When the Justice Department alleged last year that American Bank of Oklahoma had engaged in redlining, emails containing racial slurs became a focal point of the allegations. One bank executive forwarded an email that proclaimed "Proud to be White!" and used the "N word" in its entirety and other racial slurs.
In another separate redlining case against Trident Mortgage, the Justice Department described how loan officers, assistants and other employees received and distributed emails containing racial slurs and content that used racial tropes and terms. The communications sent on work emails included a photo showing a senior loan officer posing with colleagues in front of a Confederate flag, and pejorative content related to real estate and appraisals and content targeting people living in majority-minority neighborhoods. Trident, which is owned by Warren Buffet's Berkshire Hathaway, settled the DOJ's complaint in 2022 for $24 million.
Since the Justice Department launched its Combatting Redlining Initiative in late 2021, racist emails have received more attention from both the DOJ and the Consumer Financial Protection Bureau in an effort to show racial bias has permeated a company's culture.
Discriminatory emails on their own have not been used to allege redlining. Rather they are combined with key lending statistics that show how lenders compare with their peers in making loans in minority communities and whether a lender has avoided locating branches or hiring loan officers in minority communities. All of that, taken together, is then used to show intentional discrimination.
In some cases the emails help regulators differentiate among lenders that are not providing equal access to credit.
Banks rarely push back against redlining claims and typically choose to settle such cases, often citing the cost and distraction of protracted litigation as the reasons for reaching an agreement with authorities. But some legal experts say that financial institutions have little control if a racist email is sent to an employee from outside a company. A distinction is being made when discriminatory emails are sent by a company's employees, or are forwarded to others even without comment.
"Holding a company accountable for an employee's views or statements, even when those statements are inconsistent with the company's values and culture, places a burden on that company to censor its employees to avoid the risk of being branded as a discriminatory lender," said Andrea Mitchell, managing partner at Mitchell Sandler, who represented American Bank of Oklahoma.
"There are limits on an employer's ability to prevent staff from receiving racially insensitive emails or sharing personal views to exercise their right to freedom of expression," she added.
Still, legal experts are quick to point out that discrimination is against the law. Employees have no First Amendment rights to assert when using a company's communication system.
"If there are racist jokes or an employee saying they're proud to be white, they're not going to have much of a case on free speech grounds because no one is punishing the employee for saying it. They're just using it as evidence to bolster claims of discriminatory intent," said David E. Bernstein, a law professor at George Mason University School of Law.
Lisa Rice, president and CEO of the National Fair Housing Alliance, recalled working at the Toledo Fair Housing Center nearly two decades ago and routinely sending requests for emails, text messages and audio and video recordings that included a list of specific racial slurs.
"We've always been able to use public statements, verbal or written, as evidence in fair housing and fair lending cases," said Rice. "You can request for emails to be turned over and those emails can be used as evidence and as evidence of discrimination. And they might even be used as evidence of discriminatory intent."
She added that regulators "may not have gone full throttle" in using emails in the past to bolster claims of intentional discrimination.
To be clear, racist emails are found in a minority of redlining cases currently being brought by the DOJ.
Though searching hundreds of thousands of emails or texts is a ponderous task, sophisticated tools, including those that utilize artificial intelligence, can make it much easier to root out racist terms. In some cases there may be just a handful of racist emails out of hundreds of thousands.
"This is old-school redlining using new techniques," said Ken Thomas, president of Community Development Fund Advisors and an expert on the Community Reinvestment Act, which requires that banks lend to low- and moderate-income communities. Among the LMI population, about 60% are minorities, he said.
If there are racist jokes or an employee saying they're proud to be white, they're not going to have much of a case on free speech grounds because no one is punishing the employee for saying it. They're just using it as evidence to bolster claims of discriminatory intent.
Thomas said regulators are searching for the digital-age equivalent of a smoking gun.
"They are checking emails, Instagram and text messages, looking across the board at all communications, period," said Thomas. "It's more than a smoking gun. It's a gun with fingerprints and blood stains on it."
Bernstein agreed, adding that the emails typically are used as supplementary evidence to get a bank or lender to agree to a settlement rather than have a case go to trial.
"Some of the emails may actually signal a racially charged environment where you wouldn't really trust the people not to be discriminatory and some may just be from a few adolescent-types sending silly or stupid jokes that they really shouldn't be sending, but either way it's not gonna look good to a jury or the public," he said. "If it ever got to a jury, the government says, 'Look, here are these five emails that show the racist environment people are working in.' That's a very effective tactic."
Since Attorney General Merrick Garland announced the Combat Redlining Initiative in 2021, the department has secured over $122 million from 12 banks and mortgage lenders to resolve redlining allegations. The Justice Department is working with its civil rights division and U.S. attorneys' offices in coordination with the Office of the Comptroller of the Currency and the CFPB. Garland has said the DOJ has 25 redlining cases in its pipeline.
Garland has spoken about how lenders are breaking the law by redlining and he has put a priority on cracking down on lenders to redress past wrongs. He also has highlighted how the gap in homeownership rates is wider today than in the 1960s. The homeownership rate for whites currently is 74% compared with 45% for Blacks, a 29-point gap, according to the U.S. Census Bureau. In 1960, the homeownership rate was 65% for whites and 38% for Blacks, a 27-point gap.
The gap in homeownership is wider now than before the passage of the Fair Housing Act of 1968, which bans discrimination in home lending. That's the law that the DOJ typically uses to bring discrimination cases against lenders. Additionally, the CFPB has jurisdiction over the Equal Credit Opportunity Act, which prohibits discrimination in any aspect of a credit transaction.
"Redlining remains a persistent form of discrimination that harms minority communities," Garland said at a news conference in 2021, when the DOJ first announced its redlining initiative.
He also has stated that "redlining is a practice from a bygone era, runs contrary to the principles of equity and justice, and has no place in our economy today."
Rice said that the increase in redlining cases suggests that lenders need more training in compliance management and fair lending.
"Every single year the federal regulatory agencies conduct fair lending training and HUD provides all kinds of training on best practices in fair housing to learn about what are the best practices and what you should and shouldn't do," she said.
Still, some experts have voiced concerns that incendiary emails have become a centerpiece of some fair lending investigations.
"Federal regulators have effectively investigated and pursued redlining claims for decades without the need for combing through emails and text messages that are entirely unrelated to lending and branching," said Mitchell, the attorney for American Bank of Oklahoma.
She also suggests banks push back against claims that are false and inflammatory or that harm a bank's reputation.
In the case of American Bank of Oklahoma, the Justice Department made a reference in a complaint filed with the courts to the 1921 Tulsa Race Massacre in which white rioters killed as many as 300 people, according to some accounts. The tragedy destroyed the city's Black business district called the Greenwood District.
The $313 million-asset bank in Collinsville, Oklahoma, vehemently objected to any link between the current redlining allegations against it and the massacre given that the bank was founded in 1998 — nearly 80 years after the massacre occurred. A magistrate judge sided with the bank, and struck the two paragraphs from the complaint that mentioned the massacre. The rest of the order remained intact.
There also is a concern that the use of racist emails has the e ect of branding a company as racist even as settlement agreements require that lenders build relationships and extend credit in minority communities.
In the case of American Bank of Oklahoma, its settlement requires it to lend $1 million in Black and Hispanic communities in Tulsa.
"There's obviously all sorts of unintended consequences," said Bernstein, the law professor at George Mason University.
"It's an interesting paradox. We're going to announce you're racist and said now go lend to people who we just told shouldn't trust you. They're making it much harder for these companies to lend and get people to borrow from them, or to recruit members of minority groups on their staff," he added.
