For the past decade there has been a constant stream of enforcement actions against financial institutions for engaging in redlining. Redlining occurs when financial institution practices result in the restriction of lending in a particular geographic area, quite frequently a low-income or a high minority population area. Redlining is:
- Usually cited as a fair lending violation.
- Frequently listed as a weakness in a Community Reinvestment Act (CRA) management system.
- Quite often listed as both a fair lending and a CRA concern.
- Now there is Small Business Data Reporting
Fair lending laws, the Equal Credit Opportunity, and Fair Housing Acts, prohibit illegal discrimination on a prohibited basis. CRA deals with income disparities, requiring financial institutions to meet the needs of their entire community, including low- and moderate-income areas. For years, both CRA and HMDA regulations have provided the data needed to test financial institutions on how well they do in meeting the needs of those they serve.
On March 30, 2023, the Consumer Financial Protection Bureau (CFPB) published an 888-page final rule to implement Section 1071 of the Dodd-Frank Act. That section amends the Equal Credit Opportunity Act (ECOA) to require financial institutions to collect and report certain data in connection with credit applications made by women, minority, and/or LGBTQI+ owned businesses and small businesses.
- The effective date is 90 days after publication in Federal Register.
- Compliance dates are tiered based on transaction volumes. The first tier will be required to report on October 1, 2024, and the final compliance date for tier 3 being January 1, 2026.
The industry is in full agreement that implementation of the new rule will consume extensive time and resources.
The combination of these critical regulations will bring to light issues in lending policies and will highlight a lack of lending in certain areas which is a direct link to Redlining. The financial institutions that fail to meet the credit needs of its selected assessment area are a target of special interest groups. The populations of the redlined areas are often high minority (fair lending) and low income (CRA). That is the collision of fair lending and CRA. What will the future bring with the passing of Small Business Data Collection 1071 regulations.
Recent cases that bring focus to this collusion include:
- On August 20, 2021, the DOJ, and the Office of the Comptroller of the Currency (OCC) announced coordinated actions to address allegations of redlining by Cadence Bank N.A.
- On October 22. 2021, the CFPB and the DOJ, in cooperation with the Office of the Comptroller of the Currency (OCC), took action to put an end to alleged redlining by Trustmark National Bank in majority-Black and Hispanic neighborhoods in the Memphis metropolitan area.
- On October 22, 2021, the DOJ announced the launch of a new Combatting Redlining Initiative.
- On October 22, 2021, CFPB Director Rohit Chopra said that the CFPB will be watching for “digital redlining, disguised through so-called neutral algorithms, that may reinforce the biases that have long existed.”
- On July 27, 2022, the Consumer Financial Protection Bureau (CFPB) and U.S. Department of Justice (DOJ) took action to end Trident Mortgage Company’s intentional discrimination against families living in majority-minority neighborhoods in the greater Philadelphia area. The CFPB and DOJ allege Trident redlined majority-minority neighborhoods through its marketing, sales, and hiring actions.
- On September 28, 2022, the Department of Justice (DOJ) announced that it has entered into an agreement with Lakeland Bank to settle the DOJ’s claims that understand Lakeland engaged in unlawful redlining in the Newark, New Jersey metropolitan area.
The concept of Reasonable Expected Marketing Area (REMA) has been used by regulators in recent years. REMA is not defined by law, is not covered in fair housing or CRA regulations, and is barely mentioned in examination procedures. For such a poorly defined concept it has caused big problems for many financial institutions.
The CRA regulations are in the process of being revised. The OCC, FDIC and Federal Reserve Board have not completed their CRA revisions. The program discusses how the concept of redlining is impacted by the revised CRA regulations.
This program explains the intersection and gaps between the regulations and the current proposal for CRA. Knowing what is in place and what to expect will aid institutions in understanding the risks and mitigants to have a plan in place to avoid issues. It reviews recent cases analyzing the problems in each institution that lead to the charges, the penalties imposed, and the corrective action required in each case. It clarifies the concept of REMA.
You’ll receive a manual that serves as a handbook long after the program is completed.
Upon completion of this program you will understand:
- The umbrella of laws and regulations that make up fair lending.
- The proposed regulations for CRA and the intersection with fair lending.
- Steps to detect potential redlining and actions to take to minimize problems.
- The public data collection requirements, the annual reporting requirements and what the data will say about your institution.
- The concept of Reasonable Expected Marketing Area and its impact on fair lending, CRA and Section 1071.
- The issues present in recent cases, the penalties imposed on each institution and the corrective action ordered by the regulators and what we can learn from them.
This program is designed for members of the board of directors, managers of all lending departments, bank counsel, compliance officers, loan officers, and auditors.