CFPB Files Order to Stop Townstone Financial’s Unlawful Redlining

The Consumer Financial Protection Bureau (CFPB) has filed a proposed order to resolve its case against Townstone Financial for discriminatory lending practices and redlining African American neighborhoods in Chicago. If entered by the court, the proposed order would prohibit Townstone from taking any actions that violate the Equal Credit Opportunity Act (ECOA) and require it to pay a $105,000 penalty to the CFPB’s victims relief fund. The action follows lengthy contested litigation and a unanimous July 2024 decision from the U.S. Court of Appeals for the Seventh Circuit that the ECOA prohibits lenders from discouraging prospective applicants on a prohibited basis from applying for loans.

Townstone was a nonbank retail-mortgage creditor and broker based in Chicago through 2018. Some 90% of Townstone’s mortgage lending was in the Chicago metro. From 2014-2017, Townstone was in the top 10% of lenders in applications from the Chicago metro, receiving an average of 740 mortgage loan applications annually. Townstone ended mortgage lending in 2018 during the CFPB’s investigation, and is now solely a mortgage broker. 

In 2020, the CFPB sued Townstone for discouraging potential applicants because of their race or the racial composition of where they lived or sought to live. Townstone’s advertising, marketing, and business practices discouraged African Americans from applying for credit and actively avoided the credit needs of African American applicants and African American neighborhoods in the Chicago metro.

Townstone drew only five or six applications a year for properties in neighborhoods that were more than 80% African American, despite those neighborhoods being nearly 14% of census tracts in the Chicago metro, and over half of the applications it did draw were from white applicants. From 2014-2017, barely 2% of Townstone’s mortgage-loan applications were for properties in majority African American neighborhoods, even though they make up nearly 19% of the Chicago metro’s census tracts.

Under the Consumer Financial Protection Act, the CFPB has the authority to take action against institutions violating consumer-financial protection laws, including the Equal Credit Opportunity Act and the Consumer Financial Protection Act. If entered by the court, the proposed order would require Townstone to pay a $105,000 penalty, which will be deposited into the CFPB’s victims relief fund. If Townstone violates the ECOA again, it could find itself in contempt of the court order and face further sanctions.

Read the proposed order.

Read the November 1, 2024 CFPB press release.

Citadel FCU Redlining Settlement Proves It’s Time To Bring Credit Unions Under Community Reinvestment Act Enforcement

The recent U.S. Department of Justice (DOJ) law enforcement settlement with Citadel Federal Credit Union is excellent evidence why the Community Reinvestment Act’s (CRA) omission of credit unions from its rules is a mistake, according to the National Community Reinvestment Coalition (NCRC). Citadel FCU agreed to a $6.5 million settlement regarding its alleged discouragement of homebuyers in Black and Hispanic neighborhoods of Philadelphia from applying for mortgages and systematically declined to make mortgages in those neighborhoods. Citadel maintains its innocence in the settlement.

“It no longer makes sense to let credit unions out of the common-sense obligations that CRA puts on traditional banks. Citadel’s alleged conduct in the case it just paid $6.5 million to settle is a timely demonstration of the problem and the need to enhance fair lending protections for credit union customers. Despite their public perception as a gentler, kinder, more community-minded provider of retail banking services, credit unions are just as capable of violating borrowers’ civil rights as any other financial institution. Whatever the driving causes underlying such violations, we know how to fix the problem: Supervise credit unions under CRA so that they can prove their actual actions live up to their public image.”

Such failures and business practices are commonly uncovered in traditional banking through regular federal CRA examinations, which are conducted every few years. Extending CRA to cover credit unions would both improve oversight and put new capital into neglected communities as the firms move into compliance with the law’s requirements. Bringing credit unions under CRA would ensure that they face an affirmative and binding obligation to those same people and communities.

Read the October 15, 2024 NCRC article.

Baltimore City Civil Rights Week 2024 Programming Announcement

The Office of Equity and Civil Rights is excited to invite you to join us for our annual Civil Rights Week from October 4th - 12th! We have several events scheduled throughout the week that touch on key topics including Police Accountability, The History of Redlining and Housing Discrimination in the city, Legislative Access for Women, a History of Immigration and Inclusion in Baltimore and more! Check out some of what's happening below and sign up to join us. All events are free and open to the public. Hope to see you there! Register Here!

