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DOJ announces $9M settlement with Washington Trust Company in redlining case

by Joshua Garcia

Washington Trust Company, a Rhode Island-based chartered bank, has agreed to pay $9 million to settle a redlining case with the U.S. Department of Justice (DOJ). The settlement, which is subject to court approval, stems from allegations that the bank illegally avoided providing mortgage services to majority Black and Hispanic neighborhoods in Rhode Island.

Redlining is a discriminatory practice where lenders deny mortgage loans or insurance to individuals based on their race or the racial composition of their neighborhood. It has been illegal since the Fair Housing Act passed in 1968. However, it continues to be a prevalent issue, and the DOJ has been actively pursuing cases related to redlining.

According to the DOJ, Washington Trust engaged in redlining from 2016 through at least 2021 by failing to open a branch in majority-Black and Hispanic neighborhoods. The bank was also accused of not training and incentivizing its staff to market and advertise its mortgage services to compensate for its lack of presence in these areas.

The impact of redlining is significant. The DOJ claims that other banks received four times more loan applications each year in these minority neighborhoods than Washington Trust. Even when the bank did receive applications in these areas, potential homebuyers were disproportionately White.

In response to the allegations, Washington Trust “vehemently” denied them but agreed to the settlement to avoid potential litigation expenses and distractions. The bank stated that it believes it has been fully compliant with fair lending laws and that the settlement will further strengthen its focus on fair lending practices.

As part of the settlement, Washington Trust will invest at least $7 million in a loan subsidy fund to increase access to mortgage and home equity products. An additional $1 million will be allocated to partnerships and advertising. The agreement does not include any civil monetary penalties.

To address the issue directly, Washington Trust has committed to opening two new branches in majority-Black and Hispanic neighborhoods in Rhode Island. These branches will have at least two mortgage loan officers, and a director of community lending will oversee the bank’s business in communities of color.

The settlement with Washington Trust marks another successful redlining case for the DOJ, which launched an Initiative to combat redlining in October 2021. Since then, the DOJ has reached $98 million in settlements in nine cases related to redlining. Other banks that have settled redlining cases include American Bank of Oklahoma, ESSA Bank, Park National Bank, City National Bank, Lakeland Bank, and Trident Mortgage Co.

The DOJ’s efforts to address redlining are crucial in promoting fair lending practices and ensuring equal access to mortgage services for all individuals, regardless of their race or ethnicity. By holding banks accountable and requiring investments in underserved communities, the DOJ is working towards a more equitable housing market.

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