DOJ Files Consent Order Against Union Savings Bank, Guardian Savings Bank

The U.S. Department of Justice (DOJ) has filed a consent order against Union Savings Bank and Guardian Savings Bank to resolve redlining allegations. The complaint alleges that the banks violated the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA) by engaging in a pattern or practice of unlawful redlining of predominately African American neighborhoods in their main lending areas—Cincinnati, Ohio; Dayton, Ohio; Columbus, Ohio; and Indianapolis, Indiana.

The banks share common ownership and management and are both headquartered in Cincinnati, but their services are provided independently. Both banks deny the allegations that they violated the FHA and ECOA. Union Savings Bank is a state-chartered, federally insured bank subject to the jurisdiction of the Federal Deposit Insurance Corporation (FDIC). Guardian Savings Bank is a federal savings bank subject to the jurisdiction of the Office of the Comptroller of the Currency (OCC) and operates mainly in the Cincinnati area. The consent order does not indicate whether the case was referred to the DOJ by the FDIC and OCC, nor does the complaint.

To establish its claims of redlining, the DOJ makes allegations that are similar to the allegations in the recent redlining complaints against Hudson City Savings Bank and BancorpSouth Bank. Specifically, the DOJ alleges that from at least 2010 through 2014, the banks had policies and practices that discouraged African American consumers in these cities from applying for credit, including, but not limited to, the following:

  • Locating their branches to serve majority-white census tracts and avoid majority-African American census tracts.
  • Receiving a low percentage of mortgage loan applications from majority-African American census tracts, lower than the percentage of applications from majority-African American census tracts received by comparable lenders.
  • Making a low percentage of mortgage loans secured by property located in majority-African American census tracts, lower than the percentage of mortgage loans secured by property located in majority-African American census tracts made by comparable lenders.
  • Spending only a small portion of the advertising budget in newspapers aimed at African American audiences, with ads not mentioning the availability of government lending programs that in recent years have been most effective in serving minority and low- to moderate-income borrowers nationally; not referring to down payment assistance programs/grant programs; and not referring to branches located in close proximity to majority-African American census tracts.
  • Failing to train or incentivize mortgage loan officers to lend in majority-African American census tracts, and not making efforts to hire loan officers experienced with serving, or with ties to referral sources in, majority-African American areas.

The DOJ also alleges that Union Savings Bank knew that it was underserving majority-minority census communities in its lending areas based on information compiled by an in-house compliance group that was presented to the board of directors and audit committee on a quarterly basis from at least 2010 through 2014. The DOJ alleges that “[b]ased on information and belief” Guardian Savings Bank knew, but failed to address, that it was underserving potential African American borrowers and majority-minority communities in its lending area from at least 2010 through 2014.

The consent order requires the banks to engage in certain actions, including, but not limited to, the following:

  • Opening new facilities. Union Savings Bank will open two new full-service branches at specified locations in majority-African American census tracts in its lending area. Guardian Savings Bank will open one loan production office to serve a majority-African American neighborhood in its lending area.
  • Investing at least $7 million in a subsidy fund to increase the amount of credit that the banks extend to residents of majority-African American neighborhoods in Cincinnati, Columbus, Dayton, and Indianapolis. Under this loan subsidy program, the banks will subsidize loans made to certain qualified applicants.
  • Spending a minimum of $750,000 in one or more partnerships with community-based organizations or governmental organizations to provide residents of majority-African American census tracts with home repair or other grants designed to assist homeowners who experience financial distress or deferred maintenance on their properties; credit, financial, homeownership, or foreclosure prevention services; or low- or no-cost access to home ownership.
  • Investing a minimum of $625,000 in advertising and outreach within majority-African American census tracts.
  • Spending a minimum of $625,000 on one or more components of specified consumer education and credit repair programs.
  • Developing internal controls to ensure compliance with fair lending obligations and conducting fair lending training for employees.
  • Identifying an independent third-party compliance-management-system consultant to assist in the review and revision of the banks’ policies and practices designed to ensure their compliance with fair lending laws as they relate to making available and marketing products in majority-African American census tracts.
  • Preparing an assessment of the credit needs of the majority-African American census tracts within their lending areas.
  • Continuing to jointly employ a full-time Director of Community Development, whose primary responsibilities will include overseeing the continued development of the banks’ lending in majority-African American census tracts.

The consent order is subject to court approval. The DOJ notes in the consent order that it believes the banks are appropriately committed to future compliance with the law, and have begun to take meaningful steps to improve access to credit in the African American census tracts in their lending areas.

