On July 27, 2022, the Consumer Financial Protection Bureau (“CFPB”) and the US Department of Justice (“DOJ”) entered into a settlement with Trident Mortgage Company (“Trident”), resolving allegations under the Equal Credit Opportunity Act (“ECOA”) and the Fair Housing Act that the non-bank mortgage lender intentionally discriminated against majority-minority neighborhoods in the greater Philadelphia area. This settlement is the first redlining enforcement action against a non-bank mortgage lender and evidences the government’s continued focus on “modern-day redlining.”
The Settlement Terms
The Trident settlement, which requires the lender to pay over $22 million, resolves allegations that Trident, through its marketing, sales, and hiring actions, “discouraged” prospective applicants in the greater Philadelphia area’s majority-minority neighborhoods from applying for mortgage and refinance loans. However, much like the CFPB’s lawsuit against Townstone Financial, Inc. (“Townstone”), the settlement does not indicate that Trident treated neighborhoods or applicants differently based on race or ethnicity. Instead, the crux of the settlement is that Trident did not take sufficient affirmative action to target majority-minority neighborhoods. This, coupled with Trident’s mortgage lending reporting under the Home Mortgage Disclosure Act (“HMDA”), ultimately subjected the lender to enforcement.
Specifically, the CFPB’s press release notes that: (1) only 12% of Trident’s mortgage loan applications came from majority-minority neighborhoods, even though “more than a quarter” of neighborhoods in the Philadelphia MSA are majority-minority; (2) 51 out of Trident’s 53 offices in the Philadelphia area were located in majority-white neighborhoods; and (3) all models displayed in Trident’s direct mail marketing campaigns “appeared to be white;” (4) Trident’s open house flyers were “overwhelmingly concentrated” in majority-white neighborhoods; and (5) Trident’s online advertisements appeared to be for home listings “overwhelmingly located” in majority-white neighborhoods.
Similar to the Townstone lawsuit, the settlement does not indicate that Trident explicitly excluded certain neighborhoods or prospective applicants or actually discouraged applicants from majority-minority neighborhoods, only that such applicants “would have been discouraged.” While both the Townstone lawsuit and the Trident settlement reference remarks made by employees in their internal communications, there is no indication that employees ever made offensive or discouraging statements to prospective applicants of any neighborhood. Nevertheless, the CFPB settlement requires Trident to pay $18.4 million into a loan subsidy program to increase the credit extended in majority-minority neighborhoods in the Philadelphia MSA; $4 million in civil money penalties; $875,000 toward advertising in majority-minority neighborhoods in the Philadelphia MSA; $750,000 toward partnerships with community-based organizations; and $375,000 toward consumer financial education. The settlement also requires Trident to open and maintain four (4) branch offices in majority-minority neighborhoods of the MSA.
The Trident settlement is noteworthy for various reasons. In addition to being the first government redlining settlement with a non-bank mortgage lender, the resolution involves a variety of parties, including the CFPB, DOJ, and the states of Pennsylvania, New Jersey, and Delaware. Further, the settlement once again highlights that insufficient marketing and outreach in minority neighborhoods may be considered sufficient actionable under ECOA and the Fair Housing Act. Indeed, it appears that a lender’s failure to precisely align its lending patterns with the geography’s demographics may serve as the basis of a redlining claim, even absent specific allegations of intentional exclusion or other discrimination. Finally, the settlement demonstrates that even a lender no longer in operation (Trident stopped accepting loan applications in 2021) is still a worthy defendant in the government’s eyes.