Attorney General Merrick Garland unveiled an interagency initiative to combat redlining and announced a settlement with Trustmark National Bank in Jackson, Mississippi, of federal allegations of lending discrimination.
The Justice Department, Consumer Financial Protection Bureau and Office of the Comptroller of the Currency allege that the $17 billion-asset Trustmark discriminated against Black and Hispanic borrowers in Memphis, Tennessee, and discouraged prospective minority applicants from applying for home loans, officials said at a news conference Friday. They also say the bank avoided locating branches or hiring loan officers in minority communities.
Under the settlement — shared with reporters before it was to be filed officially later in the day — Trustmark agreed to pay a $5 million penalty and invest $3.85 million in a loan subsidy fund to increase mortgage credit in affected communities.
Trustmark, with 196 branches in five Southern states including 22 in Memphis, also will:
- Open a loan office in a Memphis neighborhood with a majority of Black and Hispanic residents.
- Devote $400,000 to develop partnerships that provide residents in Memphis with services to increase access to mortgage credit.
- Spend at least $200,000 a year to advertising, outreach and credit repair initiatives in Memphis. Trustmark also failed to monitor its fair-lending compliance, regulators said.
Duane A. Dewey, Trustmark's president and CEO, said the bank — which neither admitted nor denied wrongdoing — cooperated with regulators and entered into the settlement "to avoid the distraction of protracted litigation."
"We share the common goals of breaking down barriers to home financing and exploring innovative ways to help residents of underserved areas achieve the dream of homeownership," Dewey said in a news release.
In a 26-page settlement order, the Justice Department said that from 2014 to 2018 Trustmark "engaged in a pattern or practice of unlawful redlining" in Memphis. Only four of its 25 full-service branches in the city were located in census tracts that were made up mostly of Black or Hispanic residents, though half of the census tracts in Memphis are majority-minority, according to the settlement. The bank also operated seven limited-service branches in Memphis but closed the only one that was in a majority-minority neighborhood, the settlement said.
The proposed settlement must be approved by the U.S. District Court for the Western District of Tennessee.
Garland said the Justice Department will combat redlining through a new partnership between its civil rights division and U.S. attorneys' offices, which will work in coordination with the CFPB and the OCC. The OCC referred the Trustmark case to the department.
Garland spoke about how the homeownership gap between minority groups and whites is wider today than in the 1960s. The homeownership rate for whites is currently 74% compared with 49% for Hispanics and 45% for Blacks, according to the U.S. Census Bureau.
“Redlining remains a persistent form of discrimination that harms minority communities,” Garland said at a news conference. “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.”
The civil rights division has several redlining investigations pending and plans to open more in the months ahead, he said.
“We will proactively seek to determine if lending institutions are engaged in redlining, and when fair- lending violations are discovered the Justice Department will act,” Garland said. “We are wasting no time getting to work.”
The Justice Department said federal agencies will increase enforcement of the Fair Housing Act and the Equal Credit Opportunity Act.
CFPB Director Rohit Chopra said one of the key priorities of the bureau is to ensure fair lending and equal opportunity.
“Owning a home or small business has long been a vehicle for creating wealth and neighborhood stability,” he said. “Many of our nation’s policies of the past like redlining led to the exclusion of too many families and too many neighborhoods to have those opportunities.”
Chopra also spoke about the increased use of algorithms and artificial intelligence in underwriting home loans. He said the CFPB will be watching out for digital redlining.
“A lender should not be able to discriminate against or discourage prospective applicants from seeking credit based on the neighborhood they are from,” he said. “This is an endemic problem that requires all hands on deck.”
Under the Trump administration, the CFPB filed just two fair-lending enforcement orders and made no referrals to the Justice Department. That was a sharp decline in activity from the Obama administration.
Last year, the CFPB filed a lawsuit against Townstone Financial, a nonbank mortgage lender that allegedly discouraged prospective Black homebuyers in Chicago from applying for home loans. In 2019, Freedom Mortgage agreed to pay $1.75 million for alleged violations of the Home Mortgage Disclosure Act.
Garland said: “You can expect more cases like the one you’re seeing today.”
