In a first-ever case of its kind, Citadel Federal Credit Union has settled with the US Department of Justice (DOJ), agreeing to pay $6.52m to resolve allegations of redlining.
The DOJ has never entered a redlining settlement with a credit union before, and the move clarifies “our intent to hold all types of lenders accountable for their role in modern-day redlining,” according to Assistant Attorney General Kristen Clarke of the agency’s Civil Rights Division.
“There are well over 4,600 credit unions across America, all subject to federal laws that prohibit redlining and lending discrimination,” Clarke said. “Redlining and other forms of lending discrimination harm communities of color and families by denying them an equal opportunity to access credit, attain the dream of homeownership and build generational wealth. This settlement will expand investment in Black and Hispanic communities, particularly in Philadelphia, and increase opportunities for homeownership and financial stability.”
The DOJ has reached redlining-related settlements with 13 banks since launching an anti-discrimination initiative in 2021, but this agreement with Citadel marks the first with a credit union.
Failure to provide mortgage lending services
Specifically, the Pennsylvania area-based credit union has agreed to pay the fine to resolve allegations that it failed to provide mortgage lending services to majority-Black and Hispanic neighborhoods in Philadelphia and several nearby counties between 2017 and 2021. Redlining is the discriminatory practice of withholding credit services from communities predominantly populated by racial minorities
DOJ alleged in its order that Citadel discouraged people of color from seeking credit to obtain home loans, while the credit union’s peer lenders generated mortgage applications and originated mortgage loans at roughly three times Citadel’s rate in predominantly Black and Hispanic neighborhoods.
“While Citadel respectfully disagrees with the allegations regarding our lending practices, we view this settlement as a vital opportunity to enhance our commitment to proactive community engagement,” the credit union’s CEO, Bill Brown, said in a statement. “We acknowledge that our efforts did not allow us to reach majority Black and Hispanic census tracts in Philadelphia.”
It bears noting that credit unions are member-owned, cooperative arrangements designed to create a cycle of mutual assistance aimed at creating greater financial well-being for members.
Citadel’s situation stems from inaction rather than intentional misconduct, Brown said.
The credit union’s shift toward digital banking in response to industry trends led to a reduced focus on opening physical branches, particularly in Philadelphia, he said. This unintentionally resulted in falling short of its commitment to extend its presence in the city when it expanded its charter, Brown added.
Remedies
To meet the directives ordered by the DOJ to increase access to mortgages and home improvement loans for residents of majority Black and Hispanic areas in Philadelphia, Citadel will do the following:
- provide $6m in mortgage loan subsidies over five years for majority Black and Hispanic census tracts in Philadelphia County;
- open three new branches in predominantly Black and Hispanic neighborhoods;
- put $270,000 toward focused marketing, consumer financial education and outreach and $250,000 in community development partnerships.
- appoint a vice president dedicated to philanthropy and community engagement to bolster its Citadel Cares program, which was unveiled in July 2023, and specifically oversee further development in minority communities.
Cooperative structure
It bears noting that credit unions are member-owned, cooperative arrangements designed to create a cycle of mutual assistance aimed at creating greater financial well-being for all of its members. They are controlled by the people who use their services and overseen by a volunteer board elected by members.
They are nonprofit organizations that ensure profits made by the credit union returns back to members in the form of reduced fees, higher savings rates and lower loan rates.
Most credit unions allow members’ families to join and many of them are known for serving the people that live, work worship or attend school in a particular geographic area.
This is all to say that these unique characteristics might have made the law enforcement agency incentivized to send a strong message reminding one located just outside a really diverse city of its remit to provide equitable access to financial services to that community.
