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Fighting redlining in cyberspace and the real world

Charlene Crowell

As 2023 begins, a key anti-financial discrimination initiative is expanding million-dollar penalties and the kinds of businesses found to violate fair lending laws. The Combatting Redlining Initiative that since 2021 has combined resources and efforts of the Department of Justice (DOJ), Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) is now holding a social media giant as well as another bank accountable for violations of fair credit and lending laws.

A Jan. 9 settlement with Meta Platforms — formerly Facebook, Inc. — marks the first time that a social media platform will be subject to court oversight for its advertising targeting and delivery system. As the world’s largest social media platform, the enforcement action will affect its 264 million users in the United States and Canada, as well as 10 million advertisers that in the third quarter of 2022 generated $27.71 billion in revenues.

According to settlement terms, Meta’s new system will measure algorithmic discrimination that violates the Fair Housing Act. Meta will be subject to federal court oversight monitoring and regular reviews through June 26, 2026, to determine whether all terms of the settlement are honored. Guidehouse, Inc., an independent third-party reviewer, will verify Meta’s adherence to settlement metrics. Meta must provide this monitor with regular compliance reports and any necessary information.

“Federal monitoring of Meta should send a strong signal to other tech companies that they too will be held accountable for failing to address algorithmic discrimination that runs afoul of our civil rights laws,” said Assistant Attorney General Kristen Clarke of the DOJ’s Civil Rights Division.

The Justice Department also continues to move against lenders who allow discrimination in their lending practices. On Jan. 12, Los Angeles-based City National Bank, with 58 California locations as well as branches in nine other states and the District of Columbia, reached a $31 million settlement with DOJ’s Redlining Initiative, the largest such agreement in DOJ’s history.

According to DOJ, from 2017 until at least 2020, City National failed to provide mortgage lending in Los Angeles County’s majority Black and Latino neighborhoods. Further, during more than 20 years when the bank either opened or acquired 11 additional branches, only one was located in a majority-minority neighborhood. And unlike branches located in majority-white areas, City National did not assign any employee at that one branch to generate mortgage lending.

“[E]nding redlining is a critical step to closing the widening gaps in homeownership and wealth, especially in a city as large and diverse as Los Angeles,” said U.S. Attorney Martin Estrada for the Central District of California. “It is unacceptable that redlining persists into the 21st century … Through this agreement, we are taking a major step forward by removing unlawful and discriminatory barriers in residential mortgage lending, and meeting the credit needs in Los Angeles.”

According to settlement terms, City National will now implement multiple and measurable actions in Los Angeles County that include:

Opening a new branch in a majority-minority neighborhood staffed by at least four mortgage loan officers dedicated to serving Black and Latino neighborhoods, along with a full-time community lending manager who will oversee related lending development

Multiple targeted funds for these underserved communities that include a minimum $29.5 million loan subsidy fund for residents of majority Black and Latino neighborhoods in Los Angeles County, $750,000 minimum for the development of community partnerships and increased residential mortgage credit, and $500,000 minimum for advertising and outreach

Research-based market study that will identify financial service needs for majority- Black and Latino census tracts in Los Angeles County 

The Redlining Initiative also reached a $20 million settlement with Trident Mortgage, benefitting consumers in the Philadelphia metro area, and a $13 million settlement with Lakeland Bank located in Newark, Passaic, Somerset and other nearby communities.

“If we allow racist and discriminatory policies to persist, we will not live up to our country’s ideals,” said CFPB Director Rohit Chopra. “We need a fair housing market that is free from old forms of redlining, as well as new digital and algorithmic redlining.”   

Charlene Crowell is a senior fellow with the Center for Responsible Lending.

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