Remarks by Assistant Attorney General Kristen Clarke at the Annual Community Reinvestment Act and Fair Lending Colloquium

Remarks as Prepared for Delivery

Thank you for that kind introduction, Tim. The last time I had the honor to address this group I was only able to join you virtually, and so it is a real pleasure to be here with all of you in person today. Before, I begin I would like to recognize several of my colleagues who have joined me today – Deputy Assistant Attorney General Johnathan Smith, and Lucy Carlson, Deputy Chief in our Housing and Civil Enforcement Section. Their leadership and vision for our fair lending enforcement program has helped to truly propel our efforts in this area.

I have been looking forward to this important opportunity to discuss the role that each of us can and must play in addressing the persistent problem of lending discrimination. You are all here today based on your common interest to improve your institutions’ fair lending capacity, and over the next two days you will hear from leading experts in the field of fair lending, including from some my colleagues in the Civil Rights Division and at other federal agencies as well as from leaders in the lending and advocacy communities. I applaud your participation, and when you return to work, I urge you to take what you learn and put together a plan of action. Not just to manage risk, but to proactively promote equal opportunities to access credit and home ownership. I’d like to spend my time with you today discussing the Justice Department’s fair lending and fair housing priorities, and to explore how we can all work together to advance our shared goals of equality and equity for all.

As many of you are aware, in October 2021, I stood with Attorney General Merrick Garland, Consumer Financial Protection Bureau Director Rohit Chopra, and Acting Comptroller of the Currency Michael Hsu to announce the Department’s Combating Redlining Initiative. When we made the announcement, we committed to taking bold, new action to address modern-day redlining. I’m proud to report that we have done just that. We have made robust use of our fair lending enforcement authorities and partnered with federal and state partners to attack redlining on the broadest scale in the Justice Department’s history.

You all know that this country has had a long and shameful history of racial discrimination, especially in the context of lending and homeownership. Lending discrimination has its roots in centuries of government-sponsored discrimination against Black, Latino, Indigenous, and other people of color through practices that date back to the formation of America itself. In the 1930s, against a backdrop of segregation caused by systemic housing and lending discrimination through forced displacement, Jim Crow laws, and racial covenants, a new form of lending discrimination – redlining – was born. It is important to acknowledge the role of the federal government in this historical context. During this time, the Home Owners Loan Corporation and the Federal Housing Administration undertook several measures to prevent foreclosures and incentivize a housing boom. In so doing, both agencies quite literally redlined maps to prevent Black communities from benefiting from any of this government assistance which would have permitted them to obtain insured mortgages as a pathway to building wealth.

In response, after significant work by local and national advocacy groups and in the wake of the devastating assassination of Dr. Martin Luther King, Jr., Congress passed one of our nation’s most important civil rights laws -- the Fair Housing Act of 1968. The Act provided tools to challenge discriminatory housing practices, including redlining, across the country. Additional advocacy led to the Equal Credit Opportunity Act and the Community Reinvestment Act in the 1970s. It was then, twenty years after the passage of ECOA, that the Department brought its first redlining case.

Unfortunately, redlining persists and continues to perpetuate the racial wealth divide. The present-day gap in homeownership rates is stark – a white family is 70% more likely to own a home than a Black family. And the gaps in homeownership rates contribute to staggering differences in family wealth: while the median wealth of a white family is $285,000, the median wealth of a Black family is only $45,000. Many of our redlining cases have also demonstrated systemic discrimination against Hispanic communities -- the median wealth of a Hispanic family is only $62,000. That is why, when we announced the Combating Redlining Initiative, we called upon our moral imperative to “take bold, new action” because “simply staying the course is not enough.”

Since 2021 and the launch of the Initiative, we have achieved historic results. A few weeks ago, the Attorney General and I announced the resolution of our tenth redlining case as part of the Initiative. In total, we have secured over $107 million in relief for communities of color that have experienced lending discrimination by banks or other mortgage lending businesses. And because our experience in past cases has shown that each dollar of loan subsidy yields over ten dollars of new credit to impacted communities, our work thus far is bringing more than $1 billion in relief to redlined communities. Our redlining cases in communities such as Houston, Memphis, Philadelphia, Camden, Wilmington, Newark, Los Angeles, Columbus, Tulsa, Rhode Island, and Jacksonville are making desperately-needed credit opportunities available to communities of color that have been systemically underserved for far too long.

