, denying Philadelphia County residents credit opportunities.
The parties ultimately agreed to settle the case, and the terms of the settlement were extensive. To rectify the situation, the bank was required to invest nearly $3 million in a loan subsidy fund to ensure that underserved neighborhoods had access to credit opportunities. Additionally, they were required to allocate substantial resources to community partnerships, advertising, outreach, and education initiatives aimed at informing these communities about their rights. They also had to hire new loan officers and conduct market studies to better serve minority neighborhoods in the surrounding areas. The cost of these measures was substantial, but not outside the scope of other similar cases.
Now, you might be wondering why mortgage lenders like this bank fall under the purview of the Fair Housing Act. Well, the Fair Housing Act prohibits discrimination in the “terms, conditions, or privileges” of selling a dwelling based on protected categories, which include race and national origin. This means that any institution connected to the funding of housing, including a mortgage lender, is subject to this law.
But does that mean banks can never exclude certain areas for legitimate business reasons, such as lower home prices? While there might be valid business reasons to exclude certain areas from their services, it’s crucial for banks to be inclusive when defining their service or market area. It’s essential to understand who lives within the area they serve and who benefits from their programs. Even if there are legitimate reasons for exclusion, disparities in lending practices can trigger investigations, as seen in this case.
So, how can a bank ensure compliance with fair lending practices? First and foremost, banks need to be aware of their lending practices on a broad scale. This may involve conducting internal assessments or hiring third-party experts to evaluate their lending patterns. Understanding the demographic makeup of their clientele is crucial. If there is a noticeable disparity between their target market and the actual recipients of loans, it may be a sign that changes are needed. Banks should adjust their marketing efforts and outreach strategies to bridge this gap.
In this case, it was alleged that the bank had received assessments indicating significant disparities in their lending practices but failed to take corrective action. This highlights the importance of proactively addressing such issues to ensure fair and inclusive lending practices.