Head of the Civil Rights Division Vanita Gupta Delivers Remarks at the 2016 Community Reinvestment Act & Fair Lending Colloquium

Thank you, Tim [Burniston], for that very kind introduction, for your strong leadership of this engaging colloquium and for inviting me back to speak with this distinguished group.  I also want to recognize three of my outstanding colleagues with me today from our Housing and Civil Enforcement Section – Chief Shina Majeed; Principal Deputy Chief Jon Seward and Liz Singer, Director of the U.S. Attorneys’ Fair Housing Program.  Their leadership of the Civil Rights Division’s fair lending work – in partnership with you – has helped to vindicate rights and to advance opportunities.

In the American economy, credit provides a key rung on the ladder of economic mobility.  Credit enables working families to borrow money so they can buy a home, purchase a car, collect savings, start a business or finance an education.  And so when some communities lack access to credit because of unlawful, discriminatory barriers – that means that some people don’t get the same opportunities as others do to own property, to build equity and to increase wealth.  But discriminatory lending practices don’t just harm some individuals or some communities.  Discriminatory lending results in lower property values, less investment, lost tax revenue and fewer jobs.  And the impact of those losses – stunted economic growth and diminished economic opportunity – hurts us all.

Yet we can’t measure the full impact of discriminatory lending practices just in terms of dollars and cents.  The full impact of discrimination extends far beyond the marketplace.  Discrimination breeds cynicism.  It drives despair.  It erodes trust in our public institutions – and the ability of public institutions to enforce the rules fairly.  And it derails hope – hope that through the tenacity of work and the resiliency of spirit, people in this country can lift themselves up, invest in their dreams and seize the promise of a brighter future.  So as we discuss the critical challenges in fair lending today, I want to emphasize that the work you do every day – as bankers and lenders, regulators and analysts – to ensure financial institutions treat all consumers on a level playing field doesn’t just impact the mortgage market, or the credit-card market, or the auto-lending market.  Economic struggles and erosions of public trust carry over into the justice system – from policing to corrections.  They cross into our schools and our businesses.  And by cutting across all these areas, fair lending work – your work – directly contributes to the founding promise of our democracy.  In America, we don’t guarantee equal outcomes.  But we do promise equality of opportunity – the timeless American ideal that says if you work hard, if you play by the rules and if you follow the law, you deserve a fair shot and an equal chance to succeed.

The Civil Rights Division works tirelessly to secure equal chances for all borrowers.  In the aftermath of the Great Recession – which resulted, in part, from discriminatory, predatory lending practices – we created a fair lending unit.  Since 2010, in partnership with our U.S. Attorney colleagues, the division has obtained more than $1.5 billion in relief for individual victims and impacted communities.  And so I want to talk with you today about the trends behind our work – and the impact of our efforts – from mortgage lending, to credit-card lending, to auto lending.

Nearly five decades after the enactment of the Fair Housing Act, we see how redlining – or denying someone credit because of where she lives – still pervades the marketplace.  We’ve seen it around the country, from New York, to Philadelphia, to St. Louis, to Detroit, to Memphis, to Connecticut.  After the subprime mortgage crisis – which disproportionately harmed communities of color – when the subprime lenders went out of business following the collapse of the market, it created or exacerbated credit voids in minority communities.

In our redlining investigations, we continue to see patterns of banks locating branches outside of majority-minority neighborhoods and directing their marketing strategies primarily to White neighborhoods.  This combination of excluding majority-minority neighborhoods from CRA assessment areas and directly targeting marketing to predominantly White neighborhoods perpetuates redlining problems.  Our most recent redlining case – following a joint investigation with the Consumer Financial Protection Bureau (CFPB) – resulted in a consent order with BancorpSouth Bank that we announced this past June.  The case involved alleged discrimination at nearly every stage of the lending process – from how the bank solicited applications, to the discretion it granted loan officers and underwriters to approve and price the loans.

The nearly $11 million settlement we announced resolved a set of disturbing redlining allegations in the Memphis area.  We alleged that when it came to advertising services and recruiting customers, the bank deliberately concentrated on predominantly White neighborhoods and avoided predominantly minority neighborhoods.  When it did service majority-minority communities, the bank discriminated in the underwriting and pricing of certain mortgage loans.  We also alleged that the bank sanctioned a culture of discrimination by implementing a policy that directed employees to treat loan applicants differently based on their race or other prohibited characteristics.  An internal meeting at the bank in 2012 revealed this culture of discrimination.  An audio recording of the meeting documented a manager explaining the bank’s race-based denial policy followed by employees making derisive comments about minorities and using racial slurs.  In discussing the explicitly race-based denial policy, a loan officer commented that “they need to get their credit up” and “stop paying their damn bills late” and then laughed.  The discretion given to employees at BancorpSouth had discriminatory consequences.  We found that the bank denied loans to African-American applicants at higher rates than it did for White applicants.  We also found that the bank charged African-American borrowers more for home mortgages than it did for White borrowers. 

