California bank pays $206,000 and establishes $7 million credit line for city to settle redlining suit

The city of East Palo Alto, California, will receive $151,000 in cash as well as attorney’s fees in a settlement with American Savings Bank, a California lender purchased by Washington Mutual Bank in the late 1990s. In addition, the bank will provide the city with a $7 million revolving line of credit over seven years to aid the city in increasing the amount of affordable housing, with an interest rate of 5.25 percent. As part of the settlement, Washington Mutual Bank will also provide the city with a low-interest loan so it can purchase the City Hall Annex.

The Midpeninsula Citizens for Fair Housing (MCFH), a Palo-Alto based organization that filed the complaint, will receive $55,000 for its budget as part of the settlement. The East Palo Alto City Council voted to accept the settlement last June.

Bank refused to make loans in minority neighborhoods and discouraged applicants from applying

The lawsuit accused American Savings Bank of redlining and having loan practices in place that discriminated against people in low-income or minority communities. Other allegations included discrimination on the bases of race, color, and national origin, by imposing different conditions and policies for minority loan applicants as compared
with white applicants. Allegedly, loan officers gave minority applicants fewer options and determined creditworthiness for minority applicants differently than it did for whites.

One of the defendants named in the lawsuit was Edward Gresnick, a loan officer who worked in the Santa Clara branch of American Savings Bank. The lawsuit alleged that Gresnick told a loan applicant in 1995 that “the bank had a number of foreclosures in East Palo Alto” and “the bank would not make any more loans in East Palo Alto until it got its problems straightened out.”

Ife Asantewa, MCFH’s executive director, said the agency began receiving complaints about American Savings Bank in the early 1990s. The agency sent testers to apply for loans with American Savings Bank between 1993 and 1995. The lawsuit alleged that the results of those tests revealed that loan officers discouraged people from applying for loans to purchase apartment buildings in the city. One tester reported an Americans Savings loan officer said, “We don’t loan in East Palo Alto.” Another loan officer allegedly said of a minority neighborhood that the bank didn’t make loans “in that area.”

When the lawsuit was filed in 2000, Sharifa Wilson, the former mayor of East Palo Alto and a current city council member, stated, “When we found out about this situation, we were outraged because it was so blatant. It’s another example of institutional racism, and it’s one of the historic conditions we’ve had to deal with.”

Lending discrimination might still be happening

Rufus Cole, an MCFH attorney, told the Palo Alto Weekly, “There is a fear that this type of lending practice continues to occur.” Cole said that many of the American Savings loan officers named in the lawsuit continued to work for Washington Mutual after the suit was filed.

Washington Mutual Bank settled the lawsuit without making any admission of any wrongdoing on their part.

East Palo Alto City Attorney Michael Lawson and Mayor Duane Bay negotiated the settlement between the city and Washington Mutual.

Settlement will create new, affordable housing

Mayor Bay told the Weekly that the city has identified several sites where affordable housing will be built using the line of credit obtained in the settlement. “We have the land, the political will, and the developer relationships,” Bay told the Weekly. “All we lacked was the capital.”  Bay also mentioned that the city had been in contact with several nonprofit housing developers about new affordable housing opportunities in East Palo Alto.

American Savings Bank was formerly the fifth largest thrift bank in the United States. It had 165 branches throughout California when it was purchased by Washington Mutual in 1998.

Prior to the lawsuit’s filing, American Savings Bank officials said that the bank did not discriminate against minority applicants. Dianne Seeber, vice president of American Savings, pointed to an award that the bank received from the Greenlining Institute, a San Francisco organization that encourages lending and revitalization in low to moderate income communities.