In our most recent redlining settlement, we entered into an agreement with Ameris Bank to resolve allegations that the bank engaged in a pattern or practice of redlining predominately Black and Hispanic neighborhoods in Jacksonville, Florida. Our analysis found, among other things, that Ameris did not obtain a single application in one-third of all majority-Black and Hispanic tracts in Jacksonville over a six-year period – but peer lenders did receive applications in these areas. We also found that the bank never operated a branch in a Black and Hispanic neighborhood in Jacksonville, even though majority-Black and Hispanic census tracts account for nearly 20% of the bank’s service area. We also found that Ameris did not make meaningful efforts to reach neighborhoods of color – in fact, mortgage bankers failed to serve those communities, and marketing and outreach efforts were directed towards white communities. And finally, we found that while Ameris knew of its redlining risk in Black and Hispanic communities in Jacksonville for years, it did not take any corrective action to address the risk and reach out to communities of color in Jacksonville.

Under the approved consent order, Ameris Bank will invest $9 million to increase credit opportunities for communities of color in Jacksonville by:

• Creating a $7.5 million loan subsidy fund that will be made available to residents of majority-Black and Hispanic neighborhoods and those seeking credit in those communities.
• Providing $900,000 for advertising and outreach targeted toward the residents of these neighborhoods.
• Committing $600,000 to develop community partnerships to provide services that increase access to residential mortgage credit.
• Opening a new branch in a majority-Black and Hispanic neighborhood in Jacksonville.
• Ensuring that at least three mortgage loan officers are dedicated to serving majority-Black and Hispanic neighborhoods.
• Retaining a consultant to assess the bank’s compliance management system as it pertains to redlining risk, and
• Employing a full-time Director of Community Lending who will oversee the continued development of lending in majority-Black and Hispanic neighborhoods in Jacksonville.

Ameris is working cooperatively with the department to address the credit needs of residents in majority-Black and Hispanic neighborhoods in Jacksonville. Beyond the agreement, Ameris is taking the proactive step of expanding its lending services across its markets to underserved communities. This nationwide ripple effect ensures that more communities have equal access to credit.

As I noted, our redlining work has spanned far and wide against lenders of all types. In September, we settled a redlining matter for $9 million against Washington Trust Bank in Rhode Island, the oldest community bank in the nation, to resolve allegations of discrimination against Black and Hispanic borrowers. And, last year, we settled a redlining matter with Trident Mortgage Company, which included over $20 million in relief and marked the first redlining agreement that the Justice Department has secured with a mortgage company. Our January 2023 redlining resolution with City National Bank, which is headquartered in one of the country’s largest and most diverse cities – Los Angeles, California – included $31 million dollars in relief, the single largest redlining settlement ever secured by the Justice Department.

The Civil Rights Division did not achieve these historic results alone. We are bringing a whole-of-government approach to this work. In addition to identifying redlining through our own internal analysis, some of our cases referrals from federal regulatory partners. Our investigations also benefit from strong partnerships with U.S. Attorneys’ Offices and State Attorneys General offices. We have also worked closely with the financial regulatory agencies, including the Consumer Financial Protection Bureau. As you all likely know, we share enforcement authority of ECOA with the financial regulatory agencies. For decades, our anti-discrimination work under ECOA has included vigorous enforcement of the prohibition on discrimination, including discouraging applicants from seeking credit based on a protected characteristic of the applicant or the fact that the applicant is seeking credit in particular geographic area. The practice of discouraging applicants seeking credit was central in the history of redlining. Stopping lenders from engaging in practices that discourage applicants because of their race, national origin, or any other protected characteristic is key to our work in combating modern-day redlining. We look forward to continuing to work closely with the financial regulatory agencies to ensure robust enforcement of ECOA.

As you can likely tell, we are proud of the work we have been able to accomplish in these past two years through the Combating Redlining Initiative. But we are by no means done. We are also focusing on unlawful practices such as reverse redlining, and steering.

So, what does all of this mean for you? One clear message – which you already know – is that there is increased and sustained scrutiny of redlining across the federal government. The numbers reflect just over 24 months of intense focus – but we are moving full speed ahead in redlining enforcement and do not plan to rest on this success. In fact, just a few days ago at a meeting with fair lending advocates and our regulatory partners at DOJ headquarters in Washington, DC, Attorney General Garland shared the message that he intends for us to continue our work at full speed in the road ahead.

