ESSA Bank & Trust has agreed to pay over $3 million to resolve allegations that it engaged in a pattern or practice of lending discrimination by redlining majority-Black and Hispanic neighborhoods in and around Philadelphia, the U.S. Department of Justice (DOJ) announced recently.
The complaint was filed in federal court on May 31 and alleges that from at least 2017 to 2021, ESSA failed to provide mortgage-lending services and did not serve the credit needs of majority-Black and Hispanic neighborhoods in the Philadelphia metropolitan area.
Redlining is an illegal practice in which lenders avoid providing credit services to individuals living in communities of color based on their race, color or national origin.
“For too long, residents of communities of color have been unlawfully denied equal access to credit and shut out of economic opportunities,” said Assistant Attorney General Kristen Clarke of the DOJ's Civil Rights Division. “When banks engage in redlining, they perpetuate existing patterns of segregation and widen the racial wealth gap in our country. This resolution makes clear our commitment to holding banks and financial institutions accountable for modern day redlining while ensuring access to fair lending in communities of color.”
The DOJ said it opened its investigation into ESSA’s lending practices after receiving a referral from the Federal Deposit Insurance Corp. (FDIC). It said ESSA fully cooperated with the investigation and “worked expeditiously” to resolve the allegations.
Under the proposed consent order, which is subject to court approval, ESSA has agreed to:
- Invest at least $2.92 million in a loan subsidy fund to increase access to credit for home mortgage, improvement, and refinance loans, as well as home equity loans and lines of credit, in majority-Black and Hispanic neighborhoods in the bank’s lending area.
- Spend another $125,000 on community partnerships, as well as $250,000 on advertising, outreach, consumer financial education, and credit counseling, in an effort to expand the bank’s services in majority-Black and Hispanic communities, the DOJ said.
- Hire two new mortgage loan officers to serve its existing branches in West Philadelphia and to
- Conduct a research-based market study to help identify the need for financial services in communities of color.
“Accessing the American dream of owning your own home is possible only when there is equality for all in their opportunities to access lending in the residential mortgage markets,” said U.S. Attorney Jacqueline C. Romero for the Eastern District of Pennsylvania. “Redlining in Greater Philadelphia has deep roots; it’s led to decades of disinvestment in communities of color. We appreciate ESSA’s prompt cooperation with the department’s investigation and their efforts that will aim to infuse lending resources and help build wealth in neighborhoods of color.”
In a statement, Gary S. Olsen, ESSA president and CEO, noted that the settlement included no civil penalties.
“This settlement reflects our business decision to avoid the costs, uncertainties, and distractions of litigation,” he said.
Olson also observed that “during the time period covered by the government’s complaint, ESSA did not receive a single fair-lending complaint from any customer or potential customer.” He added further that, in 2018 — within the time covered by the government’s complaint — ESSA opened a branch and business center in downtown Allentown, Pa., in a majority minority census tract.
“ESSA and its board of directors believe this is a constructive resolution to a dispute that has lasted several years,” he said. “It is consistent with our guiding principles and longstanding commitment to provide equal lending opportunities to all of the communities we are privileged to serve."
Olson added that the bank plans to use the loan subsidy funds "to expand opportunities for qualified borrowers who can benefit from this assistance. We’re happy and pleased to help families purchase homes. It is simply the right thing to do.”
In October 2021, the DOJ launched its Combating Redlining Initiative as a coordinated enforcement effort to address what it describes as a persistent form of discrimination against communities of color. Since the initiative was launched, the DOJ has announced seven redlining cases and settlements and secured $87 million in relief for communities of color nationwide that have been victims of redlining.
