In a landmark agreement, Citadel Federal Credit Union will pay the federal government over $6.5 million to resolve allegations that it engaged in lending discrimination by redlining predominantly black and Hispanic neighborhoods in and around Philadelphia, according to the U.S. Department of Justice (DOJ).
The DOJ said Oct. 10 this is its first redlining settlement with a credit union, making the agreement an historic achievement for the department’s Combating Redlining Initiative, which tackles the discriminatory and illegal practice in which lenders deny or avoid providing mortgages or other credit services to neighborhoods based on the race or national origin of the residents of those neighborhoods.
The redlining settlement makes clear the DOJ’s intent to hold all types of lenders accountable for their role in modern-day redlining, U.S. Assistant Attorney General Kristen Clarke said.
“There are well over 4,600 credit unions across America, all subject to federal laws that prohibit redlining and lending discrimination,” said Clarke, who works in the DOJ’s Civil Rights Division. “This settlement will expand investment in black and Hispanic communities, particularly in Philadelphia, and increase opportunities for homeownership and financial stability.”
The DOJ’s complaint, filed Thursday in the Eastern District of Pennsylvania, alleges that, from at least 2017 through 2021, Pennsylvania-headquartered 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 says, with peer lenders generating 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.
“For generations, Philadelphia’s communities of color have lacked equal access to the credit needed for homeownership,” said U.S. Attorney Jacqueline 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,” Romero said. “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.”
The DOJ’s complaint also alleges that Citadel’s branches are located almost exclusively in majority-white neighborhoods, with no branches in Philadelphia, which contains more than 75 percent of the majority-black and Hispanic neighborhoods and 34 percent of the total population in Citadel’s market area.
“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,” Clarke said.
Under the proposed consent order, also filed Oct. 10, Citadel has agreed to invest $6.52 million to increase credit opportunities for communities of color in and around Philadelphia.
Specifically, Citadel will 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, the order says.
The credit union also will 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.
Additionally, the company will spend at least $270,000 for advertising, outreach, consumer financial education, and credit counseling focused in those Philly neighborhoods; open three new branches in those areas; and hire a community lending officer who will oversee the continued development of lending in communities of color.
Citadel also agreed to retain independent consultants to enhance its fair lending program and better meet the communities’ needs for mortgage credit, and will conduct a community credit needs assessment, evaluate its fair lending compliance management systems, and conduct staff trainings.
Citadel cooperated with the DOJ’s investigation, said the department, adding that the proposed consent order is subject to court approval.