OceanFirst Bank Fined Over $15 Million in New Jersey Redlining Settlement

 

The U.S. Department of Housing and Urban Development (HUD) has made a Conciliation Agreement with OceanFirst Bank (headquartered in Toms River, New Jersey). This Agreement resolves a Secretary-initiated complaint against OceanFirst alleging that the bank engaged in redlining by restricting access to credit and mortgage lending services in majority-Black, Hispanic, and Asian neighborhoods in the New Brunswick, New Jersey area. HUD’s investigation was conducted with the U.S. Department of Justice (DOJ) after a referral from the Office of the Comptroller of the Currency, the bank’s regulator.

“This settlement, and the over $137 million in relief the Justice Department has secured for communities across the country, will help to ensure that future generations of Americans inherit a legacy of home ownership that they have been too often denied,” said Attorney General Merrick B. Garland. “Redlining is unlawful, it is harmful, and it is wrong. The Justice Department will continue to hold banks and mortgage companies accountable for redlining and to secure relief for the communities that continue to be harmed by these discriminatory practices.”

“Restrictive barriers to credit and mortgage lending that disproportionately impact communities of color violate fair housing laws,” said Diane M. Shelley, Principal Deputy Assistant Secretary for Fair Housing and Equal Opportunity. “The Fair Housing Act prohibits this type of discrimination, commonly known as redlining, that has left too many Black, Indigenous, and People of Color with little to no access to homeownership and wealth building, and will not be allowed.”

HUD’s complaint alleges that, from 2018 through at least 2022, OceanFirst did not provide mortgage lending services to predominantly Black, Hispanic, and Asian neighborhoods in Middlesex, Monmouth, and Ocean Counties. The complaint also alleges states that OceanFirst acquired and subsequently closed branches and loan production offices in these neighborhoods, which, coupled with its insufficient marketing efforts and fair lending policies, led to OceanFirst not serving the needs of these neighborhoods.

Under the terms of the Agreement, OceanFirst will:

• Invest at least $14 million in a loan subsidy fund to increase access to credit for home mortgage loans, home improvement loans, and home refinance loans in majority-Black, Hispanic and Asian neighborhoods in the New Brunswick area.

• Spend at least $400,000 on professional services for residents in these neighborhoods to increase access to residential mortgage credit and serve the credit needs of those communities through partnerships with at least one community-based or governmental organizations providing services related to credit, financial education, homeownership, and/or foreclosure prevention.

• Spend at least $140,000 annually of the Agreement ($700,000 total) on advertising, outreach, consumer financial education, and credit counseling in these neighborhoods.

• Maintain a full-service branch opened in December 2023 and open a loan production office (LPO) in these neighborhoods. The LPO will have a community room for financial education classes that OceanFirst will provide to the public and community organizations, and include an ATM that will not charge fees to OceanFirst’s customers and maintain lower fees for non-customers than what is available at nearby ATMs.

• Assign or hire at least two full-time loan officers to solicit mortgage applications primarily in majority-Black, Hispanic, and Asian neighborhoods in the New Brunswick area.

• Hire or designate a full-time position of Director of Community Lending.

• Provide at least four outreach programs per year for real estate brokers and agents, developers, and public or private entities in residential real estate-related business in these neighborhoods to inform them of the bank’s products and services.

• Provide at least six consumer education seminars annually targeted and marketed for residents of neighborhoods of color in the New Brunswick area regarding credit counseling, financial literacy, or other related consumer financial education.

• Comply with HUD’s Guidance on Application of the Fair Housing Act to the Advertising of Housing, Credit, and Other Real Estate-Related Transactions through Digital Platforms for all OceanFirst’s advertising and targeting.

The OceanFirst Bank agreed to resolve the complaint voluntarily and HUD issued no findings related to the complaint’s allegations.

Read the September 18, 2024 HUD release.

Detroit Redlining Conference on September 24th

 

The Detroit Reinvestment Coalition, Community Development Advocates of Detroit (CDAD, and the National Community Reinvestment Coalition (NCRC) will convene a Just Economy: Detroit on September 24th. The one-day summit will center a question with no simple answer: What will it take to make a Just Economy a local reality in Detroit? The legacy of redlining continues to reverberate throughout the city through uneven investment in community development, inequitable impacts of climate change and a shortage of housing within reach of the average Detroiter. Join local and national leaders to explore opportunities to change the flow of capital in the city.

Register Now

While this event is focused on the Detroit metro area, it may still be beneficial for Marylanders to attend. For additional information on Just Economy: Detroit, visit here. Read the July 9, 2024 NCRC notice of Just Economy: Detroit.

