Compliance Blog

Over the past several months, the Department of Justice (DOJ) and federal regulators have hit two national banks with complaints alleging fair lending violations. The banks are alleged to have engaged in redlining practices with the effect of discouraging prospective applicants in majority-Black and Hispanic areas from seeking and obtaining mortgage loans.

In the most recent complaint, the DOJ along with the Consumer Financial Protection Bureau (Bureau) and the Office of the Comptroller of the Currency (OCC) alleged Trustmark National Bank (Trustmark) engaged in redlining practices in the Memphis Statistical Area. The complaint alleged Trustmark located and maintained almost all its branch locations and mortgage loan officers in majority-white areas and lacked adequate fair-lending policies and internal controls to detect fair lending violations. As a result of these practices, the Federal government asserted Trustmark’s lending policies discouraged loan applications and loan-making. The factual allegations of the complaint are as follows:

• Fifty percent of the census tract that makes up the Memphis Statistical Area is majority-Black and Hispanic. However, Trustmark between 2014 and 2018 concentrated 21 of its 25 branches in majority-white areas while Trustmark only maintained 4 branches in majority-Black and Hispanic areas.
• Trustmark assigned all its mortgage loan officers to branches in majority-white areas.
•  Until 2018, Trustmark lacked adequate fair lending policies and internal governance measures to be compliant with fair lending requirements.
• The lending policies depressed loan applications in majority-Black and Hispanic areas to the point where peer banks allegedly generated almost 2.5 times the amount of applications from individuals seeking credit for properties located in the same majority-Black and Hispanic areas than Trustmark.
• Trustmark made a disproportionately lower number of mortgage loans in majority-Black and Hispanic areas than its peers. 8.3 percent of Trustmark’s 2,369 HDMA-reportable residential mortgage loans were made to residents in majority-Black and Hispanic areas while Trustmark’s peers made about 19 percent of their 42,714 HDMA-reportable residential mortgage loans in majority-Black and Hispanic areas.

The DOJ with the OCC filed an earlier August 30^th complaint against Cadence Bank (Cadence) for allegedly engaging in redlining behavior similar to Trustmark. In the complaint, the Federal government alleged the following:

• Cadence concentrated 12 of its 13 Houston-based branches in majority-white areas with Cadence’s only branch in a majority-Black and Hispanic area later serving another majority-white area by 2017 because of demographic changes.
• Cadence assigned its loan officers to most of its branches in majority-white areas without assigning any loan officer to its only branch in a majority-Black and Hispanic area.
• Cadence’s outreach and marketing targeted majority-white areas while ignoring majority-Black and Hispanic areas.
• The lending policies led to disproportionately low numbers of home loan applications from majority-Black and Hispanic areas. On the other hand, Cadence’s peers generated 36 percent of their nearly 128,000 applications from residents in majority-Black and Hispanic areas versus Cadence generating only 14 percent of its nearly 1,600 HDMA-reportable mortgage applications from those same areas.
• The low number of home loan applications resulted in a disproportionately low number of loans made in majority-Black and Hispanic areas with Cadence’s peers making more than 2.3 times the amount of loans than Cadence did in the same areas.

Both complaints highlight alleged redlining practices that concentrated the majority of bank branches and mortgage loan officers in majority-white areas. These alleged practices resulted in disproportionately low loan applications and loans made in majority-Black and Hispanic areas. As a result, the DOJ and federal regulators asked courts in both complaints for monetary damages and civil penalties. Trustmark recently entered a settlement that would require Trustmark to place $3.85 million in a loan subsidy program for the impacted areas, increase their lending presence in the impacted areas, implement proper fair lending procedures, and pay $5 million dollars in civil fines (crediting a $4 million penalty collected by the OCC toward the satisfaction of the civil fine amount). The Cadence and Trustmark complaints are a sign of increased federal focus against alleged redlining practices as the DOJ recently announced a new initiative with federal regulators to combat redlining practices.