DOJ loses bid to close redlining agreement with ESSA Bank

A federal judge handed another blow to the Trump administration’s attempts to prematurely end redlining settlement obligations for mortgage lenders. 

Pennsylvania-based ESSA Bank must follow the terms of its 2023 agreement for three more years, a federal judge ruled this week. The Department of Justice in recent months argued the lender had met the fair lending obligations set forth in its agreement, including fulfilling a nearly $3 million loan subsidy fund for communities it allegedly discriminated against. 

U.S. District Court Judge Michael Baylson, appointed by former president George W. Bush, ruled July 23 that feds didn’t meet the high burden to overturn the consent order. 

“These obligations serve the public interest and remain necessary until the consent order’s full term is complete,” wrote Baylson in a memorandum. 

Feds have said they were seeking to remove unnecessary burdens on financial institutions. The DOJ, and the Consumer Financial Protection Bureau, have successfully moved to cancel some Biden-era redlining agreements with lenders but lost a more novel attempt in June. 

The Trump administration has had a mixed record so far in other regulatory legal battles. ESSA and feds were mum on the redlining decision Friday, but fair housing organizations lauded Judge Baylson’s order. 

“This decision sends a powerful message that commitments to combat housing discrimination cannot be abandoned on a political whim,” said Lisa Rice, president and CEO of the National Fair Housing Alliance, in a press release. 

ESSA’s redlining settlement and the unsuccessful DOJ argument

The bank was one of over a dozen credit union, depository and nonbank lenders to reach settlement agreements with former Attorney General Merrick Garland’s DOJ over redlining accusations. 

Prosecutors accused ESSA of redlining in the Philadelphia metropolitan statistical area between 2017 and 2021 by avoiding majority Black and Hispanic neighborhoods, and discouraging them from applying for loans. The Federal Deposit Insurance Corporation had referred ESSA to the DOJ.

According to the consent order, ESSA had to fulfill a $2.92 million loan subsidy to extend credit toward affected borrowers, and spend an additional $375,000 for advertising and community partnership efforts. It also had to regularly assess fair lending needs in its communities and report to regulators, and maintain specific outreach efforts for five years. 

Although the DOJ in June said ESSA was substantially in compliance with the terms of its agreement, Judge Baylson wrote that ESSA was short $173,000 in its required advertising and community outreach spend. The judge also suggested continued enforcement of the consent order wouldn’t harm the public interest. 

“Amici emphasized that a risk-averse institution like ESSA is unlikely to continue complying with the terms of a terminated consent order,” he wrote, referring to the fair housing groups who filed a brief. “ESSA’s counsel admitted uncertainty as to whether ESSA would maintain those activities.”

Other redlining battles in focus

The fair housing groups quickly filed notice of Judge Baylson’s decision in a similar case involving Lakeland Bank. Feds are moving to terminate a 2022 redlining consent order against that New Jersey Bank two years ahead of its expiration. 

Across the country, federal courts have terminated five agreements between prosecutors and lenders among the 15 such deals lenders agreed to with the Biden administration. 

Dan Urevick-Ackelsberg, a senior attorney at the Public Interest Law Center who litigated the ESSA case, said attorneys representing the fair lending groups are watching for movement in some of the remaining cases. That includes the largest redlining settlement, a $31 million agreement with Los Angeles-based City National Bank, which the Trump administration has not approached.

“The (Pennsylvania) court made plain in that considering the public interest, the interest in a lending market free of discrimination is a giant one that transcends any individual administration,” said Urevick-Ackelsberg.