The Credit Union Connection Co-Founder/CEO Sarah Snell Cooke sat down with long-time credit union attorney Henry Meier, Esq., to respond, describe and analyze the $6.5 million redlining settlement agreement Citadel Federal Credit Union struck with the U.S. Department of Justice.

For background, please check out our previous content on the situation:

• Citadel Federal Credit Union Settles for $6.5 Million with Justice Department Over Redlining Allegations

• Citadel Credit Union Responds to DoJ Settlement and Bolsters Commitment to a Brighter Future for All

WATCH HENRY AND SARAH, MOSTLY HENRY, BREAK DOWN THIS CASE. —->>

“Don't say, ‘Okay, well, what are the odds that I'm going to be subject to a fair lending audit? Therefore, I don't really have to put much money into this.’ There are some things I would argue that you have to make a commitment to, just because it that goes to the nature of who you are and what we are as an industry.” - Henry Meier, Esq.

Note: This transcript is automatically generated.

Sarah Cooke

Hello and welcome everybody to this very special edition of the credit union connection. I'm here with Henry Meyer, who has been a long-term credit union attorney, including a long, long stint with the New York Credit Union Association. Welcome Henry, Hello, sir. And so we're going to jump right into this first just give a little bit of a background on yourself.

Henry Meier

Okay, so I did finally start my own business a couple years ago, my own firm. I was the General Counsel and Senior Vice President at the New York Credit Union Association, where I dealt with a wide variety of issues, both on advocacy and legal level for credit unions. In the last two years, I've worked with both large and small credit unions, both to give them the type of advice you would give from a general counsel, as well as help them anticipate the trends that might be impacting the industry down the road. So that includes everything from contract drafting to keeping them up to draft data on some of the legislation that might be impacting the credit union.

Sarah Cooke

And so, speaking of things that impact credit unions, last night, there was a huge announcement from the DOJ as well as the NCUA, that Citadel Federal Credit Union was alleged to have been practicing redlining. Can you give us a little high, high-level overview on this and the settlement and everything

Henry Meier

Okay, I would love to Citadel has agreed to a $6.5 million settlement with the Department of Justice to settle allegations that it has engaged in intentional redlining in violation of both the Fair Housing Act and the Equal Credit Opportunity Act. Now, I should stress that Citadel does not concede any of the facts in the in the Department of Justice. Justices complain, but has agreed to take a series of steps, including opening up a branch in Philadelphia to address the to address the one of the core allegations in the complaint, which was that the credit union intentionally took steps to avoid lending in the in the part of its community where the most where the Most minorities were located by way of background, Citadel is a Pennsylvania based, $6 billion credit union, community based in the in the Pennsylvania area. It has a field of membership that includes Philadelphia, the county of Philadelphia, as well as suburban counties such Bucks County.

Sarah Cooke 

And I want to go a little deeper into that, the redlining allegation, so I'm going to read straight from the DOJ statement. It says, “Peer lenders generated mortgage applications in predominantly black and Hispanic neighborhoods at nearly three times the rate of Citadel, and originated mortgage loans in those areas at more than three times the rate of Citadel.” The complaint further alleges that “Citadel’s branches are located almost exclusively in majority-white neighborhoods with no branches in Philadelphia, which contains more than 75% of the majority black and Hispanic neighborhoods, and 34% of the total population of Citadel’s market area.” Now I don't know. I'm not a lawyer. You are, but that seems really damning. What are your thoughts on that data?

