On July 27th, 2022, the Consumer Financial Protection Bureau (CFPB) brought an action against Trident Mortgage Company LP under the Fair Housing Act (FH Act), the Equal Credit Opportunity Act (ECOA), and the Consumer Financial Protection Act (CFPA). This action against Trident was brought to remedy the company’s alleged discrimination in mortgage lending on multiple fronts, including office location, HMDA data, and, of course, marketing & advertising. In lockstep with other recent fair lending cases, the CFPB continues to take a strong "compliance by enforcement action" stance on modern-day redlining.
Understanding the Guiding Regulatory Authority
FH Act and ECOA prohibit creditors, such as non-depository mortgage companies, from discriminating in home loans on the basis of race, color, national origin, and other characteristics. Though these regulations offer similar protections, they are not identical. Under the FHA, it is unlawful to discriminate against any person in making available residential real estate-related credit transactions, in making available or denying a dwelling, and in the terms, conditions, or privileges of sale of a dwelling or the provision of services in connection with such a sale, on the basis of race, color, national origin, and other characteristics. ECOA and its implementing regulation, Regulation B, make it unlawful for a creditor to discriminate against an applicant in any aspect of a credit transaction on the basis of race, color, national origin, or other prohibited bases. ECOA and Regulation B also prohibit any statements, acts, or practices that would discourage a prospective applicant from applying for credit on a prohibited basis.
It is also worth noting that the CFPB defines in this complaint a “majority-minority” as a neighborhood or area comprised of census tracts in which more than 50% of the residents reported their race and ethnicity in the U.S. Census as Black, Hispanic, Asian, Native American, Native Hawaiian, or Pacific Islander. The CFPB defines a “high-minority” as a neighborhood or area that comprises census tracts in which more than 80% of the residents reported their race and ethnicity in the U.S. census as Black, Hispanic, Asian, Native American, Native Hawaiian, or Pacific Islander.
A Closer Look at the Trident Case
On November 19, 2020, the CFPB made a referral to the DOJ after concluding that Trident violated ECOA on January 27, 2021, the United States informed Trident that it had initiated an investigation into the potential violation of ECOA. Trident represented that, as of April 8, 2021, it had discontinued mortgage origination operations and that its affiliate, Prosperity Home Mortgage, LLC (Prosperity), has taken over its lending operations.
In the complaint, the CFPB alleges that Trident had engaged in unlawful discrimination, against both applicants and prospective applicants, from at least 2015 through 2019. This pattern or practice of discrimination included redlining majority-minority neighborhoods in the Philadelphia Metropolitan Statistical Area (MSA). From 2015 through 2019, about 80% of Trident’s mortgage loan application volume came from the Philadelphia MSA. The CFPB alleges the below facets of redlining were present:
Exchange of racist language and images by lending staff
From at least 2016 through 2018, Trident loan officers sent and received emails via their Trident email accounts containing racial slurs and racist content, some of which indicated an intention to avoid lending in majority-minority neighborhoods. In several instances, loan officers or other Trident employees referred to properties in majority-minority areas as being in the “ghetto.” On another occasion, a Trident assistant loan officer received a racist email entitled “Being White, reminder” from a Fox & Roach employee. Among other things, the email included: “Proud to be White”, a variety of racial slurs towards minorities, and “You rob us, carjack us, and shoot at us. But, when a white police officer shoots a black gang member or beats up a black drug dealer running from the law and posing a threat to society, you call him a racist”.
Lack of loan officer representation in majority-minority neighborhoods
Uniquely, Trident did not own or operate branches. Instead, Trident rented space in Fox & Roach’s real estate offices. Trident operated 53 offices, of which 51 were in majority-white neighborhoods. All those office locations could accept mortgage loan inquiries from prospective applicants and be prominently displayed on Trident’s website. While 29% of the census tracts in the Philadelphia MSA are majority-minority, only two (2) of Trident’s offices during that time were in a majority-minority neighborhood.
Marketing & advertising campaigns that discouraged minority applicants
Trident also concentrated its outreach, advertising, and marketing in majority-white neighborhoods and avoided marketing to majority-minority areas. Although direct mailing was not Trident’s primary form of marketing, when it did send direct mail advertising, the advertising was focused on majority-white areas and each direct mailing campaign contained advertising material with images of exclusively white-appearing models or white loan officers. Trident also utilized flyers for distribution which contained photos of Trident mortgage loan officers who were almost all white. It is especially worth noting that Trident used an unnamed third-party vendor in part for marketing materials and distribution. As a result of these practices, Trident discouraged applicants and prospective applicants, generating disproportionately low numbers of loan applications and home loans from majority-minority neighborhoods in the Philadelphia MSA compared to similarly situated lenders.
The proposed order would uniquely be the very first nonbank mortgage redlining resolution from the CFPB. If entered by the court, the mandated remedy would include:
Beyond the CFPB & DOJ's joint enforcement action, the states of Pennsylvania, New Jersey, and Delaware have entered into concurrent agreements with Trident.
The Continued Combat of Physical & Digital Redlining
Back in October of 2021, the DOJ through Attorney General Merrick Garland announced a joint agency initiative to combat modern-day redlining. The CFPB, DOJ, and OCC publicly recognized the challenges minority consumers face in the hunt for home financing and agreed to work together through information sharing to take action against those companies and individuals who participate in the illegal act of redlining.
This complaint against Trident is part of a renewed effort by federal agencies to combat illegal redlining by mortgage lenders in violation of federal law. These regulatory bodies are keeping their promise to make combating redlining a major focal point of their enforcement actions. As the Trident case continues to proceed, the mortgage industry as a whole can likely expect more lenders to end up on the front page of the CFPBs newsroom. Prevention of this type of catastrophe in 2022 will certainly include the utilization of key technology to identify and mitigate fair lending risks.