But while we will continue to focus on bringing cases, enforcement and oversight alone will not achieve equality of opportunity for homeownership in this country. To get there, we need your partnership and leadership. You all hold the power to transform the mortgage industry into one that reflects fairness, access and equal opportunity for all. I know that many of you in the audience advocate for fair lending within your institutions through enhanced compliance, risk monitoring, development of special loan products, and community outreach. I also know that it can be lonely and difficult at times to persuade company leadership to give consumer compliance matters the attention and resources that they deserve. But I ask that you keep your foot on the gas and that you continue to sound the alarm on fair lending risk. I encourage you to keep making the case, every day, that not only is fair lending compliance the law, but that it also abides by the cardinal promise of our democracy – one in which all people have equal access to opportunity, particularly in housing and lending.

To help you make that case, I want to share some of the lessons we have learned through decades of redlining enforcement, crystalized by the work of the last two years.

The first lesson is to engage with your regulators and promptly implement any fair lending recommendations following a consumer compliance exam. One hallmark of so many of our redlining investigations – whether agency-referred or self-initiated – is that the lender failed to implement recommendations issued by its regulator. Sometimes we see lenders completely fail to adopt recommendations and sometimes we see them implement only a fraction of the recommendations despite ample time to do more. Lenders that ignored regulators’ recommendations that could have made a difference in identifying and addressing redlining risk are more often subject to investigation by the department.

Second, it is important to understand the full scope of the communities where your institutions lend. By this, I mean taking a broad geographic view of the areas where you operate, instead of focusing simply on the census tracts where you currently generate lending activity. In our redlining resolutions we have regularly highlighted that some lenders could have proactively identified risk if they had stepped back to determine whether there were communities of color adjacent to their lending areas that they could have reasonably served. And others could have better identified risk by taking a more nuanced look at the communities within their lending areas. This approach is consistent with the Interagency Fair Lending Examination Procedures and should be part of your compliance management system.

Third, engage with community groups which have insight about and experience with the credit needs of local communities of color. Our experience has made clear that community partnerships play a critical role in helping lenders understand local dynamics and best practices to reach prospective applicants of color. In addition, community groups are critical partners in connecting lenders to potential borrowers, as some of these groups provide services that are creating pathways to home ownership, such as credit counseling and matched savings programs. Learning from and engaging with these organizations can generate new opportunities for institutions and the communities they serve.

Fourth, once you have learned more about the communities you should be serving, ensure that your compliance management system is actually measuring redlining risk. It is not uncommon for us to hear from lenders that they believe they are doing well, only for us to discover during an investigation that their internal risk management system simply was not set up to adequately identify redlining risk. Whether it is erroneously crediting its lending in low- and moderate-income tracts as lending to communities of color, aggregating communities of color as a single group rather than evaluating performance with more nuanced measures, or focusing on underwriting rather than redlining, we frequently see that institutions we investigate rely on insufficient metrics that give them a false sense of security.

Finally, once you conduct your assessments, and after you begin talking to community organizations, use that information to refine your internal fair lending monitoring program. The program should include building up your institutions’ fair lending oversight and monitoring, and ensuring that those reports reach the highest levels of the institution. As part of what additional proactive measures your institution could undertake, our consent orders provide a road map of ideas. For example, when we announced our resolution with City National Bank in Los Angeles, the bank simultaneously announced that it was creating a special purpose credit program that would be available to borrowers in other markets served by the bank. As you may know, in February of last year, the Justice Department joined the Consumer Financial Protection Bureau, the Department of Housing and Urban Development, and prudential regulators in an interagency statement encouraging creditors to explore opportunities to develop special purpose credit programs to better expand access to credit. Today, I want to reaffirm the Justice Department’s commitment to encouraging and supporting these programs as lawful and effective ways to improve equitable lending practices.

If you are proactive, there is much that you can accomplish. You can reach historically marginalized communities and provide them new opportunities, all while increasing your institution’s overall lending activity – making this work a win-win for everyone.