Henry Meier

It is. Those statistics are disturbing. What I would say is, and this is in no way a defense of the credit union. What I would stress is that, first, we don't know. There's always another context with those with the statistics such as that, particularly in this area, okay, but assuming that these statistics accurately reflect the situation, it does underscore the need for the credit union, in all credit unions, to do an ongoing job of monitoring what their fair lending statistics look like. In fact, one of the complaints, the issues raised in the complaint itself, was that the credit union was reluctant to do fair lending analysis, and when it did it, and when it finally did get a third party in there to do the assessment, it knew long before this came that It had a fair lending problem in this area. So those statistics are disturbing. Obviously, we don't know the full context, but that being said, at the very least, it appears that the credit union did not act aggressively in addressing some of the statistics that either should have been aware of or was aware of, insured it chose not to, not to act on it also underscores another issue, which is the NCUA about 2017 2018 I believe, in that timeframe, we went through a process where it redefined, what is it? What is a well-defined local community? But in this part of the process, there was a lot of discussion of, what is a credit union's obligation to go into the core of the court? In other words, they wanted credit unions to avoid, to the extent they can avoid lending poor areas such as Philadelphia, okay, and just skirting around the suburban areas. Now, there are very legitimate non-racial reasons or non-discriminatory reasons for doing that. For instance, let's say you have a long panda of going into that court, but at this point, it's more cost-effective for you and you want to get your feet wet going into this suburban area. So, there are reasons for doing it, but one of the basic takeaways that credit unions should anticipate as a result of the settlement is that it underscores the importance of understanding what you are committed to doing when you agree to a charter expansion. Part of this complaint underscores that, according to DOJ, the credit union committed to opening branches in the fidelity area in Philadelphia, it chose not to almost immediately after it got the charter expansion. So that's one of the key things, is understand that when you make a commitment to open up branches, and is that a realistic commitment, or are you being too aggressive in terms of your expansion plan, and take those commitments seriously because you can bet that NCUA is going to be that much more stringent in making sure that credit unions fulfill those plans. You can also bet that NCUA is going to be looking much more closely at those credit unions that want to expand but avoid serving areas where you might have a lot of minority members. So, the takeaway from all this is, one, be careful with the commitments you make and understand the commitments. And for credit unions going forward, be realistic about what you can do and accomplish before going to NCUA and asking for these type of things.  

Sarah Cooke

So, you kind of started to, but I'm going to ask if we can just concisely outline, say, the top three takeaways from this. You said something about, going through the process of the FOM enlargement and understanding the areas that you select

Henry Meier

exactly so that this all starts with the most basic aspect of all this is when you are a larger credit union and, let's say, a billion dollar and up, and you have an active mortgage lending that you that you participate in, is absolutely crucial that you periodically examine what an examiner would find, or a litigant would find if they wanted to assess whether or not you were you were committing potential fill fair housing violations. So first thing is, don't shy away from getting those third-party assessments and doing it about once every three years. It's expensive. I get that, but to me, it's much better to know where you stand, even if the information is negative, than ignoring the warning signs. Two in terms of charter expansions, understand the commitments you're making if you say, Okay, we're going to put a branch in there. Okay, be, be prepared to get the branch up there. Because one of the things I have seen, not so much on the federal charter, but I have seen this Well, I have seen on both the state and federal is that credit unions will aggressively seek total expansions, saying, Okay, let's get this out of the way, because We can have a plan for doing this at some point. On the other hand, you don't want it to be so aggressive that you can't possibly live up to the commitments you're making. So, second takeaway is, be realistic about what you're asking for. And then another key takeaway is you have to have not only the assessment of your fair lending, but you have to understand and have people employed by you who can understand and actually have the power to implement corrections where they see mistakes being made. Finally, and most importantly, this is not something that you can say, Oh, gee, we have a branch there, therefore we covered or we look at the loans we made to the to this group of minorities. What they are looking for is a proactive effort on the part of anyone to ensure that it is reaching out to minority groups within its community. If you have, for instance, what Citadel was doing direct marketing, precisely to people who going in that group. Okay, so when you market, do you market to minority groups when you open grantors, or you open grantors in those areas? And what efforts are you making to proactively try to get applications generated from the group? Mm, hmm.

Sarah Cooke

And you know, one of the things when I'm talking about like crisis communications and this, I think, qualify as a crisis for the credit union is the best defense is a good offense, which is you know what you're saying. Know what you're going you're getting into. And also track, measure, audit what you're getting, what you're actually doing, to make sure you know you can defend yourself and your decisions, and to be fair, Citadel put out a statement today, and they're saying they respectfully disagree with the allegations. Yeah, and talk about how it was inadvertent that they were the results, I guess, of what the DOJ found.

