The Justice Department (DOJ) recently announced a settlement with ESSA Bank & Trust (ESSA), which has agreed to pay over $3 million to resolve allegations that it engaged in a pattern or practice of redlining in violation of both the Fair Housing Act (“FHA”) and the Equal Credit Opportunity Act (“ECOA”) from 2017 through at least 2021. In bringing the redlining claim, DOJ asserted that during this period ESSA failed to provide mortgage lending services to and did not serve the credit needs of majority-Black and Hispanic neighborhoods in the Philadelphia Metropolitan Statistical Area (“MSA”), particularly those in Philadelphia County.
ESSA is a Pennsylvania community savings bank headquartered in Stroudsburg that offers lending, depository, and related financial services throughout Pennsylvania. ESSA included significant portions of eight different Pennsylvania counties in its self-defined CRA assessment area, but did not include any portion of Philadelphia County, even though ESSA has four branches in the Philadelphia MSA that all border Philadelphia County and even though the bank from which it acquired those branches included Philadelphia County in its assessment area. In its examination of the Bank in 2021, the FDIC determined that Philadelphia County should have been included in ESSA’s assessment area and referred the matter to DOJ.
According to the complaint, during its redlining investigation DOJ found that ESSA failed to adequately staff the four branches bordering Philadelphia County and failed to hire or assign enough loan officers to serve those branches, which are the ones nearest to majority-Black and Hispanic census tracts. DOJ also concluded that ESSA engaged in limited marketing and outreach in the Philadelphia MSA and failed to advertise meaningfully in majority-Black and Hispanic neighborhoods, even though the Bank conducted small business lending marketing in Philadelphia County and originated many commercial loans there. Instead, DOJ asserted that ESSA’s marketing strategy intentionally targeted majority-white areas in the Philadelphia MSA.
Further, DOJ concluded that ESSA’s lending policies discriminated against majority-Black and Hispanic census tracts in Philadelphia County. By way of example, the complaint describes the bank’s Community Home Buyer Program, which was designed to help low-to-moderate income households affordably purchase a home within the Bank’s CRA assessment area. However, DOJ asserted that because ESSA excluded Philadelphia County from its CRA assessment area, the program limited consumer’s opportunities to purchase homes in majority-Black and Hispanic neighborhoods, some of which were within miles of two of the Bank’s branches in the Philadelphia MSA.
DOJ also maintained in the complaint that the fair lending reports from third party vendors engaged by ESSA to assess and report on its performance put it on notice of its deficiencies, which it then repeatedly failed to address. DOJ emphasized that four annual reports from 2017 to 2020 all concluded that ESSA’s application and origination volumes in majority-minority and high minority census tracts were not only low relative to the overall demographics of the Bank’s assessment area, but also low relative to the Bank’s peers. Nonetheless, DOJ asserted that ESSA did not engage in any targeted marketing to majority-Black and Hispanic census tracts, or beef up its staffing by hiring additional loan officers to serve those census tracts.
According to the DOJ’s press release, “ESSA has agreed to invest at least $2.92 million in a loan subsidy fund to increase access to credit for home mortgage, improvement and refinance loans, as well as home equity loans and lines of credit, in majority-Black and Hispanic neighborhoods in the bank’s lending area. ESSA has also agreed to spend an additional $125,000 on community partnerships and $250,000 on advertising, outreach, consumer financial education and credit counseling, in an effort to expand the bank’s services in majority-Black and Hispanic communities. The consent order also requires the bank to hire two new mortgage loan officers to serve its existing branches in West Philadelphia and conduct a research-based market study to help identify the needs for financial services in communities of color.”