Recently the U.S. Department of Justice (DOJ) entered into a proposed consent order with Ameris Bank to resolve allegations of redlining from 2016 through 2021 in majority Black and Hispanic areas in the Bank’s Jacksonville, Florida assessment area under both the Equal Credit Opportunity Act (ECOA) and Fair Housing Act. In conjunction with the announcement of the proposed consent order, Attorney General Merrick Garland provided an update on the DOJ’s Combating Redlining Initiative that was launched in October 2021.
As we noted regarding another recent redlining settlement, 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 the Bank’s “acts, policies, and 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 ECOA and Regulation B.”
The DOJ allegations reflect common themes of recent DOJ redlining settlements, although the DOJ also includes more detailed allegations. DOJ alleges that:
- The Bank located its branches in its Jacksonville Community Reinvestment Act (CRA) assessment area so as to serve the credit needs of residents in majority-White neighborhoods and avoid serving the credit needs of residents in majority-Black and Hispanic neighborhoods. While this is a common theme, the DOJ included more detailed allegations:
- The Bank does not have, and has never had, a branch located in a majority-Black and Hispanic census tract in its Jacksonville assessment area, even though the majority-Black and Hispanic census tracts represent nearly 20% of the overall census tracts in the assessment area.
- In January 2019, as part of an “efficiency initiative” prior to a merger, the Bank closed two branches in census tracts that it had identified as having “minority” populations “higher” than adjacent Bank branch locations. The Bank did not close any branches in White areas of its Jacksonville assessment area as part of the efficiency initiative.
- One of the branches closed, the “downtown branch,” was located within what the Bank referred to as the “urban core” and was the closest branch to most of the majority-Black and Hispanic tracts in Jacksonville. At the time of its closure, the downtown branch was rated one of the Bank’s “best financial performers” of all of its branches in the United States.
- The Bank performed an internal CRA analysis to assess the effect of the branch closures on the Bank’s CRA score, and the Bank determined that both branch closures would have a negative impact on its CRA score.
- At the time of the CRA analysis and when the Bank closed the branches, the Bank already knew that, in years prior, it had originated zero loans in most of what the Bank called the “urban core.” The Bank knew or should have known from its internal CRA analysis that its branch closures would further deprive those same communities of equal access to credit services.
- After the branch closures, the Bank did not take any action to increase or supplement its outreach or advertising to the affected communities to ensure it was reaching majority-Black and Hispanic communities and serving the credit needs of its entire community, except for one email campaign in 2019 where the Bank sent emails to already-existing customers living in majority-Black and Hispanic communities.
- The Bank has a policy or practice of relying primarily on its mortgage bankers to generate residential mortgage loan applications by developing referral sources and conducting outreach to build local relationships. The Bank’s mortgage loan officers targeted majority-White areas to generate loan applications and avoided marketing, advertising, and outreach in majority-Black and Hispanic areas. While this is a common theme, the DOJ included more detailed allegations:
- Mortgage bankers are not assigned to generate applications from specific geographic areas within the Jacksonville assessment area. The Bank’s mortgage bankers have unsupervised discretion to decide from where to solicit applications.
- The Bank did not monitor or document where its mortgage bankers developed referral sources or to whom mortgage bankers distributed marketing or outreach materials related to mortgage lending services to ensure that such sources or distributions occurred in all neighborhoods throughout the Jacksonville assessment area.
- In July 2018, the Bank’s Compliance Department recommended to the Mortgage Division that its mortgage bankers build partnerships with local real estate professionals and community partners to improve lending in high-minority communities and low- and moderate-income communities and that the Mortgage Division conduct mortgage banker training.
- In response to the Compliance Department’s recommendations, the Bank created a CRA mortgage banker position. The Bank’s Chief Executive Officer offered this specialized CRA mortgage banker job to a person who did not apply for or seek out the role, had no banking experience or relevant background knowledge, and no familiarity with or connections to Black or Hispanic neighborhoods in Jacksonville. During his approximately one year and seven months in the role, the CRA mortgage banker did not originate a single loan. Nor did he perform any outreach or distribute any marketing materials to majority-Black and Hispanic communities. In or around March 2020, the CRA mortgage banker was transitioned to an internal lending role. The Bank did not fill the CRA mortgage banker role for the remainder of the relevant time period.
