VIDEO: Ways to Identify Redlining
In this Compliance Clip (video), Adam explains a number of ways the examiners may identify redlining in an organization. In addition, he breaks down the different types of comparative evidence and overt evidence that could result in redlining. This video provides a great framework for understanding how redlining could appear in your financial institution.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to discuss ways we can identify redlining in our financial institutions.
In order to do that, I think it's important to understand how the regulators might identify redlining in our financial institutions. What we can do is take a look at the interagency exam procedures on fair lending. These interagency exam procedures are procedures all examiners use to conduct fair lending reviews of financial institutions and they give us a bit of insight as to how an examiner could identify redlining in a financial institution. Specifically, what they say is that an examiner may find that on a prohibited basis, a creditor does a number of things that lead to redlining risk.
For example, they may find that a creditor has failed or refused to extend credit in a certain area. And that's typical of redlining where a financial institution has intentionally or unintentionally drawn a circle around an area and not lended in that area. So that's one thing an examiner could find.
An examiner may also find that a creditor has targeted certain borrowers or certain areas with products that are not of the same advantage as products in other areas. And so that's something else that examiners may find.
Examiners may also find that a creditor makes loans in a certain area at less favorable terms or conditions. They may also find that a creditor omits or excludes an area from marketing efforts or they may find that a creditor discourages applicants to apply and, typically, these activities occur in areas of communities that have high minority concentrations, so minority communities.
So this is how examiners are identifying redlining in a financial institution, they're looking at the minority communities and seeing if any of these trends have occurred. And this is how we could essentially identify redlining in our own organization.
Now, if you watch cases from the regulators, including the Department of Justice, consent orders, or complaints, what we see over the years is most cases seem to have some similar trends and these trends relate to two types of discrimination that's recognized by the courts. The examiners have said that redlining is from overt evidence of disparate treatment as well as comparative evidence of disparate treatment. What we typically see are trends in both of these areas.
As it relates to trends from comparative evidence, when we take a look at redlining cases, we typically see the financial institutions have excluded high-minority areas in their assessment areas, in their branch locations, in their loan applications and loan originations, in how they staff branches and how they service branches, and how they conduct marketing and outreach to minority communities, and a financial institution's larger assessment area. So, this is how examiners typically find comparative evidence of disparate treatment as it relates to redlining.
Also, examiners will often find trends from overt evidence, and overt evidence often includes things like comments from lenders, or comments on radio shows or podcasts, or emails that contain certain information that appears to discriminate or discourage applicants, and even potentially photos that are used on the website or in marketing materials, both of faces as well as of the houses that are pictured, and the communities that are pictured in photographs.
These are some ways that redlining could be identified in your financial institution. And this really sums up just about everything. In fact, this is a slide that I've taken out of our redlining class that's in our store. If you're looking to take a deeper dive into redlining, because what we just covered here on these slides really is the tip of the iceberg, we have a much deeper dive into redlining if that's something you're interested in.
Our redlining class has a goal to help you understand redlining and to learn what you can do to evaluate and mitigate redlining risk in your organization. The way we've structured our class is that we've actually taken this class and expanded it up to a full two-hour program, runs just a little bit over two hours, where we talk about an overview of Fair Lending to understand the components of redlining. Then we talk about redlining as far as where it came from and an overview of redlining. Then we take a deep dive into some examples of complaints and settlements that we've seen over the past several years from the regulators, and there's a number of maps and visuals that we can take a look at to really understand redlining. And then we conclude our program by talking about redlining mitigation strategies that you can use in your financial institution to make sure you don't have risk of redlining. So, that's our program.
If you're looking for a program for your board of directors, we also have a program specific to the board of directors that runs right at the half-an-hour mark, where we focus on redlining and what directors should understand as it relates to redlining.
The truth is redlining is a very, very complicated topic, but it's also very, very important that financial institutions get it right, because this is one of the hottest topics in fair lending today. And if you have redlining risk in your organization, this is something that could turn into a major problem for your financial institution. So, if you're looking for more resources, go to our store at compliancecohort.com/store and check out the resources there. Otherwise, I hope this Compliance Clip gave you some insight as to some ways that you can identify relining in your financial institution.
That's all I have for you for this Compliance Clip.