Last week, the United States Department of Justice (DOJ) announced that it is working towards a resolution for allegations of “redlining” by Citadel Federal Credit Union, located in the greater Philadelphia area. As part of the resolution, $6 billion Citadel will pay over $6.5 million to increase credit opportunities in predominantly Black and Hispanic neighborhoods in the city.
Redlining is the discriminatory practice of denying access to financial services such as mortgages and other loans by avoiding population centers that are predominantly inhabited by racial and ethnic minorities. The term originated from the New Deal when maps of metropolitan areas were color-coded to indicate where it was safest to insure mortgages. African-American neighborhoods were colored red to indicate that the neighborhoods were high risk. The Fair Housing Act of 1968 worked to end the practice, making redlining illegal.
The DOJ alleged that from at least 2017 through 2021, “Citadel provided mortgage lending services to majority-Black and Hispanic neighborhoods in and around Philadelphia at rates far below that of comparable lenders. During the same time frame, peer lenders generated mortgage applications in predominantly Black and Hispanic neighborhoods at nearly three times the rate of Citadel and originated mortgage loans in those neighborhoods over three times as often.”
Citadel allegedly also focused most of its outreach, marketing, and lending to predominantly White suburbs in the greater metro area. And while Citadel’s market area includes the city, where 75% of the majority-Black and Hispanic neighborhoods reside as well as 34% of the total target population, only one branch was opened there.
Pending court approval, Citadel has agreed to invest over $6.5 million to increase credit opportunities in neighborhoods of color as well as building three branches in Black and Hispanic neighborhoods in Philadelphia within the next five years.
Assistant Attorney General Kristen Clarke of the Justice Department’s Civil Rights Division said, “This redlining settlement marks the Justice Department’s very first resolution involving a credit union, making clear our intent to hold all types of lenders accountable for their role in modern-day redlining.”
In a statement released by the NCUA, Chairman Todd M. Harper sided with the Justice Department, saying, “The Justice Department’s settlement with Citadel Federal Credit Union is significant. It signals that federal credit unions must follow fair lending laws. It signals to all communities that discrimination through redlining will not be tolerated. And, it brings communities who have been discriminated against a step closer to an equitable opportunity to access safe, fair, and affordable financial services and to closing the wealth gap.”
He added, “The NCUA maintains a strong relationship with the Justice Department’s Civil Rights Division and the department’s Combating Redlining Initiative, which investigates potential fair lending violations and helps to end discriminatory lending practices. That productive relationship will continue through our fair lending examination and referral process.”
The settlement may put credit unions who have recently expanded their charters to a more broad community focus on notice. The settlement makes clear that though the credit union may have started in one area, by expanding there are expectations to serve all in that community.
Citadel’s press release regarding the settlement in part addressed that. President & CEO Bill Brown said, “As we look back at our history, this is a situation arising from what we weren’t doing, rather than one of intentional acts. Banking has not been immune to the digital disruption that has swept across various industries for decades and 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. 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.” (Emphasis added)
The press release continued by stating that they respectfully disagreed with the allegations, while also seeing it as an opportunity to better serve the communities falling within its expanded charter. The credit union also announced new positions and initiatives aimed at community outreach, education, and financial service opportunities.