New Study Finds Redlining Continues in 2024

A new study by the National Community Reinvestment Coalition (NCRC), entitled Decades of Disinvestment: Historic Redlining and Mortgage Lending Since 1981 (May 2024), has found that lenders "continue to reinforce patterns of structural racism in formerly redlined neighborhoods, regardless of local market dynamics. Fifty-five years after Congress outlawed using discriminatory maps to guide mortgage lending, race-based exclusion from homeownership is still a de facto reality."

To enable policymakers and analysts to definitively and precisely connect present-day conditions to past structural discrimination, the NCRC developed a new HMDA Longitudinal Dataset (HLD). It was created to utilize in this report and correct data deficiencies that have blocked our complete understanding of redlining for decades.

The NCRC urges because of these findings the need to implement and firmly enforce better-designed policy measures aimed at mitigating the impact of redlining and addressing residential segregation. Recent improvements to the Community Reinvestment Act (CRA), and the long-awaited Affirmatively Furthering Fair Housing (AFFH) rules - yet to be finalized by the US Department of Housing and Urban Development (HUD) - are important steps to combat the impact of redlining and lessen residential segregation in communities. However, they may not be sufficient, given the stickiness of redlining’s legacy over the half century since the Fair Housing Act (FHA) became law.

Read the May 2024 NCRC Report

Read about NCRC's new HMDA tool

Justice Department and North Carolina Reach $13.5 Million Agreement with First National Bank of Pennsylvania to Regarding Redlining

The First National Bank of Pennsylvania (FNB) has agreed to pay $13.5 million to resolve allegations by the U. S. Department of Justice (DOJ) and the State of North Carolina that it engaged in a pattern or practice of lending discrimination by redlining predominantly Black and Hispanic North Carolina neighborhoods. Redlining is an illegal practice in which lenders avoid providing credit services to individuals living in communities of color because of the race, color, or national origin of residents in those communities.

The complaint alleges that from 2017-2021, FNB failed to provide mortgage lending services to predominantly Black and Hispanic neighborhoods in Charlotte and Winston-Salem, and discouraged people seeking credit there from obtaining home loans. Instead, FNB’s home mortgage lending focused disproportionately on white areas of the cities. Other lenders had applications in predominantly Black and Hispanic neighborhoods at 2.5 times the rate of FNB in Charlotte and 4 times the rate in Winston-Salem. FNB’s branches in both cities were also mostly located in predominantly white neighborhoods. The bank closed its only branch in a predominantly Black and Hispanic neighborhood in Winston-Salem in 2021.

The complaint further alleges that FNB had mortgage loan officers working out of predominantly white areas to generate loan applications and that the bank did not track how they developed loan referrals or how they distributed the bank’s mortgage marketing materials.

Under the two proposed consent orders, FNB will invest $13.5 million to increase credit opportunities for communities of color in Charlotte and Winston-Salem, including: (1) $11.75 million in a loan subsidy fund to increase access to home mortgage, home improvement, and home refinance loans for residents of majority-Black and Hispanic neighborhoods in FNB’s service areas; (2) $1 million on community partnerships to provide services related to credit, consumer financial education, homeownership, and foreclosure prevention for residents of predominantly Black and Hispanic neighborhoods in those areas; (3) $750,000 for advertising, outreach, consumer financial education, and credit counseling for predominantly Black and Hispanic neighborhoods in the areas; (4) open three new branches in predominantly Black and Hispanic neighborhoods in the two cities, with at least one mortgage banker assigned to each branch; (5) hire a director of community lending to oversee the development of lending in communities of color; (6) retain independent consultants to enhance its fair lending program and better meet the communities’ needs for mortgage credit; (7) conduct a community credit needs assessment; (8) evaluate its fair lending compliance management systems; and (9) conduct staff trainings.

With assets of over $45 billion, FNB is headquartered in Pennsylvania and operates approximately 350 branches throughout the District of Columbia, Maryland, North Carolina, Ohio, Pennsylvania, South Carolina, Virginia, and West Virginia. It is among the 100 largest US banks.

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Photo by Andrew Stapleton on Unsplash

Read the February 5, 2024 DOJ release.

Report Details Redlining of Native Lands

"REDLINING THE RESERVATION: The Brutal Cost Of Financial Services Inaccessibility In Native Communities"

The National Community Reinvestment Coalition (NCRC) and the Native Community Capital have just released in December, 2023 an analytical report detailing the severe negatives of the lack of accessibility to financial services by residents of Native Land Areas. These formerly-called "Indian reservations" have much lower levels of economic prosperity and poorer life chances than other Americans.

