On July 27, 2022, the Consumer Financial Protection Bureau (“CFPB”) and the United States Department of Justice (“DOJ”) reached a settlement with Trident Mortgage Company (“Trident”), resolving the allegations under the Equal Credit Opportunity Act (“ECOA”) and the Fair Housing Act that the non-bank mortgage lender intentionally discriminated against majority minority neighborhoods in the greater Philadelphia area. This settlement is the first redlining enforcement action against a non-bank mortgage lender and demonstrates the government’s continued attention to “modern redlining.”
The Trident settlement, which forces the lender to pay more than $22 million, resolves allegations that Trident, through its marketing, sales and hiring actions, ‘discouraged’ potential applicants from neighborhoods minority majority of the greater Philadelphia area to apply for mortgages and refinance. . However, just like the CFPB court case v. Townstone Financial, Inc. (“Townstone”), the settlement does not state that Trident treated neighborhoods or applicants differently based on race or ethnicity. Instead, the crux of the settlement is that Trident has not taken enough positive steps to target majority minority neighborhoods. This, coupled with Trident’s mortgage reporting under the Home Mortgage Disclosure Act (“HMDA”), ultimately subjected the lender to execution.
Specifically, the CFPB press release notes that: (1) only 12% of Trident’s mortgage applications came from majority-minority neighborhoods, even though “over a quarter” of Philadelphia’s MSA neighborhoods are majority-minority ; (2) 51 of Trident’s 53 Philadelphia-area offices were located in majority-white neighborhoods; and (3) all models displayed in Trident’s direct mail campaigns “appeared to be white”; (4) Trident open house flyers were “massively concentrated” in majority white neighborhoods; and (5) Trident’s online advertisements appeared to be for “majority-located” real estate listings in majority-white neighborhoods.
Similar to Townstone’s lawsuit, the settlement does not state that Trident explicitly excluded certain neighborhoods or potential applicants or actually discouraged applicants from majority-minority neighborhoods, only that such applicants “would have been discouraged”. Although the Townstone lawsuit and the Trident settlement refer to remarks made by employees in their internal communications, there is no evidence that employees ever made offensive or discouraging statements to potential candidates in any neighborhood. Nevertheless, the CFPB settlement requires Trident to pay $18.4 million into a loan subsidy program to increase credit in majority-minority neighborhoods of Philadelphia’s MSA; $4 million in civil fines; $875,000 for advertising in majority-minority neighborhoods of MSA Philadelphia; $750,000 for partnerships with community organizations; and $375,000 for consumer financial education. The settlement also requires Trident to open and maintain four (4) branches in MSA’s majority minority neighborhoods.
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The Trident settlement is notable for a variety of reasons. In addition to being the first government redlining settlement with a non-bank mortgage lender, the resolution involves a variety of parties, including the CFPB, DOJ and the states of Pennsylvania, New Jersey and Delaware. Further, the settlement re-emphasizes that insufficient marketing and awareness in minority neighborhoods may be considered sufficient to give rise to action under the ECOA and the Fair Housing Act. Indeed, it appears that a lender’s inability to precisely align its lending models with the demographics of the geography could provide the basis for a claim of redlining, even absent specific allegations of intentional exclusion or other discrimination. Finally, the settlement demonstrates that even a lender that is no longer in business (Trident stopped accepting loan applications in 2021) is still a worthy defendant in the eyes of the government.