Citadel Federal Credit Union settled its case with the U.S. Department of Justice (DOJ), agreeing to pay more than $6.5 million to resolve allegations of redlining in Philadelphia. This marks the DOJ’s first settlement with a credit union involving redlining, an illegal practice by which lenders avoid extending credit services to individuals living in Black or Hispanic communities.
“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,” said Assistant Attorney General Kristen Clarke, Civil Rights Division. “There are well over 4,600 credit unions across America, all subject to federal laws that prohibit redlining and lending discrimination."
Last week, the DOJ announced a separate settlement with Fairway Independent Mortgage Corp. over that company's alleged redlining in and around Birmingham, Ala. Though Citadel’s executive leadership disputes the claims regarding its lending practices, company officials said, they are committed to creating a more inclusive and equitable future for communities in their service area.
Citadel released a statement following the settlement, earmarking its commitment to better lending practices.
“As we look back at our history, this is a situation arising from what we weren’t doing, rather than one of intentional acts,” the credit union's President and CEO Bill Brown said. “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.”
Citadel will open three new branches in Philadelphia as part of the Oct. 10 settlement.
"This settlement will expand investment in Black and Hispanic communities, particularly in Philadelphia, and increase opportunities for homeownership and financial stability," Clarke added. "Residents of communities harmed by unlawful redlining will finally be able to access credit services from Citadel in their own neighborhoods, including at the new branches required by the settlement.”
Complaints filed in the Eastern District of Pennsylvania allege 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. Citadel’s home mortgage lending was focused disproportionately on white areas around Greater Philadelphia, the complaint adds.
Peer lenders generated mortgage applications in predominantly 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 Citadel. In addition, the complaint reads, Citadel’s branches are located almost exclusively in majority-White neighborhoods, with no branches in Philadelphia, which contains more than 75% of the majority-Black and Hispanic neighborhoods and 34% of the total population in Citadel’s market area.
“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 continued. “To demonstrate our commitment, we are proud to initiate new programs and expand existing ones to fulfill our promise to our members and communities.”
Under the proposed consent order, still subject to court approval, Citadel has agreed to 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.
“For generations, Philadelphia’s communities of color have lacked equal access to the credit needed for homeownership,” said U.S. Attorney Jacqueline C. Romero for the Eastern District of Pennsylvania. “We know that redlining has a devastating impact on a family’s finances and future, and results in economic and other inequalities that plague our communities for decades. We also know the transformational change that can occur when credit is made available to underserved residents, and particularly when lenders, like Citadel, establish branch locations in these neighborhoods.”
Citadel also agreed to retain independent consultants to enhance its fair lending program and better meet the communities’ needs for mortgage credit. With assets of approximately $6 billion, Citadel is headquartered in Pennsylvania and operates 24 branches in its market area of Greater Philadelphia, serving over 263,000 members.
