Ohio Banks Settle Claims of Racial Lending Bias

CINCINNATI (CN) – The federal government and two Cincinnati-area banks settled claims that the financial institutions avoided neighborhoods where more than half of the population is black, a discriminatory practice known as redlining.

According to a complaint filed Wednesday in Cincinnati federal court, Union Savings Bank and Guardian Savings Bank FSB redlined the majority-black areas of Cincinnati, Dayton, Columbus and Indianapolis from at least 2010 through 2014.

The lawsuit is the result of an investigation the federal government opened in March 2015 to determine whether Union had, in fact, engaged in unlawful redlining.

The government found that Union and Guardian, which share common ownership and are both headquartered in Cincinnati, have consistently located their branch offices in predominantly white neighborhoods that surround the areas of highly concentrated black populations in the centers of the four cities.

According to the complaint, all of the banks’ current branches are located in majority-white census tracts. The lawsuit claims the banks’ efforts to market lending services to black communities were inadequate and lacked information about government lending programs, down-payment assistance and grant programs that have been most effective in serving minority and low-to-moderate income borrowers in recent years.

The banks also incentivized loan officers to focus activities in predominantly white census tracts and to avoid black neighborhoods, the complaint states.

The government alleges these discriminatory policies and practices denied residents of black neighborhoods equal opportunities and discouraged black borrowers from applying for credit, in violation of the Fair Housing Act and the Equal Credit Opportunity Act.

The investigation also determined the banks’ senior management failed to address the potential violations despite being notified on a quarterly basis that they were under-serving minority communities compared to comparable lenders.

However, the banks immediately agreed to settle the allegations in a consent order filed Wednesday. The order says Union and Guardian cooperated with the government’s investigation and are now committed to taking meaningful steps to improve access to credit in the predominantly black communities within their lending areas.

“While the banks strongly deny the violations of law alleged by the United States, they do agree that access to lending and financial education create opportunities that enhance the financial futures of individuals, families and communities,” the order states. “Thus, the banks have voluntarily entered into this agreed-upon consent order, which will avoid the costs and burdens of litigation and allow the banks to further focus their efforts on building strong communities.”

The proposed settlement, which awaits final approval from a federal judge, prohibits the banks from engaging in any practice that discriminates on the basis of race or violates the Fair Housing Act or Equal Credit Opportunity Act in any way.

It also requires the appointment of an independent compliance consultant to oversee the implementation of the consent order and ensure that the banks comply with their obligations. Those include thoroughly assessing the credit needs of black communities within their lending areas, opening new full-service branches in black neighborhoods, partnering with community-based organizations, contributing a minimum of $125,000 per year toward financial education and credit repair programs, and investing a minimum of $7 million for loan subsidy programs in Cincinnati, Dayton, Columbus and Indianapolis.

The consent order will be in effect for five years and three months if approved by the court, but it can extended in the event of noncompliance or terminated early if the banks satisfy their financial obligations.

The government is represented in the case by Matthew Horwitz of the U.S. Attorney’s Office in the Southern District of Ohio, Vanita Gupta and Sameena Shina Majeed from the Attorney General’s office and Sara Niles from the U.S. Justice Department.

Both Union and Guardian are represented by Lisa Krigsten of Dentons US LLP and Jeanne Cors of Taft Stettinius & Hollister LLP.

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