Washington Trust, the oldest community bank in the US, has agreed to pay $9m to resolve allegations that it engaged in lending discrimination against homebuyers in majority Black and Latino neighborhoods, the Department of Justice has announced.
Since the company was founded in 1800 in Rhode Island, the bank has never offered its home loan services at a branch location in a majority-Black or Latino neighborhood throughout the state, including in the state capital of Providence, where the vast majority of the state’s Black and Latino population live.
The practice perpetuated the scourge of redlining, the longstanding racist policy of banks blocking people of color from getting mortgages.
The justice department’s agreement marks the latest effort to hold banks and other mortgage lenders accountable for depriving homebuyers of access to services in majority Black and Latino neighborhoods.
Just a year ago, the justice department settled a case with Trident Mortgage Company, a mortgage lender owned by the billionaire Warren Buffett’s holding company, Berkshire Hathaway, for “avoiding providing home loans and other mortgage services to majority-minority neighborhoods” in the region surrounding Philadelphia, which covers 11 counties in four states, including the cities of Camden, New Jersey, and Wilmington, Delaware.
In Washington Trust’s case, its company data showed that its home loan applications from people in majority-Black and Latino neighborhoods was significantly lower than similarly situated peer lenders.
Between 2016 and 2021, just 2.4% of Washington Trust’s mortgage applications came from people living in majority-Black and Latino areas. By comparison, the bank’s rival lenders managed to source applications from majority-Black and Latino areas at four times the rate of Washington Trust. Even when Washington Trust sourced mortgage loans from residents in majority Black and Latino areas, the residents were disproportionately whiter compared with the bank’s rivals.
And the disparity continued when Washington Trust made the loans. Of the 7,502 residential mortgage loans the bank made between 2016 and 2021, just 142 came from residents in majority-Black and Latino neighborhoods. By comparison, rival lenders approved four times as many loans from residents in similarly-situated Black and Latino areas, the federal investigation found.
The bank’s decision to operate branches solely in majority-white neighborhoods “restricted” homebuyers in majority-Black and Latino neighborhoods from “access to the Bank’s credit and mortgage lending services”, according to the federal complaint. By April 2023, the bank operated its 23 locations in majority-white neighborhoods. The bank also chose not to assign mortgage loan officers to “outreach, market, advertise, or generate loans” to people in majority Black or Latino neighborhoods.
Department of Justice attorneys alleged that those decisions “discouraged” people living in such neighborhoods from applying for home loans. They needed to travel to branches in majority-white neighborhoods, including for walk-in appointments, if they wanted to access the bank’s services.
The bank “relied entirely on mortgage loan officers” who worked in those branches to source clients in other neighborhoods and failed to “train or incentivize” those officers to make up for the bank’s lack of presence in majority-Black and Latino neighborhoods.
This despite the bank’s own internal and external risk assessments repeatedly warning that its low applications from Black and Latino areas raised the risk of redlining. Yet justice department investigators found the bank “took no meaningful action in response to these reports … despite having knowledge of its underperformance and its redlining risk.”
Kristen Clarke, assistant attorney general of the justice department’s civil rights division, said in a statement that the settlement sends a ““strong message to banks regarding the justice department’s firm commitment to combat modern-day redlining and ensure that all lenders are providing equal access to home loan opportunities to communities of color”.
As part of the agreement, Washington Trust will open two branches in majority Black and Latino neighborhoods and assign mortgage officers focused on serving those areas, while investing in facilitating home loans more easily there.