A Tennessee-based community bank, Patriot Bank, recently became the 11th lender to reach a settlement with the U.S. Department of Justice (DOJ) regarding allegations of avoiding loans in predominantly Black and Hispanic neighborhoods in Memphis, Tennessee.
While Patriot Bank and its President James Smith denied "any allegations of wrongdoing," it agreed last week to pay $1.9 million to settle the matter.
"We have been a top producer of loans in minority areas of Memphis, outperforming 95% of the lenders in these areas," Smith said Monday in a statement.
According to the DOJ's complaint, between 2015 and at least 2020, Patriot Bank strategically placed nearly all its branches and loan production offices, as well as all its mortgage loan officers, in majority-white neighborhoods.
The DOJ alleged that of the 4,774 residential mortgage loans Patriot made from 2015 through 2020 in its assessment area, only 365, or 7.6% were made in majority-Black and Hispanic areas, whereas competing banks in the same peer group made loans in these neighborhoods at almost three times that rate, accounting for 22.6% of their business.
“For too long, practices like redlining and discriminatory lending have been used to undermine the promises of our economic system,” U.S. Attorney Kevin G. Ritz for the Western District of Tennessee said. “Our office is committed to enforcing fair lending laws and ensuring that banks and lenders are providing communities of color equal access to credit and lending opportunities. This agreement with Patriot Bank signifies an important step toward preserving economic justice and for communities of color in Memphis as they buy homes, start businesses and take part in the American Dream.”
Pending court approval, the consent order will require Patriot Bank to allocate $1.9 million to enhance credit opportunities for communities of color in Memphis. This includes $1.3 million for a loan subsidy fund, $375,000 for advertising, outreach, consumer financial education, and credit counseling, and $225,000 for community partnerships that promote residential mortgage credit.
The DOJ's complaint revealed that only two of Patriot's six branches were situated in majority-Black and Hispanic neighborhoods, and none of the bank's three loan production offices were located in such areas. This led to a situation where, if a potential homebuyer visited one of those branches to inquire about a mortgage, they would be directed to another branch over 15 miles away where mortgage support was available.
"Patriot’s failure to assign any mortgage loan officers to majority-Black and Hispanic areas, and failure to take any meaningful efforts to compensate for its lack of branches, loan production offices, and mortgage loan officers in majority-Black and Hispanic neighborhoods, was intended to deny, and had the effect of denying, equal access to home loans for those residing in, or seeking credit for properties located in, majority-Black and Hispanic neighborhoods in its assessment area," the original complaint states.
Additionally, Patriot Bank did not advertise on radio stations targeted at Black and Hispanic communities in the Memphis assessment area until 2020, according to prosecutors. The consent order requires the bank to hold at least six outreach sessions per year for "real estate brokers and agents, developers, and public or private entities engaged in residential real estate-related business in majority-Blackand Hispanic census tracts."
The Federal Reserve Board, Patriot Bank's regulator, had warned the bank in 2015 about its redlining risk due to lending practices. In 2019, an examination by the Federal Reserve Board found evidence of a pattern of discrimination in violation of fair lending laws. Following a notification from the Federal Reserve Board in November 2020, the DOJ initiated its investigation in January 2021.
Patriot Bank hired a third-party consultant in February 2021 to assess its fair lending compliance management system. Based on the assessment, the bank implemented formal policies for branch siting with fair lending in mind, conducted fair lending training for loan officers, and marketed to minority census tracts.
Patriot Bank claimed that in 2021, it ranked 14th out of 482 lenders in providing mortgage loans in minority areas of Memphis and 15th out of 534 lenders in 2022. The bank stated that it entered into a consent order with the DOJ to affirm and adopt the programs and actions it had already implemented to meet mortgage credit needs in the communities it serves.
Since the launch of the DOJ's Combating Redlining Initiative in October 2021, settlements with 11 lenders, including Ameris Bank, The Washington Trust Company, Park National Bank, City National Bank, Lakeland Bank, and Trident Mortgage Company, have totaled over $109 million.
