In recent years, the Department of Justice has targeted banks for alleged racial redlining for conduct that does not constitute redlining, raising serious legal and constitutional questions, according to a new report authored by a civil rights legal expert for the American Bankers Association.
The report by Paul Hancock, senior of counsel at the law firm K&L Gates, examined the DOJ’s approach to redlining, which is prohibited by the Fair Housing Act and Equal Credit Opportunity Act. ABA’s bank members abhor redlining and strive to offer home loans without regard to race, national origin and other factors, but the DOJ has drifted away from its earlier cases, which involved evidence of intent to avoid lending in minority neighborhoods, to rely largely on statistics to bring redlining claims, the report concluded. The Consumer Financial Protection Bureau and banking agencies have also adopted that approach in their examinations.
“[T]he DOJ has targeted banks for failing to ‘provide equal access’ to home loans in minority areas, relying on a statistical analysis called the ‘proportional distribution test,’” Hancock wrote. “That test involves comparing a lender’s proportion of loans in minority census tracts to its loans in nonminority census tracts and then comparing that proportion to the average proportion for all lenders in those census tracts.”
The reliance on statistical analyses is “a stark demand for a racial balance in lending,” which the U.S. Supreme Court has struck down as unconstitutional, Hancock wrote. It also improperly targets lenders who are doing a good job serving minority areas, given the results of the test are driven as much by loan volume in minority areas as they are by loan volume in nonminority areas.
“Recalibration of redlining enforcement is sorely needed,” Hancock wrote. The report called on the DOJ to work collaboratively with ABA and other mortgage industry representatives to devise a reasoned approach for claims of redlining that reflects the modern-day lending industry and captures intentional discrimination. It also called on Congress to clarify that redlining is a form of intentional discrimination and to direct the DOJ, CFPB and banking agencies to update their examination procedures and guidance to reflect that fact.
ABA President and CEO Rob Nichols shared the new report with U.S. Attorney General Pam Bondi, OCC Acting Comptroller Rodney Hood, Federal Reserve Chairman Jerome Powell, Acting FDIC Chairman Travis Hill, Acting CFPB Director Russell Vought and HUD Secretary Scott Turner.