This is especially relevant now because in late 2023 new Community Reinvestment Act of 1977 (CRA) regulations specifically included Native Land Areas for the first time. These regulations are aimed at reducing the practice of redlining – the intentional exclusion by banks of minority, immigrant, and poor communities from financial services. Redlining denies creditworthy applicants housing loans in specific neighborhoods, irrespective of their eligibility.

The major findings of the report are:

(1) Traditional mortgage lending is failing Native American families because loan capital should instead flow through Native-led financial institutions aware of the administrative issues, geography, and culture of tribal lands. None of the three largest home lenders in the U.S. issue federally-guaranteed mortgages for the construction of new permanent homes in tribal lands. Therefore, little credit is promoting wealth-building via Native Community Development Finance Institutions (CDFIs), which are often focused exclusively on addressing the lack of access to capital in tribal communities.

(2) Half of all home purchase loans on tribal lands are used to purchase manufactured mobile homes. This is four times the rate elsewhere. Native Americans who succeed in getting a mortgage are often using it to purchase a dwelling that will decrease in value rather than foster generational wealth-building. As a result, wealth is flowing from already-impoverished Native communities because of high-cost lending on low-value housing to financier Warren Buffett, whose firms have a monopoly on manufactured home lending in the report's study area.

(3) Tribal lands received less than 1% of that loaned to small businesses in Arizona and New Mexico, starving Native American communities of economic opportunity. From 2018 to 2021, 0.004% of small business dollars loaned in Arizona and 0.012% in New Mexico went to borrowers on tribal lands. The average census tract on tribal land received only five small business loans, compared to 82 such loans made on average to non-tribal tracts.

(4) Tribal areas have far higher quantified financial need than other rural areas. The financial needs index indicates significantly worse access in tribal areas, meaning that people living on Tribal Lands are not being served nearly as well as other residents of Arizona and New Mexico.

Read the December 2023 NCRC report.

Download the report

DOWNLOAD FULL REPORT

Governor Moore Announces Program to Increase Homeownership Opportunities in Redlined Communities

 

Governor Moore Announces Program to Increase Homeownership Opportunities in Historically Redlined Communities ANNAPOLIS, MD (December 4, 2023) — Governor Wes Moore today announced the UPLIFT (Utilizing Progressive Lending Investments to Finance Transformation) program to increase homeownership opportunities, one of the most powerful drivers of the racial wealth gap, in chronically underinvested communities with a history of redlining. Administered through the Maryland Department of Housing and Community Development, the program will address homes impacted by appraisal gaps by accelerating the pace of new construction and rehabilitation of quality affordable housing in strategically identified communities across Maryland. "Tackling the racial wealth gap is a core priority of the Moore-Miller Administration. We must actively work to reverse decades of disinvestment through good policy decisions and innovative programs like this one," said Gov. Moore. "Maryland will be a leader in these efforts, and we will continue to expand work, wages, and wealth for all Maryland families." UPLIFT builds on the department's past initiatives to create a public-private partnership to invest in disinvested communities. Through the program, selected developers will build, sell, and rehabilitate quality affordable housing in targeted neighborhoods in accordance with design and construction standards that ensure quality, timely production, and accountability. Homes in these communities appraise for less than the cost to build due to patterns of historic disinvestment depressing the home values. UPLIFT funds the difference between the appraised value and the sales price, and over time the new homes will elevate home values and reduce the gap in UPLIFT neighborhoods. Additionally, 25% of the homes in the program will be reserved for households with incomes below the area median income to become homeowners. Funded for $10 million through the Fiscal Year 2024 budget, UPLIFT builds on the department's Homeownership Works (HOW) pilot program, created in 2021. The first phase of the program is investing $10 million into new construction and rehabilitation projects in two Maryland neighborhoods, Johnston Square in Baltimore and Pine Street in Cambridge. On November 15, the first four homes in Johnston Square rehabilitated through the pilot program were celebrated in a ribbon cutting ceremony. The four homes, valued at approximately $24,000 pre-rehabilitation, are now entering the market priced in the low $300,000 range. "We have an opportunity to counteract historic disinvestment in our communities by building vibrant neighborhoods, improving home energy efficiency and quality of life, and building social connections between residents," said Maryland Department of Housing and Community Development Secretary Jake Day. "This is just the beginning of those efforts, and we will continue to create new opportunities for Maryland homeowners to thrive." UPLIFT projects are required to be located in both a Low-Income Census Tract and in an area designated as a Maryland Sustainable Community. To identify qualifying areas, visit https://maryland.maps.arcgis.com/apps/instant/lookup/index.html?appid=dff652a3d61a4d79abfc64f37be38689&locale=en&findSource=2&find=12455%252C%2520Margaretville%252C%2520New%2520York. To review the UPLIFT draft program guide, visit https://dhcd.maryland.gov/HousingDevelopment/Pages/UPLIFT.aspx. Comments will be accepted through December 29 and can be sent to UPLIFT.DHCD@Maryland.gov. The UPLIFT program application will open in early 2024. # # #

