The United States Department of Justice has reached a $31 million settlement with City National Bank in a historic housing discrimination case. City National, based in Los Angeles, is one of America’s 50 biggest banks. This settlement is the largest-ever in a redlining case investigated by the Justice Department.
The Biden Administration launched the Combating Redlining Initiative in October 2021. The Justice Department has since secured more than $75 million on behalf of communities that discriminatory housing practices have harmed, including a $24 million settlement with Trident Mortgage, a Philadelphia-based Berkshire Hathaway company.
Redlining is a longstanding set of policies and practices that have prohibited banks from approving mortgages for people seeking to purchase homes in neighborhoods that are largely comprised of Black and Latino residents. It originated in the 1930s and continued on for decades. Neighborhoods were rated on an ‘A’ to ‘D’ risk scale. Lenders then drew red lines around so-called “risky” neighborhoods on city maps; most banks refused to finance mortgages in those areas.
Legislation like the Fair Housing Act of 1968 and the Home Mortgage Disclosure Act of 1975 were intended to outlaw redlining. By then, hard-to-reverse damage had been done. White families had accumulated generational wealth via home ownership, while predominantly Black communities were left with lower property values, chronically underfunded schools, fewer profitable businesses, crime, and poverty. Redlining may have ended in policy five decades ago, but not fully in practice, as the recent lawsuit against City National Bank demonstrates.
Between 2017 and 2022, City National discriminated against Black and Latino residents by underwriting fewer mortgages and marketing less frequently in their communities, the DOJ found. Also, over two decades, the bank opened just one new branch in a predominantly Black or Latino neighborhood. As a result, other financial institutions received six times more mortgage applicants than did City National during this same timeframe.
According to a statement on the Justice Department website, City National has agreed to devote just over 95% of the settlement to a loan subsidy fund for Los Angeles County residents who live in predominantly Black and Latino neighborhoods. It is unclear how the “subsidy” will work and exactly whom it will ultimately benefit. Last September, Bank of America announced a new loan program focused on Black and Latino “communities.” As I noted in another Forbes article, it wasn’t clear whether the program was specifically for Black and Latino people.
Inglewood, for example, is still a Black and Latino community — for now. But it is rapidly gentrifying with the building of SoFi Stadium (where two NFL teams play), Intuit Dome (which will be the new home of the Los Angeles Clippers, an NBA team), and Hollywood Park (a multi-use venue that will include apartments, retail outlets, a lake, public parks, and entertainment venues). Hopefully, City National doesn’t get away with giving large portions of the $29.5 million subsidy to white gentrifiers who are savvy enough to take advantage of the fund while Inglewood is still technically a Black and Latino community.
In addition to the subsidy, $500,000 of the settlement dollars will be spent on advertising and outreach to residents in those communities. The remaining $1.25 million will be devoted to consumer financial education programs and community partnerships that aim to increase equitable access to residential mortgages. City National also says it will open one new branch in one of the diverse communities it has underserved and conduct a community credit needs assessment. Will that new branch be in Inglewood inside Hollywood Park or otherwise very close to the pro sports arenas? If so, that shouldn’t count.
“This settlement embodies Dr. Martin Luther King Jr.’s commitment to fighting economic injustice and ensuring that Black Americans and all communities of color are able to access the American dream and freely access the credit needed to purchase a home,” Assistant Attorney General Kristen Clarke of the Justice Department’s Civil Rights Division said in the DOJ statement. “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. This settlement should send a strong message to the financial industry that we expect lenders to serve all members of the community and that they will be held accountable when they fail to do so.”
The State of U.S. Mortgage Fairness, a research report published by the company FairPlay, includes results from an analysis of more than 350 million mortgage applications submitted between 1990 and 2021. Accordingly, “mortgage fairness” is no better now for Black applicants than it was 30 years ago. U.S. Attorney Martin Estrada, the chief federal law enforcement officer in our nation’s most populous district, specifically acknowledged in the DOJ statement that L.A. is one of the most racially and ethnically diverse cities in America. Unfortunately, it’s also a city that has yet to solve its longstanding residential segregation problem.
In her book, Won’t You Be My Neighbor? Race, Class, and Residence in Los Angeles, University of Pennsylvania Sociology and Africana Studies Professor Camille Zubrinsky Charles presents compelling research on people’s racialized residential preferences. The assumptions, biases, and fears about living alongside people from other races that Charles discovered in her research partially explain why our nation’s second-largest city remains so segregated, despite its diversity. In addition, discriminatory marketing, credit evaluation, and lending practices, as well as the shortage of banks in communities of color, also offer systemic explanations for the enduring patterns of racial segregation in L.A. and other cities.
Recent actions against City National, Trident, and other financial institutions since the launch of the Biden Administration’s Combating Redlining Initiative are praiseworthy; these accountability efforts must continue. In addition to stopping contemporary redlining practices, the federal government and banks also need to pay considerably more attention to redressing decades of racialized housing discrimination (well, really centuries, considering that enslaved Africans were not allowed to own property in America).