First-ever redline order against a credit union shocks industry

A Philadelphia-area credit union's landmark redlining settlement with the Department of Justice has prompted strong responses from the industry's regulator and its leading trade group. 

Prior to the consent order with Citadel Federal Credit Union, made public late Thursday, the DOJ had never acted against a credit union for redlining. The revelation appeared to deliver a blow within an industry that takes pride in providing fair, equitable service to people of modest means as well as historically disadvantaged groups.

"America's Credit Unions is unequivocally opposed to redlining, and any other discrimination in lending. Fair and equitable access to financial services is one of the many things that set credit unions apart from banks," America's Credit Unions President and CEO Jim Nussle said Thursday in a statement. 

"When institutions fall short of that mission, America's Credit Unions condemns those actions. Citadel Federal Credit Union committed to serve underserved populations in its field of membership and failed to fulfill that commitment," Nussle said.

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Todd Harper, chairman of the National Credit Union Administration, said the regulator "maintains a strong relationship" with the Justice Department and supports the DOJ's three-year-old Combatting Redlining Initiative. 

"The Justice Department's settlement with Citadel Federal Credit Union is significant," Harper said Thursday in a statement. "It signals that federal credit unions must follow fair lending laws. It signals to all communities that discrimination through redlining will not be tolerated."

The Justice Department charged the $6 billion-asset Citadel, founded in 1937 to serve steelworkers, with avoiding lending in minority communities in and around Philadelphia. Following a three-year investigation, the two sides agreed to a consent order. 

According to a complaint filed Thursday in the U.S. District Court for the Eastern District of Pennsylvania, Citadel promised to open three branches in Philadelphia in 2009, but never followed through on the pledge. As a result, Citadel  "generated disproportionately low numbers of loan applications and home loans during each year in the relevant time period from majority-Black and Hispanic neighborhoods within its market area," the complaint stated.

Citadel CEO Bill Brown said the credit union "respectfully disagrees" with the DOJ's claims, insisting it had no intent to avoid lending in minority communities.

"Citadel's robust focus on our digital journey shifted our strategy away from new brick-and-mortar branches in recent years, which inadvertently impacted our ability to serve our region as broadly as we had planned," Brown said in a press release.  "Philadelphia has always been, and remains, part of our growth plan, but the evolution of our business model led to us falling short of opening branches in Philadelphia as we had agreed to do when we expanded our charter."

The 25-page consent order required Citadel to create a $6 million subsidy fund aimed at increasing mortgage, home improvement and refinance loans in predominantly Black and Hispanic neighborhoods. It also requires Citadel to spend $270,000 on marketing and outreach and $250,000 on community partnerships, and also open three branches in minority communities.  

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"We know that redlining has a devastating impact on a family's finances and future, and results in economic and other inequalities that plague our communities for decades," Jacqueline Romero, U.S. Attorney for the Eastern District of Pennsylvania, said in a press release. "We also know the transformational change that can occur when credit is made available to underserved residents, and particularly when lenders, like Citadel, establish branch locations in these neighborhoods." 

Brown said Citadel would "lean into" fulfilling the terms of the consent order and "live up to our promise to help every community in our service area live their brightest future." 

According to the Justice Department, it has entered into 14 consent orders — many involving banks — since launching the redlining initiative. In at least two instances, it cited internal email traffic, purported to contain racial slurs and other discriminatory content, to help bolster its cases. 

Some banks accused of redlining have pushed back. A spokesperson for the $47.7 billion-asset F.N.B. Corp. in Pittsburgh said it agreed to a consent order in February "to avoid prolonged litigation and to maintain our focus on promoting equity and economic prosperity," while strongly disagreeing with the DOJ's allegations. Last year, a federal judge agreed to trim two paragraphs from a consent order that American Bank of Oklahoma in Collinsville, Oklahoma, said unfairly linked it to the 1921 Tulsa Race Massacre.