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As the US Department of Justice cracks down on red lining, banks are working to ensure there is no discrimination in their lending operations, according to S&P (New York Stock Exchange:SPGI) market analysis unit.
Lenders have been stepping up efforts to ensure that your operations are in line with government regulation, lawyers and bank advisers said S&P Global Market Intelligence.
The red line refers to the illegal practice of not serving people based on their race or ethnicity.
The Justice Department began its Red Line Fighting Initiative in 2021. “The Justice Department has a large number of red line cases under investigation now,” Chris Willis, co-head of the financial services industry group, told S&P. at Troutman Pepper. “It is important that lenders get their risk level under control as quickly as possible, before they become the subject of regulatory scrutiny.”
Many banks have begun trading in minority communities, engaging with communities and offering a variety of products, according to Jeff Naimon, a partner who works with banks and nonbanks at the Orrick law firm.
The ratio of lending in minority communities to total lending, branch locations, the number of minority loan officers, as well as outreach and advertising in communities of color are all under the Justice Department’s scrutiny. Emails and other communications within the banks are also being reviewed.
The Justice Department is also looking at nonbanks, as they have gained share in the mortgage market over the years, according to K&L Gates partner Olivia Kelman.
Additionally, regulatory scrutiny from multiple agencies is expected. “I look forward to continued coordination between the Department of Justice, the Bureau of Consumer Financial Protection, prudential regulators and state attorneys general,” Kelman said. “That just broadens the firepower that could accompany these claims.”
settlements so far
- The first deal to be announced was with Trustmark National Bank (TRMK) in October 2021, which had to pay ~$9M.
- In July 2022, Trident Mortgage, the first non-bank company to settle a red-lining 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 (RY) unit City National Bank to resolve allegations of credit discrimination.
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