I’d like to talk about one particular success story in that regard. In 2011, Midwest BankCentre entered into a consent order resolving the United States’ allegations that it had redlined majority-Black neighborhoods in the City of St. Louis and North St. Louis County. As part of this settlement, Midwest opened a branch in the City of Pagedale, a part of the County that had never had a bank branch, and invested in partnerships with trusted community leaders to increase its lending in Pagedale and the surrounding neighborhoods. Within the first two years of opening, four hundred community members had established their first relationship with a bank. This branch helped spur other economic activity in the immediate area, including: a movie theatre; credit union; restaurants; a health care center; and the Carter Commons—a commercial development that houses numerous minority-owned businesses including shops, a food court, and a fitness center. Based on the success of the Pagedale Branch, in 2016, Midwest opened a branch on the campus of the Friendly Temple in the City of St. Louis, and today Midwest operates five branches in majority-Black neighborhoods in and around the City of St. Louis. Midwest’s branches in these communities have helped reduce by half the rate of unbanked Black households in the St. Louis area. By fulfilling—and frankly going above and beyond—its obligations under the consent order, Midwest was able to expand its market and serve an underrepresented community at the same time.

Simply put, being proactive is the key to compliance with fair lending laws.

While these past 24 months represent the Department’s most prolific period of redlining enforcement work, I want to underscore that we have also closed investigations without further enforcement action when it is clear that the lender promptly addressed risk that it or its regulator identified – not as a reaction to an imminent referral to the Justice Department – but because the institution was proactive in its efforts to do better.

In addition to our redlining work, the Justice Department’s fair lending enforcement program is focusing on other ways to challenge housing and lending discrimination. I would like to highlight these priority areas.

First, appraisal discrimination. A significant gap exists between how homes are valued in communities of color and in predominantly white neighborhoods. On average, homes in majority-Black neighborhoods are valued at less than half of home values in neighborhoods with few or no Black residents. Accounting for neighborhood and property characteristics does not fully explain these disparities. Historical practices – including the federal government’s role in producing redlining maps that cemented an inequitable credit system – helped create these valuation inequities. Appraisals also drive the gap. And as you all know well, appraisals are a critical component of a residential credit decision.

The Department of Justice is one of 13 federal agencies on the Interagency Task Force on Property Appraisal and Valuation Equity – PAVE – collaborating to develop a proactive, federal response to appraisal discrimination. Last year PAVE issued a report detailing specific agency commitments to address bias, including the Department’s commitment to expand fair lending enforcement and drive accountability in the industry. Towards that end, we are actively sharing information and collaborating; we have committed to issuing guidance with HUD and the CFPB to educate the appraisal industry – including mortgage lenders – about federal nondiscrimination laws.

The department has taken other actions to address this issue. Along with the CFPB and other agencies, we issued letters to The Appraisal Foundation underscoring the importance of including federal nondiscrimination standards into appraisal standards. We filed briefs in private lawsuits to make clear that the Fair Housing Act and ECOA apply to the appraisal industry. And earlier this year, the Department and the CFPB jointly filed a statement of interest in Connolly v. Lanham et al., a lawsuit in the United States District Court for the District of Maryland, where we explained that mortgage lenders can violate the FHA and ECOA by relying on discriminatory appraisals.

As alleged in the complaint, in May 2021, Nathan Connolly and Shani Mott, two Johns Hopkins University professors, tried to refinance their Baltimore home to take advantage of historically low interest rates. They applied to a mortgage lender that conditionally approved their loan subject to an independent appraisal. When the appraiser visited their home, the couple and their children were present, and the home displayed family photos making clear that a Black family lived there. A few days later, the lender denied the application based on an appraised value of $472,000, which was lower than what the lender and the family expected. Dr. Connolly and Dr. Mott explained to their lender that they thought the low value was racially motivated, and they provided a letter describing the shortcomings of the appraisal. However, the lender failed to take meaningful action in response, and instead relied on the appraisal to reject the loan. After the denial, and their unsuccessful attempt to get help from the lender, Dr. Connolly and Dr. Mott applied for a new loan from a new mortgage lender. During this appraisal they replaced family photographs with pictures of white friends, replaced their artwork with images featuring white subjects, and had a white colleague stand in for them. This time their home appraised at $750,000, well over a quarter million dollars more than the original appraisal. While the Professors ultimately refinanced their loan, the interest rates were higher than when they first applied.