- The Bank targeted some advertising efforts to majority-White areas but made no or minimal efforts to similarly target advertising to majority-Black and Hispanic areas in its Jacksonville assessment area. While this is a common theme, the DOJ included more detailed allegations:
- During the relevant time period, the Bank’s corporate marketing division selected some media channels that reached the entire assessment area, including television, radio, and print. However, the Bank also targeted specific majority-White areas within the assessment area but did not target majority-Black and Hispanic tracts.
- The Bank focused its billboard marketing in white areas. For example, in 2019 and 2020, the Bank placed six advertisements on billboards in the Jacksonville assessment area in majority-White tracts. The Bank did not advertise on any billboards located in majority-Black and Hispanic tracts.
- In 2020, the Bank sent a “free checking mailer” that the Bank stated was targeted toward low- and moderate-income areas and majority-minority census tracts. The Bank mailed approximately 22,759 postcards with images of white models to 13 zip codes throughout its Jacksonville assessment area, predominantly in areas around its branches. Of those postcards, approximately 96.5% were sent to majority-White tracts and only 3.5% of the postcards were sent to a single majority-minority tract. Not one postcard was sent to a single resident living in a majority-Black and Hispanic tract. None of the postcards were sent to the area that the Bank calls the “urban core.”
- The Bank’s internal compliance management system was inadequate to ensure that the Bank provided equal access to credit to majority-Black and Hispanic neighborhoods in its Jacksonville assessment area. In particular, the DOJ alleges:
- As early as 2016, the Bank knew that its internal redlining analysis was insufficient to identify and measure redlining risk, but it did not revise its monitoring practices until 2018. In May 2018, using its revised analysis, a Bank report identified 44 low- and moderate-income or high-minority tracts where other lenders originated loans in 2017, but the Bank originated zero loans.
- In July 2018, the Compliance Department met with the President of Mortgage Services to discuss the Fair Banking Manager’s recommendations. For the remainder of the relevant time period, the Bank failed to take effective actions to implement these recommendations.
- In January 2019, the Compliance Department compiled a report on the Bank’s lending in Duval County’s “urban core.” The report stated that, in 2017, of the loans that the Bank did originate in “urban core” high- minority tracts, only two of those loans were made to Black borrowers and zero loans were made to Hispanic borrowers.
- The Bank significantly underperformed its “peer lenders” in generating home mortgage loan applications from majority-Black and Hispanic areas within the Bank’s assessment area. As is common, the DOJ defined “peer lenders” as similarly-situated financial institutions that received between 50% and 200% of the Bank’s annual volume of home mortgage loan applications in the Bank’s Jacksonville assessment area. In particular, the DOJ alleges:
- Only 3.5% of applications came from residents of majority-Black and Hispanic census tracts, compared to 10.8% of applications received by peer lenders from these same majority-Black and Hispanic census tracts.
- Only 2.7% of the Bank’s mortgage loans were made to residents of majority-Black and Hispanic census tracts, compared to 9.5% of mortgage loans made by peer lenders in these same majority-Black and Hispanic census tracts.
The proposed consent order includes common remedies required by the DOJ to settlement redlining allegations, and also remedies tailored to the Bank. In the proposed consent order, the Bank agrees to:
- Maintain during the five year term of the consent order a Fair Lending Committee that the Bank established in 2022, and a Fair Lending Policy that the Bank adopted in 2021, subject to changes contemplated by the consent order.
- Submit to the DOJ a detailed evaluation of the Bank’s fair lending program as it relates to fair lending obligations and lending in majority-Black and Hispanic census tracts across its markets, that is conducted by an independent, qualified third-party consultant selected by the Bank, subject to non-objection by the DOJ.
