Assistant Attorney General Kristen Clarke Delivers Remarks at America’s Credit Union’s Governmental Affairs Conference

Remarks as Prepared for Delivery

Good afternoon. I am Kristen Clarke, Assistant Attorney General for Civil Rights at the U.S. Department of Justice. I am delighted to be here today to address America’s credit unions. Credit unions are a cornerstone of a strong economy, and an economy that is equally accessible to all people. The people that you serve are not just your customers, they are your “members.” As a 24-year member of a credit union myself, I appreciate how important it is that you are able to serve your members and provide communities with safe and affordable products and services. When I asked my mother about her own decades-long love affair with her credit union, she told me “I just feel they are honest. I feel safe and I feel like I can call and get a loan anytime.” That is why I have been looking forward to this important opportunity to discuss the role that each of us can and must play in protecting your members, ensuring equal access to opportunity and addressing the persistent problem of lending discrimination.

The core work of the Civil Rights Division at the Justice Department is to confront barriers to justice and opportunity for everyday people. Our mandate is to uphold the civil and constitutional rights of all people, especially those most vulnerable among us. An important aspect of our work involves promoting compliance with two of our nation’s federal civil rights laws such as the Fair Housing Act and the Equal Credit Opportunity Act (ECOA). This afternoon, I would like to talk about the Justice Department’s efforts to tackle our country’s long history of discrimination in lending.

In the fall of 2021, I joined Attorney General Merrick B. Garland, Consumer Financial Protection Bureau Director (CFPB) Rohit Chopra and Acting Comptroller of the Currency Michael Hsu to launch the department’s Combating Redlining Initiative. This nationwide initiative is the Justice Department’s most aggressive and coordinated enforcement effort to address modern-day redlining. We committed to taking bold, new action, and 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.

To date, we have secured over $122 million dollars in relief for communities of color that have experienced lending discrimination by banks or other mortgage lending businesses. The vast majority of this relief supports loan subsidy funds, which provide direct assistance to borrowers of color, allowing them to access to credit and to make the dream of homeownership a reality. Our settlements are bringing relief to communities in Houston, Memphis, Philadelphia, Camden, Wilmington, Newark, Los Angeles, Columbus, Tulsa, Jacksonville, Charlotte, Winston-Salem and the state of Rhode Island.

Our redlining work has spanned far and wide against lenders of all types. For example, we secured $9 million from Washington Trust Bank in Rhode Island, the oldest community bank in the nation. We secured over $20 million in relief from Trident Mortgage Company for over $20 million in relief, which marked the Justice Department’s first-ever redlining agreement with a mortgage company. We secured over $31 million from City National Bank, headquartered in Los Angeles, one of the country’s largest and most diverse cities, yielding the single largest redlining settlement ever secured by the Justice Department.

And just a few months ago in December, we, along with our partners at the Consumer Financial Protection Bureau, filed the Justice Department’s first-ever reverse redlining, or predatory lending matter, against Colony Ridge, a Texas-based developer and lender, for operating an illegal land sales scheme and targeting tens of thousands of Hispanic borrowers with false statements and predatory loans.

Despite these successes, we know that there is more work to do. 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. The median wealth of a Hispanic family is only $62,000. These statistics underscore why we must work to end lending discrimination.

And it is why we are bringing a whole-of-government approach to this work and partnering with U.S. Attorneys and State Attorneys General across the country.

We are also working closely with the financial regulatory agencies. We are identifying redlining through our own internal analysis while also building cases from direct referrals from federal regulatory partners.

As you may know, we share enforcement authority of the ECOA with the financial regulatory agencies, including the National Credit Union Administration (NCUA). I know that Chairman Harper has already addressed all of you. We look forward to working closely with the Chair and all of our colleagues at NCUA as we continue our efforts.

So, what does all of this mean for you today? One clear message – which you already know – is that we are seeing increased and sustained scrutiny of redlining at both the federal and state level right now. We are moving full speed ahead in redlining enforcement. But while we are bringing cases, we know well that enforcement and oversight alone will not fix the problem by itself. To achieve equal opportunity in homeownership in this country, we need your partnership and leadership. You all hold the power to transform the lending industry into one that reflects fairness, access and equal opportunity for all.

