“Redlining” is a pernicious and notorious lending practice, in which banks and other lenders look at zip codes, street boundaries, and other physical or geographical limitations to decide whom they will lend to. Or perhaps better said, to decide whom the banks will not lend to.

Redlining, along with racially restrictive covenants, were legal in California and other parts of the US until at least the 1950’s. Shelley v. Kraemer, 334 U.S. 1 (1948) [striking down racially restrictive covenants]; Sei Fujii v. State of California(1952) 38 Cal.2d 718 [striking down real estate ownership restrictions of California’s Asian Land Law]. However, apparently redlining has never completely gone out of style. In 2023, the US Justice Department charged City National Bank with redlining in the Los Angeles area, to deprive home loans to Black and Latino borrowers.

In the government’s fall 2023 legal action against CNB, the two sides eventually agreed to a consent order, which was in the form of a complaint and agreement to pay out approximately $31 million.

Among other things, the DOJ complaint stated:

Pgh. 4. From 2017 through at least 2020 (“the relevant time”), City National Bank engaged in a pattern or practice of unlawful redlining. As alleged in detail herein, City National avoided providing home loans and other mortgage services in majority – Black and Hispanic neighborhoods in the Los Angeles Metropolitan Division (“Los Angeles MD” or  “Los Angeles County”).

. . .

Pgh. 20. Although 55% of the census tracts in the Los Angeles MD are majority – Black and Hispanic, throughout the relevant time, the bank maintained only three branches in majority Black and Hispanic areas.

Pgh. 21. Of the 11 branches that City National Bank opened or acquired in the Los Angeles MD in the last 20 years, only one branch, the Crenshaw branch, is located in the majority – Black and Hispanic neighborhood.

. . .

Pgh.42. (In) 2019 and 2020, City National’s peers generated between five and six times the number of mortgage loan applications from residents of majority – Black and Hispanic neighborhoods than did City national.

Pgh.43. The statistically significant disparities between applications City National generated for majority – Black and Hispanic neighborhoods and those that its peers generated show that there were residents in majority – Black and Hispanic areas in the Los Angeles area MD who were seeking and applying for home loans. City National had no legitimate, non-discriminatory reason to draw so few applications from these areas.

[Bold and italics added]

The critical aspect of the complaint and its analysis is that the Fair Housing Act and Equal Credit Opportunity Act rely upon statistical information, such as the percentage of loans made to whites versus those made to non-whites, or the income disparities of those who receive the loans, and the racial breakdown of those who earn particular amounts of income, and who thus “qualify” for loans. This fair lending analysis generally falls under the heading of “disparate treatment” or “disparate impact” in regulatory and legal literary circles. Office of the Comptroller of the Currency, Fair Lending: Revised Comptroller’s Handbook Booklet and Rescissions, January 12, 2023.

As part of the settlement, CNB was obliged to begin loan assistance program in minority areas, known as the Ladder-Up Program. The bank must invest at least $29.5 million in this program, intended to “help marginalized communities get into the homebuying market.” Mortgage Bankers Association, MBA Newslink, September 18, 2023.

For the moment, at least, the Justice Department is moving forward with its “Combating Redlining Initiative,” and the Equal Credit Opportunity Act and Fair Housing Act continue to be vital methods to afford relief to communities that are discriminated against.

The other crucial point is that the reason these tools are still necessary to combat discrimination is that discrimination has not gone away.

Going forward, it will be important to maintain the government’s and citizen’s abilities to resist redlining, and other forms of discrimination.




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