Getting a bank loan is already hard enough. Between fixing your credit, providing all the documentation that shows you earn enough to make it work, and also saving up for a colossal down payment, it's easy to see where people get frustrated with mortgage lenders.
Banks often seem like they're choosy and discriminatory based on who they pick. To a point, it's supposed to be true regarding income. But what happens when a bank discriminates against race in such a blatant manner, even the Department of Justice can't ignore it?
Well, Lakeland Bank and its former applicants are about to find out.
The Department of Justice had an investigation spanning 2015 all the way to 2021. Per Yahoo News, it was discovered that Lakeland Bank did all of the following:
- Set up branches exclusively in majority-white neighborhoods in three of the most racially diverse counties in New Jersey. These include Essex, Union, and Somerset. 23 of the bank's branches were in Newark, but none were in majority-minority areas.
- Actively refused to advertise loans to black and Latin potential buyers. No ads for Lakeland were seen in cities like Newark or Plainfield.
- Openly discouraged black and Latin homebuyers from applying for loans. Apparently, they had no problem lending to white people of similar incomes, though.
- Only 4 percent of Lakeland's loans went to qualified residents of primarily black and Hispanic neighborhoods. This is a far cry from the typical 20 percent that most other banks have made.
This is a form of real estate discrimination known as redlining, and it's designed to bar minorities from gaining properties in white neighborhoods. It's not just unethical. It's a violation of both the Fair Housing Act and the Equal Credit Opportunity Act.
The Department of Justice hit them with a massive consent order.
Here's what the consent order means for borrowers in the Newark area.
A consent order is a legally-binding order that forces banks and financial institutions to formally address major infractions in their organization. In other words, it's the financial regulatory world's way of forcing banks to play nice.
Yahoo News went into this in-depth, but I'll point out the meat here. Lakeland's consent order involves the following stipulations:
- They have to create a $12 million fund to subsidize mortgages, home improvement loans, and home loans for black and Hispanic customers in the Newark area. The funds can be used to help nonwhite buyers with up to $15,000 in closing costs, downpayment, or PMI.
- Lakeland is now legally obligated to spend $150,000 a year on advertising and educational programs directed towards black and Hispanic people in the Newark area. Educational options include things like credit counseling.
- They also have to spend $400,000 for services designed "to increase access to residential mortgage credit." This can mean a wide range of things.
- They also have 18 months to open two branches in primarily black and Hispanic neighborhoods. Oh, and they also have to hire four loan officers to service BIPOC.
- Lakeland also needs to hire a community manager. This is the person in charge of ensuring discrimination will not occur again.
What about Lakeland's merger?
Per New Jersey Monitor, Lakeland pointed out that they were going to merge with Provident Bank in upcoming months. The Department of Justice then decreed that the consent order will follow through for all of Lakeland's successors. Moreover, the merge was pending approval from regulators.
In other words, Lakeland is expected to move forward with the orders put forth in the consent order. For minority families looking for a bargain in home ownership, Lakeland's loss is potentially their gain.
The sad truth is that redlining is still alive in New Jersey.
Though the news may come as a shock to some, the truth is that redlining is still alive in New Jersey, despite it being illegal. In 2015, Hudson City Savings Bank had to pay $33 million in a settlement during a lawsuit filed by the Department of Justice. The bank later vanished from the map, but the damage was done.
The reason why is identical to Lakeland's. Hudson City was noted for redlining, and while the consent order did give a whopping $25 million in subsidies to minority borrowers, it's still telling. We like to think that discrimination in lending doesn't happen, but the evidence is there.
This is one of the reasons why finance regulatory bodies like the Department of Justice and the SEC exist. Without them, this behavior would be totally unchecked. Unfortunately, until people stop discriminating against others, the government will have to continue trying to stomp out redlining as it happens.