To help you make that case, I want to share some of the lessons and best practices we have learned through decades of work and crystallized through recent redlining enforcement.

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 that fail to adopt any recommendations outright, or we see them implement only a fraction of the recommendations despite having 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 Justice Department.

Second, engage with community groups which have insight about and experience with the credit needs of local communities of color. We’ve seen that community partnerships can play a major role in helping lenders understand local dynamics and help them identify 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.

Third, ensure that your compliance management system is actually measuring redlining risk. We often 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.

Fourth, if and when relying on Artificial Intelligence (AI), be sure to do so in a safe and sound manner to prevent harm to members and ensure compliance with civil rights laws. We know that more and more financial institutions, including credit unions, are collecting and using large amounts of consumer data to make predictions and decisions in the context of underwriting, pricing and loan requirements, as well as advertising for all types of loans – including home loans. Purportedly neutral algorithms can end up amplifying or reproducing unlawful biases that have long existed around race, homeownership and access to credit in the United States. We need to ensure that use of data and algorithmic modeling is more transparent so that we can address these problems and avoid discriminatory outcomes. Credit unions should proactively 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. It’s also important to provide appropriate oversight over third party vendors to mitigate risks and prevent harms.

Finally, make sure you have refined 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 2022, the Justice Department joined the CFPB, 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.

In addition to these lessons, I want to flag two additional areas that warrant attention in our collective efforts to challenge housing and lending discrimination.

Appraisal discrimination. Today, there is a significant gap between how homes are valued in communities of color and in predominantly white neighborhoods. The data shows that homes in majority-Black neighborhoods are valued at less than half of home values in neighborhoods with few or no Black residents. And as you all know well, appraisals are a critical component of a residential credit decision. The Justice Department is one of 13 federal agencies on the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE) together, we have activated a coordinated, federal response to appraisal discrimination.

Along with the CFPB and other agencies, we issued letters to The Appraisal Foundation underscoring the importance of incorporating federal nondiscrimination standards into appraisal standards. We’ve also filed briefs in private lawsuits to make clear that the Fair Housing Act and ECOA apply to the appraisal industry.

Last March, the department and the CFPB jointly filed a statement of interest in Connolly v. Lanham et al., a lawsuit in federal court in Maryland, where we explained that mortgage lenders can violate the FHA and ECOA by relying on discriminatory appraisals.

Some of the facts in this case – 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.

We know that their story is all too common. Together, we can take action to address widespread appraisal discrimination.

We also want to sound the alarm on ensuring access to fair lending opportunities for new Americans and immigrant communities. Last fall, we partnered with the CFPB to issue a joint statement that reminds financial institutions that credit applicants are protected from discrimination on the basis of their national origin, race and other characteristics covered by the Equal Credit Opportunity Act, even if they are not U.S. citizens or permanent residents. While ECOA allows a creditor to consider immigration status when necessary to ascertain the creditor’s rights regarding repayment, creditors should be aware that unnecessary or overbroad reliance on immigration status, including when that reliance is based on bias, may run afoul of the law.

Consumers – many with longstanding ties to the United States, such as those with Deferred Action for Childhood Arrivals or DACA status – have reported being rejected for credit cards as well as for auto, student, personal and equipment loans solely because of their immigration status, even when they have strong credit histories and are otherwise qualified to receive the loans. While many larger banks have opened up credit opportunities for DACA recipients and others in recent years, we have heard that other lenders, including credit unions, have been slower to follow suit, despite the fact that many immigrants would prefer to bank with community-based institutions.

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

While these past two years represent a prolific period of redlining enforcement for the Justice Department, I also want to underscore that we have closed investigations without 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.

I invite your partnership in bringing an end to lending discrimination. While the Justice Department, along with our partners at the CFPB, NCUA and across federal and state government, continue to focus on enforcement, we are also eager to work with you and we will always acknowledge proactive efforts in the area of fair lending. Together with your partnership, we can turn the page on our country’s history of redlining and credit discrimination. I firmly believe that credit unions can be industry leaders in pushing for a more just and fair economy for all.

Thank you again for inviting me here and for the opportunity to speak with you today.