On Friday, January 13, the Department of Justice (“DOJ”) filed a lawsuit against a Minnesota bank in which it alleged that the bank violated the Fair Housing Act and the Equal Credit Opportunity Act by unlawfully redlining in the Minneapolis-St. Paul-Bloomington metropolitan statistical area (“Minneapolis MSA”). The complaint, filed in the U.S. District Court for the District of Minnesota, claims that from 2010 to at least 2015, the bank purposely avoided serving the credit needs of residents in majority-minority neighborhoods while meeting the credit needs of residents in majority-white neighborhoods. The DOJ is seeking damages for aggrieved persons, civil money penalties, and injunctive relief. The bank has chosen to litigate, rather than settle, as it believes the DOJ’s claim is baseless.
The allegations arose from a DOJ investigation initiated in May 2015 into potential lending discrimination by the bank. Unlike most institutions that have settled redlining allegations, the bank has chosen to litigate the matter, stating that the redlining claim “has absolutely no basis in fact” and the bank “has an established history of responding to all credit requests with a commitment to fairness and equal opportunity.”
The lawsuit alleges that the bank engaged in the following practices:
- Excluding most majority-minority census tracts in the Minneapolis MSA from the bank’s self-designated Community Reinvestment Act assessment area;
- Locating branch offices and mortgage loan officers in majority-white census tracts, while not operating any branches or having any loan officers with an office in a majority-minority census tract; and
- Focusing marketing and advertising efforts on residents in majority-white, but not majority-minority, neighborhoods.
Based on the bank’s Home Mortgage Disclosure Act (“HMDA”) data, the DOJ claims that the bank’s practices: (1) discouraged prospective applicants in majority-minority areas from applying for residential mortgage loans; and (2) led to disproportionately low mortgage loan applications from and originations in majority-minority areas, when compared to other lenders.
Specifically, the complaint alleges that within the bank’s assessment area, the bank originated “a smaller proportion of residential mortgage loans in majority-minority tracts than comparable lenders,” but the complaint does not provide any information on the magnitude of the alleged disparities. Instead, the complaint focuses on the bank’s application and origination activities in a larger geographic area that the DOJ suggests should have been included in the bank’s assessment area. The complaint terms this area the “Proper Assessment Area.” The complaint alleges that the bank’s mortgage loan application and origination activities in the “Proper Assessment Area” between 2010 and 2015 were significantly worse than “comparable lenders,” which is not surprising since the bank did not actively market outside of its assessment area. The bank contends that Minneapolis and St. Paul are not part of the bank’s market and that it has no obligation to expand outside of its historic Western Minnesota service area.
The lawsuit demonstrates that redlining is still a priority for the DOJ, and the CFPB recently asserted that it has no plans for taking its eye off the ball. Only time will tell if those priorities will change for the DOJ, CFPB, or HUD as the new administration comes on board.