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In what’s being touted as the biggest redlining settlement ever reached by the U.S. Department of Justice, City National Bank has agreed to invest at least $31 million in majority-Black and Hispanic neighborhoods in Los Angeles County to settle allegations that it avoided making home loans there.
It’s the fifth redlining settlement the Justice Department has reached since announcing an initiative to combat redlining in October 2021. The settlements have generated $75 million in relief, including a $20 million settlement with Berkshire Hathaway-owned Trident Mortgage Company in July and a $13 million settlement with Lakeland Bank in September.
“Redlining is a practice from a bygone era, runs contrary to the principles of equity and justice, and has no place in our economy today,” Assistant Attorney General Kristen Clarke said in a statement Thursday. “This settlement should send a strong message to the financial industry that we expect lenders to serve all members of the community and that they will be held accountable when they fail to do so.”
In a Jan. 12 complaint, the Justice Department alleged that from 2017 through at least 2020, City National avoided providing mortgage lending services to minority neighborhoods in Los Angeles County and discouraged residents in those neighborhoods from obtaining mortgage loans.
“City National maintained only three of its 37 branches in majority-Black and Hispanic neighborhoods during the relevant time period, despite the fact that well over 50 percent of census tracts in Los Angeles County are majority-Black and Hispanic,” the government alleged. The complaint also alleged that City National “relied on unmonitored ‘relationship managers’ to generate applications largely from its existing customers, who are disproportionately white, instead of marketing or advertising its loan products and services in majority-Black and Hispanic areas.”
City National denied that it engaged in redlining. But under the terms of a proposed consent order, the bank agreed to invest at least $31 million to provide relief to residents of those neighborhoods aimed at promoting home ownership, including:
- $29.5 million for a loan subsidy fund that can be used to provide below-market interest rates, down payment assistance, closing cost assistance, or help with mortgage insurance premiums
- $1 million on education, advertising and outreach to promote the program
- $750,000 for development of community partnerships to provide services that increase access to residential mortgage credit
In addition, the consent order commits City National to open one new branch in a majority-Black and Hispanic neighborhood and conduct a community credit needs assessment for majority-Black and Hispanic census tracts in Los Angeles County.
Clarke, who leads the Justice Department’s civil rights enforcement efforts, credited City National for “working constructively” to reach the settlement. She also acknowledged City National’s plans to support homebuyers and entrepreneurs in underserved communities across the country through special-purpose credit programs.
“The Justice Department has encouraged lenders to consider developing special purpose credit programs to advance fair lending, and we strongly encourage other lenders to explore similar programs,” Clarke said in a speech providing more background on the settlement with City National.
City National on Wednesday announced plans to expand its product set in the coming months and launch special-purpose credit programs for commercial loans and residential mortgage loans for underserved populations.
The bank said it will roll the program out first in the Los Angeles metro area, where it’s headquartered, and then expand it to other communities in California, Georgia, New York, Nevada, Tennessee and Washington, D.C.
“We take very seriously our obligation to ensure that all businesses and consumers have an equal opportunity to apply for and obtain credit,” City National CEO Kelly Coffey said in an announcement detailing the initiative. “We believe City National has a role to play in supporting entrepreneurs and expanding access to homeownership in order to help individuals and communities thrive and build intergenerational wealth.”
City National, a subsidiary of Royal Bank of Canada, is known primarily as a commercial and small business lender. But last fall, the bank announced it was launching a new community lending team headed by Vanessa Montañez, a former U.S. Bank home mortgage executive.
Montañez, who holds an MBA from Pepperdine University and a doctorate of executive leadership from the University of Charleston (West Virginia), serves on the board of directors for Rebuilding Together City of Angels and the National Association of Hispanic Real Estate Professionals Regional Corporate Board of Governors for the Southwest Region.
“Our goal is to expand the mortgage lending business by serving historically underserved borrowers through outreach, education, great programs, and excellent service,” Montañez said of her plans to build City National’s mortgage business.