[co-author: Eric Maxwell]
On October 10, the U.S. Department of Justice (DOJ) announced a landmark redlining settlement with Citadel Federal Credit Union (Citadel), marking the first such agreement with a credit union in the DOJ’s history. This settlement, the 14th in DOJ’s Combatting Redlining Initiative since 2021, addresses allegations that Citadel engaged in discriminatory lending practices by redlining predominantly Black and Hispanic neighborhoods in and around Philadelphia. Under the terms of the proposed consent order, Citadel will pay over $6.5 million to resolve these allegations.
The DOJ’s complaint, filed in the Eastern District of Pennsylvania, alleges that from 2017 through 2021, Citadel failed to provide mortgage lending services to majority-Black and Hispanic neighborhoods in the Philadelphia area. Specifically, of the 9,473 HMDA-reportable residential mortgage loans Citadel made during that time frame in its market area, only 3% were to residents of majority-Black and Hispanic areas, whereas, Citadel’s peers made 10% of their HMDA loans to these same majority-Black and Hispanic neighborhoods during that time period. The complaint further claims that Citadel’s branches were almost exclusively located in majority-White neighborhoods, with none in Philadelphia, which contains over 75% of the majority-Black and Hispanic neighborhoods in Citadel’s market area.
Under the proposed consent order, Citadel has agreed to invest $6.52 million to increase credit opportunities for communities of color in and around Philadelphia, including:
- Investing $6 million in a Loan Subsidy Fund: This fund will increase access to home mortgage, home improvement, and home refinance loans for residents of majority-Black and Hispanic neighborhoods in Philadelphia.
- Spending $250,000 on Community Partnerships: These funds will provide services related to credit, consumer financial education, homeownership, and foreclosure prevention.
- Allocating $270,000 for Advertising and Outreach: This will include consumer financial education and credit counseling focused on predominantly Black and Hispanic neighborhoods in Philadelphia.
- Opening Three New Branches: These branches will be located in predominantly Black and Hispanic neighborhoods in Philadelphia.
- Hiring a Community Lending Officer: This officer will oversee the continued development of lending in communities of color.
Citadel also agreed to retain independent consultants to enhance its fair lending program, conduct a community credit needs assessment, evaluate its fair lending compliance management systems, and conduct staff training.
The settlement must be approved by the court to be finalized.
Our Take:
This historic settlement underscores the DOJ’s commitment to addressing what it perceives as redlining practices. The mortgage industry must remain vigilant in assessing and mitigating redlining risks. The facts alleged in this case follow a traditional pattern of redlining claims, providing a clear signal to the industry about the conduct to avoid.
