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Since 2016, federal fair lending enforcement actions against financial institutions have ground to almost a complete stop. The only area in which actions have been taken against financial institutions is redlining. Redlining is:
- Usually cited as a fair lending violation;
- Frequently listed as a weakness in a Community Reinvestment Act (CRA) management system;
- Quite often listed as both a fair lending and a CRA concern.
Fair lending laws, the Equal Credit Opportunity and Fair Housing Acts, prohibit illegal discrimination on a prohibited basis. CRA deals with income disparities, requiring financial institutions to meet the needs of their entire community, including low- and moderate-income areas.
In redlining cases, lending policies result in a lack of lending in certain areas. The populations of the redlined areas are often high minority (fair lending) and low income (CRA). That is the collision of fair lending and CRA.
In mid-2019 redlining cases appeared in back-to-back months.
- On June 13, 2019 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.
- On July 29, 2019 the U.S. Department of Housing and Urban Development (HUD) announced that it has approved a Conciliation Agreement between the California Reinvestment Coalition and CIT Group, Inc., and CIT Bank, N.A., dba OneWest Bank, resolving allegations that the bank engaged in lending discrimination by “redlining” in the Los Angeles region.
In mid-2020 another redlining case was initiated; a most unusual case.
- On July 15, 2020, the CFPB filed a lawsuit against Townstone Financial, Inc., a nonbank retail-mortgage creditor based in Chicago, for violations of the Equal Credit Opportunity Act (ECOA); its implementing regulation, Regulation B; and the Consumer Financial Protection Act (CFPA).
The concept of Reasonable Expected Marketing Area (REMA) has been used by regulators in recent years. REMA is not defined by law, is not covered in fair housing or CRA regulations, and is barely mentioned in examination procedures. For such a poorly defined concept it has caused big problems for many financial institutions.
The CRA regulations are in the process of being revised. The Comptroller of the Currency has published final CRA rules that are effective on October 1, 2020. The FDIC and Federal Reserve Board have not completed their CRA revisions. The program discusses how the concept of redlining is impacted by the revised CRA regulations.
This recording explains the concept of redlining and how to avoid the problem. It reviews recent redlining cases analyzing the problems in each institution that lead to the redlining charges, the penalties imposed, and the corrective action required in each case. It clarifies the concept of REMA.
You’ll receive a detailed manual that serves as a handbook long after the recording is completed.
Upon completion of this recording you’ll understand:
- The concept of redlining;
- The interagency examination procedures used by the federal financial institution regulatory agencies to detect redlining;
- Steps to detect potential redlining and actions to take to minimize problems;
- The concept of Reasonable Expected Marketing Area and its impact in redlining cases;
- The issues present in the three recent redlining cases, the penalties imposed on each institution and the corrective action ordered by the regulators; and
- How the revised CRA regulations impact the concept of redlining.
This recording is designed for members of the board of directors, managers of all lending departments, bank counsel, compliance officers, loan officers, and auditors.