CONTACT: Allison Foster, Director of Communications - allison.foster@maryland.gov Brandi Bottalico, Director, Office of Public Information - brandi.bottalico@maryland.gov

 Insurance Discrimination in Maryland

Maryland Finds Erie Insurance Illegally Rejected Baltimore Auto Customers in Minority Neighborhoods

On May 24th, the Maryland Insurance Administration (MIA) has ruled that Pennsylvania-based Erie Insurance racially discriminated by engaging in insurance “redlining” of predominantly Black neighborhoods in Baltimore. Through the Baltimore Insurance Network, four Baltimore-area insurance brokers had accused Erie in separate complaints filed in 2021: Baltimore Insurance Network LLC of Bowie, Ross Insurance Agency of Windsor Mill, and Welsch Insurance Group of Baltimore. All contracted or had contracted with Erie as agents to sell auto insurance policies. A fourth brokerage, Baltimore-based Burley Insurance, filed a similar complaint. The state’s ruling also said Erie penalized brokerage firms that failed to engage in discriminatory practices by reducing commissions or terminating contracts.

Kobi Little, NAACP Baltimore president, said the policies and practices exposed in the case are “prima facie evidence of institutional racism and structural inequity. This is corporate policy violence and it is a root cause of the physical violence and economic decay that we see in urban centers with significant Black populations. The impact is devastating in terms of the economic loss suffered by the firms serving urban markets and those in urban markets who are denied coverage. This is modern-day redlining and this case is just the tip of the iceberg.”

The MIA found that Erie unlawfully canceled or rejected business from brokers based on race or for other discriminatory or arbitrary reasons. It also found Erie unlawfully canceled or changed agreements for qualified applicants based on “adverse loss ratio,” a measure of an insurer’s profitability. The spokesman for Erie - with nationally has over 6 million home, auto, life, and business policies - disagrees with the findings. Erie has requested a hearing with the agency and expects to “defend our company against these claims.”

The state’s investigation discovered that because Erie’s auto insurance business in Maryland was not profitable, it kept its broad guidelines and set a secondary layer of eligibility standards that agents should use to reject qualified applicants (“front line underwriting”). The state is continuing a broader investigation of Erie’s market practices to determine they are part of a larger pattern of discrimination. 

The original complaints said Erie refused to underwrite policies based on a potential client’s race, ethnic origin, neighborhood and/or socioeconomic status. Baltimore Insurance and Welsch said that Erie urged them to not sell policies to people in Baltimore with “city sounding names.” Baltimore Insurance Network said it was told by an Erie branch manager to “place those people elsewhere, I don’t care where, just not with Erie. They don’t fit Erie’s appetite. Find better people.” That branch manager also told Baltimore Insurance that it was “devaluing the brand” by writing insurance policies for people in predominantly African American neighborhoods, and that the brokerage had to “understand Erie’s appetite.” Likewise, Welsch Insurance Group’s Thomas A. Welsch was told to get his business “from somewhere else.” Welsch’s contract with Erie was terminated in August 2019, citing poor underwriting practices and unacceptable policyholder service.

Baltimore Insurance said in the complaint it was told to reduce its sales by 30% by rejecting applicants who qualified for coverage and were mostly Black and living in inner-city neighborhoods. Erie required the brokerage to include criminal record checks for applicants, most living in low-income neighborhoods, though such checks were not part of Erie’s underwriting standards or the broker’s training. The attorney for Baltimore Insurance said in his client’s case alone, “these are hundreds if not thousands likely affected members of the public who Erie rejected based on discriminatory practices that the insurance administration has found to be unlawful.”

The MIA ordered Erie to calculate and pay the agencies all amounts in commission that had been withheld between December 2019 and May 2023 when Erie had notified the insurance administration it would restore commissions. Erie works with 13,500 licensed agents who serve customers across the company’s territory, Cummings said.

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Sources

Read the June 6, 2023 Baltimore Sun article.

Read the June 1, 2023 Baltimore Banner article.