Feds slam N.J. bank for discriminatory lending, reach $13M settlement

A New Jersey bank has been ordered to pay $13 million to settle allegations that it avoided opening branches in Black and Hispanic communities in the Newark area and giving mortgages to people of color, federal authorities announced Wednesday.

Lakeland Bank’s discriminatory practices, known as redlining, were systematic and intentional, barring Black and Hispanic people from the most reliable path to building generational wealth — home ownership, said U.S. Attorney Philip R. Sellinger.

“Redlining is racist, pure and simple. It has no place in this country,” Sellinger said. “Part of the promise of America is equal opportunity. Lending discrimination is anathema to that promise. Like all Americans, communities of color are entitled to equal and fair access to the financial system.”

Investigators identified about $120 million in loans that would have been made between 2015 and 2021 if not for Lakeland’s lending discrimination, Sellinger said.

Of nearly 3,900 mortgage loans Lakeland handled in the Newark area over that time, less than 4% went to residents of majority Black or Hispanic neighborhoods, according to a federal complaint. In comparison, about 20% of loans by other lenders were made to people in communities of color, investigators found.

To reverse those damages, the bank was ordered to create a $12 million “loan subsidy” fund to offset closing costs, mortgage insurance premiums, down payments, and more for people in Black and Hispanic neighborhoods in Essex, Somerset, and Union counties who apply for mortgages and home improvement and refinancing loans.

A consent decree, which will subject the bank to federal oversight for five years, further directs Lakeland to spend $1.1 million on outreach, advertising, financial counseling, and community development partnerships and assign at least four loan officers to serve neighborhoods they had excluded.

Lakeland, which operates about 40 branches in majority-white communities in greater Newark, will be required to open at least two banks in communities of color in the Newark area, according to the consent decree. The decree also generally forbids any further discriminatory practices based on race, color, or national origin.

Thomas J. Shara, the bank’s president and CEO, said the bank has complied with fair-lending laws. Officials there “strongly disagree with any suggestion we have acted improperly,” he added.

Still, Shara said, “this resolution avoids the distraction of protracted litigation and allows us to focus our time, expertise, and resources towards achieving a shared goal of meeting the credit needs of all residents within our communities, including those who historically have been underserved.”

The New Jersey-based bank, founded in 1969, is worth $10.4 billion and has 68 branches here and in New York, according to court documents.

Authorities began investigating Lakeland as part of an initiative launched last fall by U.S. Attorney General Merrick Garland, which paired U.S. attorney’s offices around the country with the Department of Justice’s civil rights division to probe and prosecute banks for biased lending.

“Ending redlining is a critical step in our work to close the widening gaps in wealth between communities of color and others,” Assistant Attorney General Kristen Clarke said Wednesday. “Through this agreement, we’re sending a strong message to the financial industry that we will not stand for discriminatory and unlawful barriers in residential mortgage lending.”

The Lakeland settlement is the fourth settlement in Garland’s battle against redlining, Clarke said. Authorities reached $26.5 million in settlements since August with banks in Philadelphia, Houston, and Memphis, Clarke said. In 2015, authorities also reached a $25 million settlement with the now-defunct, Paramus-based Hudson City Savings Bank, which helped about 2,600 borrowers in redlined communities get mortgages, Clarke added.

On Tuesday, Lakeland announced it would merge with Provident Financial Services. But Clarke said any merger remains subject to regulatory approval, and Wednesday’s consent order applies to Lakeland’s successors.

“Lakeland cannot simply create new branches in majority Black and Hispanic neighborhoods by merging with a bank that had existing branches” there, she added. “The consent order here requires the bank to open a new branch in the city of Newark, and this is crucial to the consent order’s goal, which is to expand access to credit in Newark and other neighborhoods of color in the metropolitan area.”

New Jersey has one of the biggest racial wealth gaps in the nation. The median household wealth of white families in the Garden State is $322,500, compared to $17,700 for Black families and $26,100 for Latino families, according to the New Jersey Institute for Social Justice.

State legislators recently passed a bill intended to help close that gap, but Gov. Phil Murphy conditionally vetoed it, requesting revisions he said would strengthen the bill.