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FOS Blog

30 Mar

Effects of Trustmark Redlining

Effects of Trustmark Redlining

Trustmark Bank, a $17 Billion bank in Memphis, Tennessee, agreed to pay a civil money penalty of $5 million to the CFPB and $4 million to the OCC as settlement in a redlining case.  This was just the beginning; they must also

  • Establish a $3.85 million loan subsidy fund for residents of predominantly Black and Hispanic neighborhoods.
  • Open a Loan Production Office in a majority-Black and Hispanic neighborhood.
  • Hire at least 4 mortgage loan officers.
  • Devote $400,000 to developing community partnerships.
  • Devote $200,000 a year to advertising, outreach, consumer financial education, and credit repair initiatives around Memphis.

The root cause of the case was that their branches were concentrated in majority-White neighborhoods and their loan officers did not serve the credit needs of majority-Black and Hispanic neighborhoods.  Their outreach and marketing programs avoided those neighborhoods. Their fair lending program failed them.

Redlining occurs when a lender refuses to provide services to people in non-White communities.  According to Attorney General Merrick Garland at a press conference to announce his new “Combatting Redlining Initiative,” he stated that, “When people are denied credit simply because of their race or national origin, their ability to share in our nation’s prosperity is all but eliminated.” DOJ’s Assistant Attorney General, Kristen Clarke, added, “Equal and fair access to mortgage lending opportunities is the cornerstone on which families and communities can build wealth in our country.”  Additionally, the OCC’s Acting Comptroller Michael J. Hsu remarked that “Today’s announcement is important because it signifies the unified and unmitigated focus that each of our agencies has placed on the enforcement of the Fair Housing Act and the Equal Credit Opportunity Act.  Our collective efforts are critical to addressing the discriminatory lending practices that create and reinforce racial inequity in the financial system.”

So, what are the take-aways in addressing your own fair lending program?

Mapping – If your HMDA or CRA software doesn’t include a mapping module, you should consider using a third-party provider to analyze the communities you serve – location of your branches and location of your loans. You’ll want to analyze the racial and ethnic compositions of the census tracts in and around your Assessment Area.  Even if you don’t have majority-minority tracts or low- or moderate-income (LMI) tracts, you will most certainly have LMI individual applicants that can be analyzed.  Look at the number and dollar values of applications and loans and then compare that to available peer data.  What were the reasons for denial and how can you make special loan accommodations for those people?

Marketing – Examine your marketing program through the same lens.  What publications are you targeting and what is their market area?  Are you using publications targeted to minority or low-income individuals or just relying on general distribution?  How must your product parameters change to perhaps meet special needs of those markets (special purpose credits)? If you’re using social media, what filters are they using to draw attention to your products or perhaps limiting access?  Do you have officers serving in community ethnic or civic organizations?  Pay attention to your markets and be certain you are serving all your Assessment Area.

These minorities comprise the majority of unbanked and underbanked individuals, yet they are electronically savvy.  How can you reach them through electronic platforms?  Study the CRA Performance Evaluations of your peers to see what they’re doing in “community development.” Investigate what state and federal loan programs are available for this market and become a partner.  But don’t sit back and do nothing!

For additional information contact the author