Redlining is a bigger problem than banks' representatives admit

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Redlining is a form of discrimination whereby lenders avoid doing business in communities of color, negatively affecting access to credit, homeownership and accumulation of intergenerational wealth. For decades, government challenges to redlining have been a cornerstone of civil rights enforcement. That has changed this year. The Trump administration has not just foregone new redlining challenges but moved to undo judgments and consent decrees in past cases. 

Against this backdrop, the American Bankers Association published a white paper criticizing the Biden administration's redlining enforcement actions. The white paper claims that recent challenges stretch the law and break from prior redlining cases. This is not true. The break in historical agency practice did not occur in the last administration, but in this one, which is abandoning civil rights and distorting established law to do so. In fact, a recent Department of Housing and Urban Development memo takes the extraordinary position that redlining is not illegal at all. The white paper purports to "abhor" redlining. But it advocates for a myopic view of fair lending limited to cases involving overt evidence of discrimination — a standard even early cases, which the paper celebrates, could not satisfy.

Lawyers at responsible lenders will recognize the flaws in the paper and continue to advise their institutions to mitigate redlining risks. But the white paper's arguments are dangerous at a time when the administration has demonstrated hostility to protecting communities of color from discrimination and a willingness to push extreme positions, even if clearly illegal. In recent years, many banks have shown a commitment to eliminating discrimination and advancing financial inclusion. ABA members who "abhor the practice of redlining" — as the white paper affirms its members do — should call on the ABA to act more responsibly.

The ABA's core argument is that recent enforcement activity has wrongly relied on "statistical evidence" of discrimination with "little, if any, direct evidence of intentional discrimination." This description ignores the evidence the government advanced. In truth, the government has always relied on statistical proof that a lender avoids communities of color — alongside an assortment of other evidence of redlining.

Consider the DOJ's 2024 complaint against OceanFirst Bank, which alleged that OceanFirst: (1) operated nearly all its branches in majority-white areas, (2) closed all the branches it acquired from another bank located in communities of color, (3) drew its service area to exclude nearly all census tracts of color, (4) conducted minimal advertising in communities of color, and (5) failed to act when its regulator raised redlining concerns. Only after reciting these facts did the complaint identify that 1.9% of OceanFirst's applications came from census tracts of color. By comparison, OceanFirst's peers generated over nine times more of their applications (17.4%) from those same areas. Other recent complaints describe racist comments from employees — for example: "Maybe if blacks didn't have such a propensity to kill each other whites wouldn't be afraid," and "BE PROUD TO BE WHITE."

In each case statistical evidence contributed to a larger story of exclusionary conduct. And the statistics are stark: Lenders at issue in the enforcement challenges showed disparities that were up to 30 times as bad as those of their peer lenders. These statistics help demonstrate that the lenders intended to discriminate and succeeded in doing so. It does not constitute a "stark demand for racial balancing," as the white paper contends, to find that such extreme disparities are relevant.

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Meanwhile, when the white paper asserts that redlining cases include "little, if any, direct evidence of intentional discrimination," it holds them to an incorrect standard. Discrimination claims are more often proved through circumstantial evidence, including statistical evidence. As Justice Thomas explained for the Supreme Court in Desert Palace, Inc. v. Costa, when it comes to proving discrimination, "[c]ircumstantial evidence is not only sufficient, but may also be more certain, satisfying and persuasive than direct evidence."

Accordingly, the Interagency Fair Lending Examination Procedures — which the white paper cites favorably — recognizes that "[o]vert evidence" of discrimination "is relatively uncommon." Redlining analysis, therefore, usually focuses on evidence such as differences in application volumes in different areas, assessment areas that exclude communities of color, problematic employee statements, concentration of branches in majority-white areas and the like. These are exactly the types of evidence in the government's recent redlining cases.

The white paper concedes, as it must, that "intentional discrimination can be supported by circumstantial evidence," but it doesn't think the government's evidence is persuasive. Let's ask the question differently: What actions would a lender take if it was trying to avoid doing business in a community of color? It would avoid locating branches there, not market there, exclude the area from its geographic market service areas and speak in derogatory terms about people who live there. The government redlining challenges have included all of this evidence.

The white paper's final argument is that agreements the government has reached to remedy redlining — for example, that a lender offer affordable loan programs in redlined areas — are problematic because, the paper asserts, remediation must be limited to "specific persons who were denied or discouraged from seeking financing from the targeted lender." Wrong again. Systemic housing discrimination harms entire communities. The white paper's cramped view of available remedies is particularly perverse because a lender that redlines takes steps to avoid attracting applicants from communities of color. Under the paper's logic, the more effective the lender is at discriminating, the fewer the victims. Fortunately, courts disagree.

The white paper's incorrect arguments will likely facilitate — and indeed, may have been designed to facilitate — the Trump administration's abdication of its civil rights enforcement responsibilities. But they don't reflect the law, nor are they consistent with the ABA's own purported opposition to redlining. The ABA should support its members that want to ensure all lenders provide fair access to credit, rather than advocating for positions designed to gut civil rights protections.