Prior to entering the consent order – which we announced in June – the bank took a number of steps to improve its fair lending compliance.  And it remains fully committed to increasing its lending in minority neighborhoods.  Under the terms of the settlement we reached – with a cooperative, engaged approach from the bank’s senior officials – it agreed to pay nearly $7 million in relief for impacted individuals and neighborhoods.  It agreed to invest at least $800,000 in advertising, outreach and community partnership efforts.  And it agreed to pay a $3 million civil penalty.  In addition, the settlement requires the bank to amend its pricing and underwriting policies; to develop strong internal standards that will ensure compliance with fair lending obligations and to provide employees, senior management and the board of directors with fair lending training.

Based on our years of work in the industry, we see how redlining settlements can positively impact communities.  They increase access to credit by bringing branches into unbanked or underserved neighborhoods.  Around the country – from Detroit, to Alabama, to St. Louis – we’ve seen these reforms boost the number of loans in minority communities.  And we look forward to seeing strong results in New Jersey, New York and Memphis in the months ahead.  Our agreements also promote consumer financial education.  They provide subsidy funds that attract qualified borrowers in minority communities.  They encourage business development.  And they revitalize communities with an investment of dollars and an infusion of hope.

We saw this in the St. Louis area, when Midwest BankCentre opened a new branch in Pagedale, Missouri, a city of about 3,300 people just five or six miles from Ferguson.  The investment in Pagedale spurred other commercial development, including a movie theatre, a grocery store and a credit union.  It turned economic decay into economic vitality.  And following the success in Pagedale, the bank partnered with a 12,000-member African-American congregation – Friendly Temple Missionary Baptist Church – and plans to open a new branch on its campus this fall.  The partnership between Midwest and Friendly Temple will remove barriers.  It will build opportunities.  And it will ensure that underserved, marginalized residents can access those opportunities.

As I mentioned in the BancorpSouth case, in addition to redlining, we’ve also worked to hold lenders accountable for charging higher interest rates or fees to minority borrowers.  We’ve taken on the discriminatory causes and harmful effects of preferential pricing that can occur when loan officers get unchecked discretion.  Our 2012 case against Wells Fargo highlights this issue.  At Wells Fargo, brokers got to exercise subjective, unguided discretion – unrelated to credit worthiness – in setting the fees they charged to borrowers.  And discretion led to discrimination.  We alleged that Wells Fargo discriminated by charging roughly 30,000 African-American and Hispanic wholesale borrowers higher fees than White borrowers because of their race or national origin.

The consent decree that we reached with Wells Fargo established a set of critical reforms.  A newly created program called CityLIFT provides more than $50 million in direct down payment assistance to borrowers in communities around the country with large numbers of discrimination victims and communities hit hard by the housing crisis.  As of early this year, the program had provided roughly 3,000 down payment assistance grants around the country.  And more than 80 percent of these grants went to first-time home buyers.  These numbers translate into real opportunities that transformed lives.  After Monica, who lives in San Bernardino, California, couldn’t buy a home for her family and lost her deposit, she told the program administrator, “I felt like I had lost everything.”  But once she learned about CityLIFT, she used the grant funds to fulfill her dream and buy a home.  As Monica explained the significance of becoming a homeowner, “I needed for my children to know they can do anything, and for my mother to know she’s done well.”  Economic opportunity strengthens self-esteem.  And Roy – a legally-blind man who lives on a fixed income and always dreamed of owning a home – started collecting pennies he found on the streets of Philadelphia with his fiancée, Tanya.  They put them in a piggy bank to save money.  With the help of CityLIFT, Roy enrolled in an Individual Development Account, saved $2,000 toward his down payment and bought a home.  He says that owning a home has brought him joy, peace and comfort.

