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On Thursday, The Justice Department accused Los Angeles-based City National Bank of discrimination by refusing to underwrite mortgages in predominately Black and Latino communities, requiring the bank to pay more than $31 million in the largest redlining settlement in department history.
NBC News reports City National is the latest bank in the past several years to be found systematically avoiding lending to racial and ethnic groups, a practice that the Biden administration has set up its own task force to combat.
Wells Fargo slashes mortgage lending division while vowing to close gaps it helped to grow
According to Banking Dive, City National’s decision comes at the same that Wells Fargo, which claims to be “the largest bank lender to Black and Hispanic families for the last decade,” is cutting its mortgage lending department.
As part of the bank’s new “strategic direction,” Wells Fargo said it will also exit its correspondent lending business, a unit of the bank that buys loans from third-party lenders.
The bank’s decision to shrink its mortgage lending operation will come with a new round of layoffs, according to CNBC.
The shift will involve focusing on existing customers and non-White communities, the bank stated Tuesday in a release. “We remain deeply committed to advancing racial equity in homeownership,” said Kleber Santos, the bank’s CEO of consumer lending.
Wells Fargo came under fire last March, when a Bloomberg analysis found the bank approved 47% of refinance applications from Black homeowners in 2020 but 72% from White borrowers.
The bank boosted its acceptance rate in 2021, to 58% of Black mortgage refinancing applicants. But the figure for White borrowers also increased, to 79%, leaving a 21-percentage-point gap.
DOJ finds City National avoided diverse neighborhoods in L.A.
The Justice Department says that between 2017 and 2020, City National avoided marketing and underwriting mortgages in majority Black and Latino neighborhoods in Los Angeles County.
Other banks operating in those neighborhoods received six times the number of mortgage applications that City National did, according to federal officials.
The Justice Department also alleges City National, a bank with roughly $95 billion in assets, was so reluctant to operate in neighborhoods where most of the residents are people of color, the bank only opened one branch in those neighborhoods in the past 20 years. In addition, no employee was dedicated to underwriting mortgages at that one branch, unlike branches in majority White neighborhoods.
In comparison, the bank opened or acquired 11 branches in that time period.
“This settlement should send a strong message to the financial industry that we expect lenders to serve all members of the community and that they will be held accountable when they fail to do so,” Assistant Attorney General Kristen Clarke, who leads the Justice Department’s civil rights division, said in a statement.
According to NBC News, as part of the settlement, City National will create a $29.5 million loan subsidy fund for loans to Black and Latino borrowers, and spend $1.75 million on advertising, community outreach and financial education programs to reach minority borrowers.
In a statement, City National said it disagreed with the Justice Department’s allegations, but “nonetheless support the DOJ in its efforts to ensure equal access to credit for all consumers, regardless of race.”
Redlining has never ended in America
Despite a half-century of laws designed to combat redlining, the racist practice continues across the country and the long-term effects are still felt to this day.
The settlement with City National is the largest settlement with the Justice Department in history.