The U.S. Department of Justice (DOJ) has filed a consent order against Union Savings Bank and Guardian Savings Bank to resolve redlining allegations. The complaint alleges that the banks violated the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA) by engaging in a pattern or practice of unlawful redlining of predominately African American neighborhoods in their main lending areas—Cincinnati, Ohio; Dayton, Ohio; Columbus, Ohio; and Indianapolis, Indiana.

The banks share common ownership and management and are both headquartered in Cincinnati, but their services are provided independently. Both banks deny the allegations that they violated the FHA and ECOA. Union Savings Bank is a state-chartered, federally insured bank subject to the jurisdiction of the Federal Deposit Insurance Corporation (FDIC). Guardian Savings Bank is a federal savings bank subject to the jurisdiction of the Office of the Comptroller of the Currency (OCC) and operates mainly in the Cincinnati area. The consent order does not indicate whether the case was referred to the DOJ by the FDIC and OCC, nor does the complaint.

To establish its claims of redlining, the DOJ makes allegations that are similar to the allegations in the recent redlining complaints against Hudson City Savings Bank and BancorpSouth Bank. Specifically, the DOJ alleges that from at least 2010 through 2014, the banks had policies and practices that discouraged African American consumers in these cities from applying for credit, including, but not limited to, the following:

  • Locating their branches to serve majority-white census tracts and avoid majority-African American census tracts.

  • Receiving a low percentage of mortgage loan applications from majority-African American census tracts, lower than the percentage of applications from majority-African American census tracts received by comparable lenders.

  • Making a low percentage of mortgage loans secured by property located in majority-African American census tracts, lower than the percentage of mortgage loans secured by property located in majority-African American census tracts made by comparable lenders.

  • Spending only a small portion of the advertising budget in newspapers aimed at African American audiences, with ads not mentioning the availability of government lending programs that in recent years have been most effective in serving minority and low- to moderate-income borrowers nationally; not referring to down payment assistance programs/grant programs; and not referring to branches located in close proximity to majority-African American census tracts.

  • Failing to train or incentivize mortgage loan officers to lend in majority-African American census tracts, and not making efforts to hire loan officers experienced with serving, or with ties to referral sources in, majority-African American areas.

The DOJ also alleges that Union Savings Bank knew that it was underserving majority-minority census communities in its lending areas based on information compiled by an in-house compliance group that was presented to the board of directors and audit committee on a quarterly basis from at least 2010 through 2014. The DOJ alleges that “[b]ased on information and belief” Guardian Savings Bank knew, but failed to address, that it was underserving potential African American borrowers and majority-minority communities in its lending area from at least 2010 through 2014.

The consent order requires the banks to engage in certain actions, including, but not limited to, the following:

  • Opening new facilities. Union Savings Bank will open two new full-service branches at specified locations in majority-African American census tracts in its lending area. Guardian Savings Bank will open one loan production office to serve a majority-African American neighborhood in its lending area.

  • Investing at least $7 million in a subsidy fund to increase the amount of credit that the banks extend to residents of majority-African American neighborhoods in Cincinnati, Columbus, Dayton, and Indianapolis. Under this loan subsidy program, the banks will subsidize loans made to certain qualified applicants.

  • Spending a minimum of $750,000 in one or more partnerships with community-based organizations or governmental organizations to provide residents of majority-African American census tracts with home repair or other grants designed to assist homeowners who experience financial distress or deferred maintenance on their properties; credit, financial, homeownership, or foreclosure prevention services; or low- or no-cost access to home ownership.

  • Investing a minimum of $625,000 in advertising and outreach within majority-African American census tracts.

  • Spending a minimum of $625,000 on one or more components of specified consumer education and credit repair programs.

  • Developing internal controls to ensure compliance with fair lending obligations and conducting fair lending training for employees.

  • Identifying an independent third-party compliance-management-system consultant to assist in the review and revision of the banks’ policies and practices designed to ensure their compliance with fair lending laws as they relate to making available and marketing products in majority-African American census tracts.

  • Preparing an assessment of the credit needs of the majority-African American census tracts within their lending areas.

  • Continuing to jointly employ a full-time Director of Community Development, whose primary responsibilities will include overseeing the continued development of the banks’ lending in majority-African American census tracts.

The consent order is subject to court approval. The DOJ notes in the consent order that it believes the banks are appropriately committed to future compliance with the law, and have begun to take meaningful steps to improve access to credit in the African American census tracts in their lending areas.

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).

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