Beyond the housing market, we’ve worked to combat discriminatory lending in other critical aspects of people’s daily lives, including credit-card lending – one of the most common types of credit in the United States.  Working families depend on credit cards to feed their children, to finance their daily needs, to pay for school supplies and to go on vacations.  The Civil Rights Division works vigorously to ensure that all qualified borrowers – regardless of what they look like, where they come from or which language they speak – get equal access to credit.  Our settlement with Synchrony Bank resolved allegations that the bank excluded borrowers who expressed a preference for Spanish communications or had a mailing address in Puerto Rico from two credit card debt-repayment programs.  The program allowed eligible borrowers a chance to settle their credit-card debt if they paid a percentage of their remaining balance, ranging from 25 to 55 percent.  But without the chance to participate, many Hispanic borrowers saw their debt levels rise, their credit scores fall and their accounts close.  Financial costs led to emotional distress.  The settlement we reached provides $169 million in relief.  And the bank agreed to eliminate negative credit reports for affected borrowers.  Reforms like these demonstrate our firm commitment not only to reclaim dollars, but to reverse harms, and to reshape futures.

In another critical market that impacts people’s daily lives – we’ve taken action to level the playing field in auto lending.  People depend on their cars to get to work, to buy groceries, to take their kids to school or daycare and to go to the doctor.  And so the repossession of a car can set off a chain of disastrous events and negative consequences that stretch into nearly every area of one’s life.  Through several investigations with indirect auto lenders, we’ve observed that allowing dealers broad discretion to mark up rates increases the risk of discrimination.  Along with our partners at the CFPB, we’ve opened 11 investigations of indirect auto lenders since 2013.  Four of those cases have now been filed and settled.  As a result of the settlements entered since the start of 2015, three additional large national and regional indirect auto lenders have now agreed to reduce the maximum markup that dealers can add to interest rates.  The division expects that such reduced caps will significantly decrease discriminatory pricing disparities paid by individuals who take out auto loans from these lenders.

We’ve also taken on “reverse redlining,” where lenders target applicants with certain credit deals based on predatory terms because of their race, national origin or other protected characteristics.  In 2015, we settled a case with Auto Fare Inc., our first case alleging reverse redlining in auto lending.  The case involved two “buy here, pay here” used-car dealerships.  These dealerships targeted African-American customers for used car loans typically with a 30 percent interest rate, an excessive sales price, no meaningful assessment of a customer’s ability to repay and disproportionately high down payments and likelihood of default or repossession.  Our settlement mandates a series of improved practices in making and servicing loans that allow the dealerships to serve credit-challenged customers in a responsible manner.

Cutting across the different industries I’ve mentioned today, we also continue to aggressively enforce the Servicemembers Civil Relief Act (SCRA), to protect the rights of those who defend America.  Because women and men who risk their lives to safeguard our freedoms and our rights should never return home to find their rights denied, their debt skyrocketing, their homes foreclosed, or their cars repossessed.  Our SCRA enforcement has led to more than 144,000 service members and their co-borrowers receiving more than $450 million in relief for home foreclosures, auto repossessions and interest rate overcharges.  As I highlighted last year, our $60 million settlement with Sallie Mae – after Sallie Mae failed to reduce interest rates on pre-service student loans to 6 percent, as the SCRA requires – continues to benefit nearly 78,000 servicemembers.  It also triggered systemic changes to the student loan industry.  The settlements we reach in this area vindicate rights.  They change lives.  And they restore public trust in government’s capacity to solve problems.  When Sergeant Matthew Stoddard lost his home, which he built from the ground up, he called it the worst day of his life.  But because of our 2012 National Mortgage Settlement, now Sergeant Stoddard will get a chance one day to build what he calls “the most magnificent home ever.”

The cases and stories I highlighted today reflect our steadfast commitment to pursue an aggressive agenda of fair lending enforcement.  Yet as you all know, enforcement alone can’t eliminate every barrier and guarantee equality of opportunity.  We need you – industry experts, policymakers and regulators – to continue leading your organizations, your institutions and your industries.  We need you to continue making the case to your colleagues – day-in and day-out, in boardrooms and on conference calls, not just at annual meetings but during average Mondays at the office – that, yes, advancing best practices in fair lending helps you comply with federal law.  But it also embodies sound, common-sense business practices.  It enables our communities to thrive.  And it helps our economy – indeed, our country – reach its full potential.  You hold the power to advance this approach.  And you hold the power to replace inequity with fairness, discrimination with opportunity.  I want to thank you, once again, for the privilege to speak with you today.  My colleagues and I look forward to our continued partnership and engagement in this vital work.  Together, with your leadership and your expertise, we can work to make fair lending the norm across the industry and throughout the marketplace.