- Richard J. Andreano, Jr., John L. Culhane, Jr., Wendy T. Novotne, and Christopher J. Willis


PHH Replies to CFPB’s Opposition to PHH’s Motion for Leave to File Supplemental Response

PHH has filed a reply to the CFPB’s opposition to PHH’s motion for leave to file a supplemental response to the CFPB’s petition for rehearing en banc. On December 22, PHH and the United States filed responses to the CFPB’s petition with the D.C. Circuit. The D.C. Circuit had invited the Solicitor General to file a response expressing the views of the United States.

In its motion for leave to file a supplemental response, PHH asserts that “the United States [in its response] argues that this Court should grant the CFPB’s petition for rehearing en banc on several grounds that were not pressed in the CFPB’s petition, and with which PHH strongly disagrees.” Further asserting that “[t]he United States government has now had two rounds of briefing and taken two separate positions in this Court in support of rehearing,” PHH seeks an opportunity to be heard “on the United States’ newly expressed views.” In its opposition to the motion, the CFPB states only that it opposes PHH’s motion and that if PHH “wants an opportunity to present additional arguments to this Court, they may do so if this Court grants rehearing en banc and seeks additional briefing.”

In its reply, PHH describes the CFPB’s opposition as “completely nonresponsive to PHH’s basis for seeking a supplemental response.” It states that “the CFPB does not dispute or even address” PHH’s point that it has not had a chance to respond to the United States’ response and “[i]nstead it offers a non sequitur: that if rehearing is granted, PHH will have a chance to brief the merits.” PHH asserts “[t]hat is always true—and has nothing to do with whether PHH has had a fair opportunity to respond to the arguments for rehearing. It has not.”

- Barbara S. Mishkin


Updated HMDA Resources for Data Collected in 2017 and 2018

As we have previously discussed, on October 15, 2015, the Consumer Financial Protection Bureau released a final rule amending Regulation C, which implements the Home Mortgage Disclosure Act (HMDA), requiring certain data on mortgage applications and loans to be collected in 2017 by “Covered Institutions.” The 2017 HMDA institutional chart provides guidance on how to determine whether an institution is covered by Regulation C in 2017.

We also reported on various resources available for HMDA filers. Recently, the “Resources for HMDA Filers” webpage has been updated and is accessible here. As you will see, the 2017 Loan/Application Register Formatting Tool has been released. It appears that the focus is lenders with small loan volumes of covered loans and applications, as the tool is based on Microsoft Excel. In addition, please note that the Filing Instructions Guide for data collected in 2017 is still the July 2016 guide, but the Filing Instructions Guide for 2018 is updated to a January 2017 guide.

- Wendy T. Novotne and Richard J. Andreano, Jr.


Did you know?

by Wendy T. Novotne

Washington Adopts New Consumer Loan Act Provisions

The Washington Department of Financial Institutions, Consumer Services Division, has revised surety bond requirements and added new net worth requirement under the Consumer Loan Act. The surety bond requirements have been amended to provide further clarification and detail. For example, if an applicant only services residential mortgage loans, a bond requirement arises only if the entity elects to provide a surety bond instead of satisfying the net worth requirements.

A new provision has been added specifying the capital requirements for nondepository residential mortgage loan servicer applicants and licensees who service loans guaranteed by one or more government sponsored entities (GSE) and/or government corporations. Examples of GSEs include Freedie Mac, Fannie Mae, the Federal Home Loan Bank System, and the Federal Agricultural Mortgage Corporation. Ginnie Mae is an example of a government corporation. An applicant or licensee operating as an approved servicer (by one or more government-sponsored or government corporation entities) must maintain liquidity and a tangible net worth that meets the standards set by the entity. If approved by more than one entity, the applicant or licensee must meet the highest standard as required by the entities. Please note that tangible net worth does not include money held in borrower escrow accounts.

In addition, a new provision has been added listing the capital requirements for nondepository residential mortgage loan servicer applicants and licensees who service loans not guaranteed by a GSE and/or a government corporation. The capital requirements are established by loan volume. For example, an applicant or licensee servicing more than 1,000 residential mortgage loans must maintain a minimum tangible net worth of $1 million. In lieu of maintaining the applicable net worth requirement, the applicant or licensee may maintain a $1 million surety bond.

These provisions are effective on January 1, 2018.

NMLS Reinstatement Period Begins

The NMLS Reinstatement period opened on January 1, 2017, and will end on February 28, 2017. For more information, visit this page.


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