The experience of Dr. Connolly and Dr. Mott is not unique. News reporting from across the country recounts similar stories of homeowners compelled to strip their homes of their identity to be treated fairly. Those stories also detail troubling responses from lenders who rely on potentially discriminatory appraisals to drive negative loan outcomes. The Justice Department is intensely focused on addressing widespread appraisal discrimination.

Another priority area for the Justice Department is combating algorithmic bias and discrimination. Earlier this year, we joined the CFPB, EEOC, and FTC to issue a joint statement pledging to confront bias and discrimination in automated systems. The Statement recognizes the power of technology to do good, but also notes that automated systems can produce discriminatory outcomes, including by reinforcing historical bias. Our joint Statement makes clear that existing laws apply to the use of automated systems and innovative new technologies just as they apply to other practices. We also note our commitment to monitor the development and use of automated systems and to promote responsible innovation.

The Statement speaks to all areas of civil rights, but one area in which algorithms have an incredible power to discriminate is in lending. The use of algorithms to underwrite loans – from mortgages to student loans to credit cards – has created a new playing field for obtaining credit. Lending institutions are responsible for ensuring that the playing field is level for applicants regardless of their race, sex, familial status or national origin. Lenders should proactively and consistently review and test their underwriting process – including their automated steps – to ensure that credit decisions do not turbocharge discrimination by disproportionately rejecting loans to applicants of color for reasons unrelated to creditworthiness. This is especially important as we try to move past redlining. Once a lender ensures that it is offering all communities equal opportunity to obtain credit, the next step in the lending process is to ensure that all applicants are evaluated by an equitable credit decision-making process.

The Administration is also taking a whole-of-government approach to these types of new and emerging technologies. Indeed, the President recently issued a new Executive Order on artificial intelligence that puts federal agencies, including the Justice Department and the Civil Rights Division specifically, in charge of assessing the civil rights implications of the use of AI and other emerging technologies. While we eagerly await legislative action in this area, the federal government will continue to be on the lookout for uses of technology that implicate civil rights concerns.

And as we marked Veteran’s Day this past weekend, I would be remiss if I did not underscore our efforts to aggressively enforce the Servicemembers Civil Relief Act (SCRA), to protect the rights of those who defend America. Those who risk their lives to protect our freedoms should never return home to find their debt skyrocketing, their homes foreclosed, or their cars repossessed. Our SCRA enforcement has helped ensure our servicemembers and their families received millions in relief for unlawful home foreclosures, auto repossessions and interest rate overcharges. Since 2011, the department has obtained over $481 million in monetary relief for over 123,000 servicemembers through its enforcement of the SCRA.

For example, the SCRA allows servicemembers to reduce the interest rates on certain loans to 6% while on active duty. In two cases currently pending in North Carolina federal court, plaintiffs alleged that their lenders violated the SCRA by imposing interest rates in excess of 6% on qualified servicemembers. The plaintiffs are seeking to bring class actions against the lenders on behalf of themselves and other servicemembers who may have been affected. In response, the lenders are seeking to have the cases dismissed and to require every servicemember to bring their own individual claim in private arbitration. We filed briefs highlighting specific language in the SCRA that permits plaintiffs in a civil action to be a representative party on behalf of members of a class or be a member of a class despite any previous agreement to the contrary.

We will continue this critical work protecting the rights of our nation’s servicemembers as they work, each and every day, to defend the freedoms that are core to our democratic society.

As I conclude my remarks, I want to reiterate that I appreciate that you are here, and that you are all taking significant time to focus on how to improve your fair lending efforts. I also appreciate that your jobs are challenging – it is not easy extending your own commitment to fair lending to the farthest corners of your institutions’ reach. But let me leave you with this: Belated solutions not backed by a meaningful commitment – from the most senior board member to the junior level loan officer – are not enough. And fair lending is so much more than avoiding a lawsuit. It means proactively creating equal opportunities for homeownership and wealth generation, and allowing all communities access to the American Dream. It means that you are the moral compass inside your institution – you are the one bringing a fair lending lens and voice to the work that you do every single day.

So I will remind you again of your power and your agency to address inequities. Together with your partnership and leadership, we can make fair lending the norm in our economy. Thank you again for inviting me here and for the opportunity to speak with you all this morning.