8 Key Takeaways From 1Q2024 Patriot Bank and First National Bank of Pennsylvania Enforcement Actions

As promised, the Department of Justice continues to pursue enforcement actions against lenders for allegations of redlining. Two of the latest are Patriot Bank, announced January 19^th, and First National Bank of Pennsylvania, announced February 5^th.

Of note, in the case of Patriot Bank, this is the 3^rd redlining enforcement action pursued by Justice within the last few years in the Memphis MSA. First National was accused of redlining in the Charlotte and Winston-Salem MSA’s.

While these cases are worth exploring in detail, there are a few key takeaways lenders should consider.

1. There is now a lower threshold for the initiation of enforcement actions. Lenders should expect that there will be an increasingly stringent standard in the future. In other words, lending activity that may have not been a significant issue in the past may constitute an enforcement-level redlining issue today.
2. Data is King. Trends across time are absolutely critical. Some lenders may disregard data that may represent previous examination cycles, thinking these data have already been reviewed. Establishing patterns of discrimination requires a time element – this must NOT be neglected in analyses.
3. Deficiencies in one market are enough to be an issue. Likewise, the risk is real for institutions of any size. Compliance in general, and fair lending in particular, is increasingly an area where a lot can be done right and still be wrong.
4. An institution’s HMDA data measured against other lenders continues to be the gold standard for evaluating performance. Applications and originations are of equal importance.
5. Minority individuals and areas continue to be focused on black and Hispanic populations rather than all minority groups combined. Complete analysis therefore requires a multi-dimensional perspective.
6. Banks with communities that are racially and ethnically segregated geographically are more at risk. Institutions in communities with geographic racial and ethnic diversity, meaning having persons of all races widely dispersed throughout their lending areas, have less risk, as do banks operating in communities with less diversity overall.
7. Having an aggressive and well documented fair lending risk management program that feeds up to executive management, with an emphasis on documentation is absolutely essential. If it is not documented, it did not happen. Analyses must identify weaknesses, and weaknesses must be addressed and documented as such.
8. There is no silver bullet. To truly mitigate the risk, all the pieces of the puzzle have to be managed and work together.

There is no cure for fair lending related issues, only prevention. The specter of fair lending risk continues to be elevated for financial institutions of all sizes. The risk is not going away – lenders have no choice but to proactively take steps to continually lower their risk.