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A Pennsylvania-based credit union that was allegedly warned for nearly two decades that it was failing to serve minority borrowers has agreed to invest $6.5 million in predominantly Black and Hispanic neighborhoods in Philadelphia County to settle federal redlining allegations.
Since launching an initiative to combat redlining 3 years ago, the Department of Justice has reached settlements with more than a dozen banks. The settlement with Citadel Federal Credit Union, announced Thursday, is the first with a credit union.
Kristen Clarke
“There are well over 4,600 credit unions across America, all subject to federal laws that prohibit redlining and lending discrimination,” Assistant Attorney General for Civil Rights Kristen Clarke said in a statement. “Redlining and other forms of lending discrimination harm communities of color and families by denying them an equal opportunity to access credit, attain the dream of homeownership and build generational wealth.”
In an Oct. 10 complaint, the Justice Department alleged that Citadel’s redlining practices “included locating and maintaining all but one of its 24 branches in majority-White neighborhoods.”
Of the 9,473 mortgages Citadel reported making from 2017 through 2021, only 3 percent were to residents of majority Black and Hispanic areas, compared to the 10 percent share achieved by its competitors in the market during the same period, the complaint alleged.
“In other words, from 2017 through 2021, Citadel’s peer lenders made home loans in majority-Black and Hispanic areas at more than three times the rate of Citadel,” prosecutors said.
In a statement, Citadel said it “respectfully disagrees with the allegations regarding our lending practices,” but views the settlement “as a vital opportunity to enhance our commitment to proactive community engagement. We acknowledge that our efforts did not allow us to reach majority Black and Hispanic census tracts in Philadelphia.”
Citadel’s consent order with the Justice Department requires it to:
- Invest at least $6 million in a loan subsidy fund to increase access to mortgage for residents of majority-Black and Hispanic neighborhoods in Philadelphia
- Open three new branches in those neighborhoods and hire a community lending officer to oversee the continued development of lending in communities of color
- Spend at least $250,000 on community partnerships to provide services related to credit, consumer financial education, homeownership and foreclosure prevention
- Spend at least $270,000 for advertising, outreach, consumer financial education and credit counseling in predominantly Black and Hispanic neighborhoods
“As we look back at our history, this is a situation arising from what we weren’t doing, rather than one of intentional acts,” Citadel President and CEO Bill Brown said, in a statement.
Citadel was warned by its regulator, National Credit Union Administration (NCUA), on a number occasions dating back to 2006 that it was failing to provide services to “underserved areas” in Philadelphia County, Department of Justice prosecutors alleged.
In applying to NCUA to expand its “field of membership” — the legal definition of who is eligible to join — to include 5 million people in the metro Philadelphia market, Citadel represented that it would open 3 branches and conduct targeted outreach and marketing in Philadelphia County, the complaint alleged.
“Once the NCUA approved the charter expansion, Citadel immediately pivoted away from Philadelphia,” prosecutors said. “In a board meeting soon after Citadel received approval for the charter expansion in 2009, Citadel’s President and CEO at the time noted that the proposal to the NCUA was not a ‘promise’ to open branches in particular areas.”
As Citadel expanded beyond Chester County between 2009 and 2021, the credit union opened 14 new branches — all of them located in majority-White census tracts, the complaint alleged.
Brown — who succeeded Citadel’s longtime leader Jeff March in October — acknowledged that the credit union had agreed to open branches in Philadelphia as part of its expansion.
Bill Brown
“Banking has not been immune to the digital disruption that has swept across various industries for decades and Citadel’s robust focus on our digital journey shifted our strategy away from new brick-and-mortar branches in recent years, which inadvertently impacted our ability to serve our region as broadly as we had planned,” Brown said. “Philadelphia has always been, and remains, part of our growth plan, but the evolution of our business model led to us falling short of opening branches in Philadelphia as we had agreed to do when we expanded our charter.”
In a statement, NCUA Chairman Todd Harper said in recent years, the NCUA “has established a dedicated fair lending supervision division and more than doubled its annual fair lending compliance examinations.”
The NCUA “continues to refer credit unions to the U.S. Department of Justice when the agency identifies patterns or practices of discrimination and require appropriate relief for harmed consumers,” he said.
Since launching its initiative to combat redlining in 2021, the Department of Justice has reached settlements with 14 mortgage lenders totaling more than $144 million, including:
- OceanFirst Bank in September agreed to a $15.1 million settlement after acquiring Sun National Bank in and Two River Community Bank and closing branches that were located in majority-Black, Hispanic and Asian neighborhoods.
- First National Bank of Pennsylvania, which in February agreed to invest at least $11.75 million in a loan subsidy fund to provide better access to mortgages and home improvement loans to residents of majority-Black and Hispanic neighborhoods in the Charlotte and Winston-Salem, North Carolina, markets.
- Jacksonville, Florida-based Ameris Bank, which agreed in October 2023 to a $9 million settlement aimed at improving access to credit in majority-Black and Hispanic neighborhoods.
- Newark, Ohio-based Park National Bank, which agreed in February 2023 to invest at least $7.75 million in a loan subsidy fund to increase access to credit in majority-Black and Hispanic neighborhoods in the Columbus area.
- Lakeland Bank, which agreed in September 2022 to invest at least $12 million in a loan subsidy fund for residents of Black and Hispanic neighborhoods in the Newark, New Jersey, metropolitan area, including neighborhoods in Essex, Somerset and Union counties.
- Berkshire Hathaway-owned Trident Mortgage Company, which agreed in July 2022 to invest more than $20 million to create homeownership opportunities in communities of color around Philadelphia.
In announcing the settlement with Ameris Bank last fall, Attorney General Merrick Garland said the Justice Department had over two dozen ongoing investigations into redlining across the country.
Addressing credit union executives at an industry conference in March, Clarke said the Justice Department was “moving full speed ahead in redlining enforcement.”
Saying enforcement and oversight alone won’t fix the problem of redlining, she shared “best practices” for credit unions.
“The first lesson is to engage with your regulators and promptly implement any fair lending recommendations following a consumer compliance exam,” Clarke said in March. “One hallmark of so many of our redlining investigations – whether agency-referred or self-initiated – is that the lender failed to implement recommendations issued by its regulator.”
In its complaint against Citadel, the Department of Justice claimed that executives at the credit union knew it was at risk of violating fair lending laws since at least 2016, “as a third-party report commissioned by Citadel that year showed much lower percentages of applications from minority borrowers” compared to other lenders in its market area.
In 2020, an NCUA fair lending exam “found that Citadel did not provide fair lending training to officials, including its board of directors and supervisory committee, and that it had never conducted a ‘comprehensive fair lending risk assessment,’ which are standard practices in the mortgage lending industry.”
Clarke also recommended that credit unions:
- Engage with community groups that understand the credit needs of local communities of color
- Ensure compliance management systems are actually measuring redlining risk, rather than relying on “insufficient metrics” that provide “a false sense of security”
- When relying on AI, “be sure to do so in a safe and sound manner to prevent harm to members and ensure compliance with civil rights laws”
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