DOJ Reaches $6.5M Landmark Redlining Settlement With Citadel FCU

Calling it a landmark agreement, the U.S. Justice Department’s civil rights division said on Thursday that it reached a first-ever $6.5 million redlining settlement with a financial cooperative, the $6 billion Citadel Federal Credit Union in Exton, Pa.

Citadel said in a prepared statement that this agreement marks a “pivotal moment in Citadel’s journey, embracing the opportunity to reinforce its dedication to community and demonstrate its strong aspiration to ensure access to credit and financial services for every member of the communities it serves.”

The DOJ’s complaint, filed Thursday in federal court, alleged that, from at least 2017 through 2021, Citadel failed to provide mortgage lending services to majority-Black and Hispanic neighborhoods in and around Philadelphia and discouraged people seeking credit in those communities from obtaining home loans. The credit union’s home mortgage lending was allegedly focused disproportionately on white areas around Greater Philadelphia. Peer lenders generated mortgage applications in predominately Black and Hispanic neighborhoods at nearly three times the rate of Citadel and originated mortgage loans in these areas at more than three times the rate of the credit union, according to the complaint.

The DOJ also alleged that Citadel’s branches are located almost exclusively in majority-white neighborhoods, with no branches in Philadelphia, which includes more than 75% of the majority-Black and Hispanic neighborhoods and 34% of the total population in Citadel’s market area.

“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,” Citadel President/CEO Bill Brown said in a prepared statement. “We acknowledge that our efforts did not allow us to reach majority Black and Hispanic census tracts in Philadelphia. This settlement marks a significant milestone in our ongoing journey towards creating a more inclusive and equitable future for all communities in our service area. Our decision to resolve this matter reflects our dedication to focusing on the future and continuing to make a positive impact in all communities we serve. We remain committed to fulfilling our promises to build strength together.”

Brown added: “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.”

Under the proposed consent order subject to court approval, Citadel has agreed to invest $6.52 million to increase credit opportunities for communities of color in and around Philadelphia. Specifically, Citadel will:

• Invest at least $6 million in a loan subsidy fund to increase access to home mortgage, home improvement and home refinance loans for residents of majority-Black and Hispanic neighborhoods in Philadelphia;
• Spend at least $250,000 on community partnerships to provide services related to credit, consumer financial education, homeownership and foreclosure prevention for residents of predominantly Black and Hispanic neighborhoods in Citadel’s market area;
• Spend at least $270,000 for advertising, outreach, consumer financial education and credit counseling focused on predominantly Black and Hispanic neighborhoods in Philadelphia;
• Open three new branches in predominantly Black and Hispanic neighborhoods in Philadelphia; and
• Hire a community lending officer who will oversee the continued development of lending in communities of color.

The credit union also agreed to retain independent consultants to enhance its fair lending program and better meet the communities’ needs for mortgage credit. What’s more, Citadel will conduct a community credit needs assessment, evaluate its fair lending compliance management systems and conduct staff trainings.

“We intend to lean into the responsibility that comes with our growth and live up to our promise to help every community in our service area live their brightest future by inspiring them with guidance and tools to build financial strength,” Brown said. “To demonstrate our commitment, we are proud to initiate new programs and expand existing ones to fulfill our promise to our members and communities.”

In a prepared statement, the DOJ indicated that while this is its “very first” resolution with a credit union, more of them may be forthcoming.

“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,” Assistant Attorney General Kristen Clarke of the Justice Department’s Civil Rights Division said in a prepared statement. “There are well over 4,600 credit unions across America, all subject to federal laws that prohibit redlining and lending discrimination. 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.”

In October 2021, Attorney General Merrick B. Garland and Assistant Attorney General Clarke launched the Justice Department’s Combating Redlining Initiative, a coordinated enforcement effort to address this persistent form of discrimination against communities of color. Since 2021, the department has announced 14 redlining resolutions and secured more than $144 million in relief for communities of color that have been the victims of lending discrimination across the country.

In March, Assistant Attorney General Clarke presented remarks to America’s Credit Unions’ Governmental Affairs Conference regarding the unique issues raised by redlining in the credit union industry.

READ MORE: DOJ’s USA v. Citadel Federal Credit Union-Complaint and Consent Order-USA v. Citadel Federal Credit Union.