- Submit a revised Fair Lending Plan to the DOJ for non-objection that explains which of the consultant’s recommendations the Bank will adopt, when and how it will adopt and implement them, and identify the employee(s) responsible for implementation. If the Bank declines to adopt or implement a recommendation, the Bank must include an explanation of the decision.
- With regard to the community credit needs assessment for majority-minority census tracts in Jacksonville that the Bank commissioned in 2022, submit to the DOJ a remedial plan that details, in light of the recommendations made in the assessment, the actions that the Bank proposes to take to comply with the requirements of the consent order. (It is common for consent orders to require the lender to conduct a community credit needs assessment. As the Bank had already conducted such an assessment, the DOJ required an update to address the consent order requirements.)
- Open or acquire a new branch in a majority-Black and Hispanic neighborhood in Jacksonville located north of the St. Johns River in the Jacksonville assessment area, with the DOJ having a non-objection right regarding the specific location of the branch. The branch must be a full-service branch in a retail-oriented space in a visible location and have signage that is visible to the general public. The branch must provide the Bank’s complete range of products and services, maintain hours of operation consistent with the range of hours maintained at other Bank branches in the Jacksonville assessment area, and must accept first-lien mortgage loan applications. Unlike some recent consent orders, the consent order does not prohibit the Bank from opening a branch outside of majority-Black and Hispanic neighborhoods in Jacksonville before opening the required branch.
- Hire a CRA mortgage banker position with the same competitive compensation structure used with the two CRA mortgage bankers that the Bank hired in 2022 to serve its Jacksonville assessment area, and during the term of the consent order maintain no fewer than three full-time CRA mortgage bankers to solicit mortgage applications primarily in majority-Black and Hispanic census tracts in the Bank’s Jacksonville assessment area.
- Invest $7.5 million in a loan subsidy fund that will be made available to residents of majority-Black and Hispanic neighborhoods in the Jacksonville assessment area. The fund may be used to provide interest rates or points below the otherwise prevailing market interest rate or points offered by the Bank, down payment assistance in the form of a direct grant, closing cost assistance in the form of a direct grant, payment of the initial mortgage insurance premium on loans subject to such mortgage insurance, and any other assistance measures approved by the DOJ.
- Spend a minimum of $180,000 per year ($900,000 during the term of the consent order) for advertising and outreach targeted toward the residents of the residents of majority-Black and Hispanic census tracts in the Jacksonville assessment area.
- Spend a minimum of $120,000 per year ($600,000 during the term of the consent order) to develop community partnerships to provide services to the residents of majority-Black and Hispanic census tracts in the Jacksonville assessment area that increase access to residential mortgage credit.
- Advertise its residential loan products to majority-Black and Hispanic census tracts in its Jacksonville assessment area, and target advertising to generate mortgage loan applications from qualified applicants in these census tracts. The Bank’s advertising may include print media, radio, digital advertising, social media, television, direct mail, billboards, and any other appropriate medium to which the DOJ States does not object. The Bank must advertise its mortgage lending services and products to majority-Black and Hispanic census tracts in its Jacksonville assessment area at least to the same extent that it advertises its mortgage lending services and products to majority-White census tracts in its Jacksonville assessment area.
- Provide at least six outreach programs per year during the term of the consent order for real estate brokers and agents, developers, and public or private entities engaged in residential real estate-related business in majority-Black and Hispanic census tracts in the Jacksonville assessment area to inform them of its products and services and to develop business relationships.
- Develop a consumer financial education program and provide a minimum of eight seminars per year, during the term of the consent order, targeted and marketed toward residents in majority- Black and Hispanic census tracts in the Jacksonville assessment area and held in locations intended to be convenient to those residents.
- Employ a full-time Director of Community Lending who will oversee the continued development of lending in majority-Black and Hispanic neighborhoods in Jacksonville assessment area.
As has been the trend with recent redlining consent orders, there is no civil money penalty.