The Department of Justice (DOJ) announced a settlement agreement with Washington Trust Company, of Westerly (WTC) to resolve claims that WTC redlined majority Black and Hispanic neighborhoods in Rhode Island.
In its complaint against WTC, DOJ alleged that the following practices were used to discriminate against Black and Hispanic borrowers from 2016 to at least 2021:
- WTC located and maintained all of its Rhode Island branches and loan officers outside of majority-Black and Hispanic neighborhoods (WTC designated all five counties in Rhode Island as its Community Reinvestment Act (CRA) assessment area);
- WTC never had a branch in a majority-Black and Hispanic census tract despite the significant presence of majority-Black and Hispanic neighborhoods and census tracts throughout Rhode Island;
- WTC did not assign a single mortgage loan officer to conduct outreach, market, advertise, or generate loans from majority-Black and Hispanic neighborhoods;
- WTC failed to conduct outreach, marketing, and advertising of mortgage services in majority-Black and Hispanic areas;
- WTC received only 2.4% of its mortgage loan applications from residents of, or for properties located in, majority-Black and Hispanic areas in its CRA assessment area, compared to 9.5% for its peer lenders, and on average 46.5% of the applications generated by WTC in those areas were from White applicants, compared to 25% for its peers. (As is common, the DOJ considered the peer lenders to include similarly-situated financial institutions that received between 50% and 200% of WTC’s annual volume of home mortgage loan applications);
- WTC made only 1.9% of its mortgage loans to residents of, or for properties located in, majority-Black and Hispanic areas in its CRA assessment area, compared to 7.9% for its peer lenders;
- WTC employed only two mortgage loan officers who spoke Spanish fluently, with one leaving the position after serving less than one year and, as a result, the vast majority of WTC’s mortgage loan officers were unable to provide credit services to Spanish-speaking applicants and prospective applicants; and
- WTC was aware of its redlining risk because the disparities in its mortgage lending activity were identified in internal and third-party reports.
In the complaint, the DOJ claimed WTC’s actions violated both the Fair Housing Act and the Equal Credit Opportunity Act. The finding by a federal district court that ECOA does not apply to prospective applicants in the Townstone case, and the CFPB’s appeal to the U.S. Court of Appeals for the Seventh Circuit, has created uncertainty in the industry regarding ECOA’s applicability to redlining practices. Despite this uncertainty, the DOJ stated that WTC’s “practices as alleged herein constitute unlawful discrimination against applicants and prospective applicants, including by redlining majority-Black and Hispanic communities in its assessment area and engaging in acts and practices directed at prospective applicants that would discourage prospective applicants from applying for credit on the basis of race, color, or national origin in violation of the Equal Credit Opportunity Act and Regulation B.”
The allegation regarding the inability of WTC to provide credit services to Spanish-speaking applicants and prospective applicants reflects a trend of the DOJ apparently perceiving what it believes are insufficient resources to assist individuals with limited English proficiency (LEP) as presenting a fair lending issue.
Ultimately, the DOJ settled the case with WTC. Under the consent order, WTC has agreed to:
- Submit to DOJ for non-objection a Community Credit Needs Assessment for majority-Black and Hispanic census tracts within the Rhode Island lending area that is conducted by one or more independent, qualified third-party consultants selected by WTC and subject to non-objection by the DOJ;
- Supplement its existing annual third-party assessment of its fair lending program in the Rhode Island lending area, specifically to include fair lending obligations and lending in majority-Black and Hispanic census tracts, which supplement is subject to non-objection by the DOJ;
- Provide fair lending training to all employees with substantive involvement in mortgage lending, marketing, or fair lending or CRA compliance in the Rhode Island lending area;
- Designate a full time employee as Director of Community Lending to oversee lending activities in majority-Black and Hispanic areas;
- Open 2 full services branches, and hire loan officers, in majority-Black and Hispanic census tracks; and
- Spend $9 million investing in increased access to mortgage loans, community partnerships, advertisement, outreach, and financial education focused on majority-Black and Hispanic neighborhoods in Rhode Island, including a $7 million loan subsidy fund to provide for below market rates, down payment assistance, closing cost assistance and/or payment of the initial mortgage insurance premium.
As is the case with more recent redlining consent orders, the consent order does not provide for payment of a civil money penalty.