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.