HAS REDLINING ENFORCEMENT RETURNED?

At the end of the Obama administration redlining consent decrees were becoming coming. Redlining cases, once the purview of large banks, had drifted down to the community bank level. Since the beginning of 2016 redlining cases have dried up, other than one case left over from the prior administration that was settled favorably for the bank.

On June 13, 2009 The Department of Justice (DOJ) and the U.S. Attorney’s Office for the Southern District of Indiana filed a complaint and settlement agreement, resolving allegations that First Merchants Bank engaged in lending discrimination by “redlining” predominantly African-American neighborhoods within Indianapolis, Indiana. First Merchants Bank is headquartered in Muncie, Indiana, with branches throughout the Midwest. First Merchants is one of the largest full-service banks in Central Indiana with more than $9 billion in assets and 110 branches in Indiana alone.

The DOJ alleges that First Merchants violated the Fair Housing Act and Equal Credit Opportunity Act, which prohibit financial institutions from discriminating on the basis of race in their mortgage lending services. Information shows that First Merchants Bank redlined majority-Black areas within the Indianapolis-Carmel-Anderson MSA, particularly those in Indianapolis-Marion County, by:

  1. Excluding Indianapolis-Marion County and its 50 majority-Black census tracts from the Bank’s Community Reinvestment Act (“CRA”)1 assessment area, while including overwhelmingly white counties;
  2. Failing to have any branch locations in majority-Black areas of Indianapolis-Marion County;
  3. Refusing to market in majority-Black areas of Indianapolis-Marion County.
  4. Having a disproportionately low number of loan applications from majority-Black neighborhoods in Indianapolis-Marion County compared to its peer institutions;
  5. Having a disproportionately low number of loan originations in majority-Black neighborhoods compared to its peer institutions; and
  6. Having a residential mortgage lending policy that provides a lending preference based on the location of borrowers, not their creditworthiness.

Under the settlement agreement, which is subject to court approval, First Merchants will expand its marketing efforts, lending, and banking services to specifically include predominantly African-American neighborhoods in Indianapolis. To remedy the harm to those living in the redlined areas, the bank will invest $1.12 million in a loan subsidy fund to increase credit opportunities to residents of predominantly African-American neighborhoods, and will devote $500,000 toward advertising, community outreach, and credit repair and education. First Merchants will also open a branch and loan production office to serve the banking and credit needs of residents in predominantly African-American neighborhoods in Indianapolis. The bank will employ a director of community lending and development who will oversee these efforts and work in close consultation with the Bank’s leadership.

A copy of the settlement agreement is available at https://www.justice.gov/opa/press-release/file/1173146/download.

Does the First Merchants case signal a return to the previous course of conduct by the DOJ? Or, is this case just a blip on the radar screen? Share your thoughts in our Forum at https://www.jackscomplianceresource.com/forums/topic/redlining-status-2019/

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