On February 28, the Department of Justice ("DOJ") announced that it had secured a $9 million settlement with Park National Bank to address allegations of lending discrimination. The settlement represents the latest development in the ongoing effort to combat discrimination in the financial industry, particularly against borrowers from minority communities.

The federal court complaint filed in the U.S. District Court for the Southern District of Ohio alleges that between 2015 and 2021, Park National engaged in redlining by not offering mortgage lending services in majority-Black and Hispanic neighborhoods in the Columbus area. The complaint states that the bank's branches and mortgage lenders were concentrated in majority-white neighborhoods, and the bank did not take any significant action to address its absence in majority-Black and Hispanic communities. Redlining is a discriminatory practice in which banks or lenders refuse to provide services or loans to residents in certain geographic areas, often based on the racial or ethnic composition of those areas.

In a proposed consent order that was also filed in federal court, Park National has agreed to do the following, pending approval by the court:

1. Invest at least $7.75 million in a loan subsidy fund to expand the availability of mortgage, improvement, refinance, home equity, and home equity line of credit products in Columbus's majority-Black and Hispanic neighborhoods; $750,000 in outreach, advertising, consumer financial education, and credit counseling initiatives; and $500,000 in developing community partnerships to deliver these products and services to the area's residents.
2. Maintain a full-time position for a Director of Community Home Lending and Development who is responsible for overseeing lending in majority-Black and Hispanic areas; open one new branch and one new mortgage loan production office in majority-Black and Hispanic neighborhoods in the Columbus area; assign a minimum of four mortgage lenders to serve these neighborhoods; and
3. To better understand the demand for financial services in Columbus's majority-Black and majority-Hispanic census tracts, it would conduct a Community Credit Needs Assessment, a market study based on research.

The agreement was reached as a component of the nationwide Combating Redlining Initiative that was launched by Attorney General Merrick B. Garland in October 2021. The Combating Redlining Initiative by the DOJ is a collective enforcement endeavor aimed at combating the persistent discrimination faced by communities of color. Since the initiative's inception, the department has disclosed six instances of redlining, reached settlements, and obtained $84 million in relief for communities of color affected by lending discrimination nationwide. One such settlement was with City National Bank for $31 million, the most substantial settlement in the history of the DOJ.

"For far too long the doors to home ownership have been shut for Black families and many other people of color because of unlawful redlining by banks and other financial institutions," said Assistant Attorney General Kristen Clarke of the Justice Department's Civil Rights Division. "When banks fail to provide equal access to lending services in neighborhoods of color, they engage in modern day redlining and exacerbate the racial wealth gap in our country. The Justice Department will continue to fight to fulfill the promise of our nation's fair lending laws while tearing down the discriminatory barriers that deny Black people and other people of color access to economic opportunity and homeownership."

"Let today's settlement send a very clear message to banks: we will not tolerate discriminatory lending practices and we will hold you accountable," said U.S. Attorney Kenneth L. Parker for the Southern District of Ohio. "We are committed to enforcing fair lending laws, which require financial institutions to provide equal opportunity for every American to obtain home loans and credit. We take very seriously our duty and honor to uphold those laws."

The DOJ has issued a warning to all financial institutions about redlining. This notice is a part of the government's broader initiative to end discrimination in lending and expand equal access to credit. QPWB Partner in the Business, Financial Services & Real Estate Division, Jaline Fenwick said that "the DOJ has pledged to fight against biased lending practices and to prioritize inquiries into financial institutions involved in redlining. It's essential for our financial institution clients to heed the DOJ's warning and take appropriate measures to adhere to related laws and regulations to prevent any legal consequences."

The bottom line is that redlining is illegal, and lenders who practice it risk severe repercussions. The DOJ has made it abundantly clear that it will not stand for any form of discrimination in lending practices, and that those responsible will be brought to justice.

To learn more about this alert, or to inquire about how to protect your financial services business, reach out to our firm's Business, Financial Services & Real Estate Division. We are well-equipped to offer our advice and expertise on navigating these regulations and addressing this matter.