The Justice Department in August settled an $11 million case against a Washington, D.C. area bank for refusing to make its services available in predominantly African American neighborhoods. The case, against Chevy Chase Federal Savings Bank and its wholly owned subsidiary, B.F. Saul Mortgage Company, is the first lending discrimination suit focusing solely on a bank's refusal to market its services in minority neighborhoods.
To settle the Justice Department's claim for monetary damages, the agreement requires Chevy Chase to pay $11 million to the redlined areas through a special loan program and the opening of bank branches and mortgage offices. The bank will pay at least $7 million by offering special home mortgage loans to all residents of majority black areas in Washington, D.C. and Prince George's County, Maryland, resulting in approximately $140 million in special financing for the communities. The offering will make home loans available at either 1% less than the prevailing rate or 1/2% below the market rate combined with a grant to be applied to the down payment.
The Justice Department alleged that Chevy Chase violated the federal Fair Housing Act and the Equal Credit Opportunity Act by declaring black areas off-limits for mortgage lending, a practice otherwise known as redlining. The complaint, filed together with a settlement in U.S. District Court in D.C., claimed that the bank underwrote approximately 97% of its loans from 1976 through 1992, in largely white areas.
"You can't be refused service, if there is no service being offered," said Assistant Attorney General for Civil Rights Deval L. Patrick.
The Justice Department began investigation Chevy Chase in June 1993, after The Washington Post ran a series entitled "Separate and Unequal". The series cited widespread disparities in the number of mortgage loans made in white and black neighborhoods.
Under the settlement, the bank agreed to:
- Open three mortgage offices in majority African American neighborhoods in D.C., and one bank branch in the Anacostia section of D.C.;
- Evaluate other sites for bank branches in the redlined communities;
- Take all reasonable steps to obtain a market share of mortgage loans in African American neighborhoods that is comparable to its market share in white neighborhoods;
- Extensively advertise its services and target sales calls to real estate professionals in African American areas;
- Continue efforts to recruit African Americans for loan-production positions and provide training to its loan staff in affirmative marketing programs.
Chevy Chase, the largest savings and loan association in the D.C. metropolitan area and one of the nation's largest thrifts, operates 78 branches and 20 mortgage offices. Prior to the Justice Departments investigation, the bank had virtually all of its branches and mortgage offices in majority white areas -- delineated by census tracts.
No Branches Opened In Black Areas
The bank opened no branches in any of D.C.'s majority black census tracts, which account for 90% of all African Americans in the city, nor had it opened branches in any of Prince George's County's majority black census tracts, accounting for 75% of that county's black population. Prince George's County has the nation's lowest disparity in income levels between black and white residents, with nearly 40% of all black households earning over $50,000.
"To shun an entire community because of its racial makeup, is just as wrong as to reject an applicant because they are African American," said Attorney General Janet Reno. "Some neighborhoods may not even have banks to which blacks can turn."
In the complaint, the Justice Department also claimed that the bank had a corporate policy of only soliciting financial transactions in the most heavily white populated parts of D.C.; failed to meet the needs of the entire community in violation of the Community Reinvestment Act; employed few African Americans as loan originators; and implemented a commission structure for loan originators which disproportionately and adversely affected residents of black neighborhoods.
Since the defendants were notified of the Justice Department's investigation, the lenders initiated an aggressive effort to serve African American neighborhoods of the Washington, D.C. metropolitan area. They have opened three bank branches and two B.F. Saul Mortgage company offices in African American areas of D.C. and Prince George's County.