ESSA Bank & Trust will pay $3M to settle redlining claims

ESSA Bank & Trust will pay over $3 million to resolve redlining allegations, the Department of Justice announced Wednesday evening.

The Stroudsburg, Pennsylvania-based bank, from 2017 to 2021, did not sufficiently serve the credit needs of majority-Black and Hispanic neighborhoods in and around Philadelphia by "failing to provide mortgage lending services" and "discouraging such borrowers," the DOJ alleges. The city has a history of redlining practices that goes back to the 20th century.

Per a consent order, which is subject to court approval, ESSA will invest $2.92 million in a loan subsidy fund to increase access in minority neighborhoods, $125,000 on community partnerships and $250,000 on outreach and consumer financial education efforts. 

At least 50% of the subsidy fund must be used for consumers applying for loans in majority-Black and Hispanic census tracts within a five mile radius of the bank's Upper Darby and Lansdowne branches, the court order said.

Additional stipulations of the order require the bank to hire two new mortgage loan officers to serve its existing branches in West Philadelphia, and for ESSA to conduct a research-based market study to identify the needs for financial services in communities of color. These requirements will stay in effect for five years. 

ESSA's President Gary Olson said he "vehemently [denies] the government's allegations of redlining" but added that the company "cooperated expeditiously and fully with the investigation into this matter." 

Olson called the settlement a "constructive resolution to a dispute that has lasted several years."

"We plan on using these loan subsidy funds to expand opportunities for qualified borrowers who can benefit from this assistance," he added.

The now-settled allegations were brought to the attention of the DOJ by the Federal Deposit Insurance Corp. in June 2022, prompting the department to open an investigation on Aug. 15, 2022. 

"Redlining in Philadelphia has deep roots, which has led decades of disinvestment in communities of color," said Jacqueline C. Romero, U.S. attorney for the Eastern District of Pennsylvania, in a written statement. 

"Accessing the American dream of owning your own home is possible only when there is equality for all in their opportunities to access lending in the residential mortgage markets," she said. "We appreciate ESSA's prompt cooperation with the department's investigation."

The settlement with ESSA is part of an interagency initiative involving the DOJ, the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency, which was launched in October 2021 by Attorney General Merrick B. Garland to combat redlining.  

Since then, the DOJ has announced seven redlining cases and settlements totaling over $87 million in relief for communities of color, the department said. This includes a $9 million settlement with Park National Bank in March and a $31 million settlement with City National Bank in January, the largest in the department's history.