Henry Meier

That's a key point in the press release – the use of the word inadvertent. What they're saying is that we don't really dispute the effect of what we've done, but what we're saying is we do not do this intentionally. What is so what is particularly striking about this allegation and this complaint is that the DOJ is accusing the credit union of intentional discrimination, fluid one, and that's a big-time allegation. So they're not just saying that, okay, you were sloppy, and you ended up with a with a fair lending profile, which indicates that you discriminate facially. What they're saying is that you purposely went about doing things to avoid serving minority communities, and that really steps up part of it, that's a serious allegation, and I can see why a Citadel would be disputing that part of it.

Sarah Cooke

Also, Citadel has taken steps even before this announcement came out because they've replaced their CEO and some of the senior land senior management as well. So just want to make that point to that they were, you know, once this was coming about, they were making, making changes already before the settlement.

Henry Meier

Yeah, which is always, of course, a good first step. The lessons for credit unions that might be wondering what they can learn from this is that just underscores, though, it would have been so much better if some of those steps could have made four or five years ago. It would have saved everyone a lot of problems. It also underscores, frankly, the ongoing importance of your board of directors. I mean, we tend to, there's a tendency to not emphasize the role that the board of directors has to play in these type of situations. And I, I think that's a risk that the industry faces as a whole. Okay, what did the board of directors do to make sure that it was aware of the steps that the credit union was taking to comply with fair lending, fair housing laws, the Equal Credit Opportunity Act? That's a question that all boards should always be asking themselves. Okay, look at the products you offer, and then how do we know that policies and procedures are not just being written but implemented in a way that complies with these laws? That's one of the key questions. Is one of the key roles of and responsibilities. What's not just to make sure the policies are written, but to see that they're being implemented on an ongoing basis.

Sarah Cooke 

And I'm just going to plug you real quick, because Henry has a great presentation on what board members really need to know about what they're getting themselves into. So, I'll give you a quick plug there.

Henry Meier

Thanks for that, Sarah, but it is absolutely crucial that the board understand that one of the one of the things that has to be done under the settlement agreement here is that all the key officials, including the board, has to sign that they've, in fact, are aware what happened, and that they all will the allegations and the steps need to be taken to mediate them. So, we would hope for most credit unions it never come to that point. But it does underscore the need, not only for policy, but to actually put that policy in place. You never want to be in a situation, and that's part of what happened to you with the plaintiff in this case, the Department of Justice can point out that you're engaging in conduct which contradicts your policy. And that's, that's you never want to see.

Sarah Cooke 

And I imagine, even though, you know this has been settled, or assuming it's approved, it's been settled, you know, there could still be a lot of private litigation coming out of this?

Henry Meier

Yeah, I assume so we have to see how quickly and what type of, what type of claims ultimately, ultimately come out of that. But that might, that's obviously one of the reasons why the credit union has to be extremely cautious in what it says at this point as well.

Sarah Cooke 

And again, this is just an allegation, but you know, as you mentioned, the NCUA a few years back, started turning the dial up on consumer protection and fair lending type issues. So what are the legal and the political, political implications that credit unions should be aware of. This

Henry Meier

This is a classic example of how you have to be aware of both the legal and policy realities, which is that this is taking place against the backdrop of a real, decisive term in the tone of NCUA oversight, in which Chairman Harper has openly said that it is a myth that sometimes wards are looking out for the best efforts of their member interests of their members, and that is NCUA job to step in and fill that void. You can agree or disagree with that premise. But if I was chairman Harper, this would be example one a to make that argument. In fact, I think what's interesting, you're the communications person, but Chairman Harper's extensive press release in which he comments on this proposal is prominently displayed front and center on NCUA's website this morning. In the past, I'm not sure you would have seen it given that much attention. So he's clearly justifiably pointing to this as part of a larger affidavit series taking to work closely with DOJ and identify discriminatory practice. So I think that itself says a lot about the political environment in which credit unions are going to find themselves. I think it also underscores the need for, as I said, from a legal standpoint, really be able to explain if you're going to avoid or not expand into neighboring majority minority areas. There are perfectly legitimate reasons for doing that, but you better be able to demonstrate what the legal and non-discriminatory reasons you have for doing that.

Sarah Cooke 

And, so with that fair lending emphasis, what role will the the election coming up next month, what role is that going to play?

Henry Meier

It could have a very important one. This is all part of this is, I forget the numbers, but in the press release, they mentioned that this is the 14th action the NCUA has taken under its uh, redlining initiative. Okay, so you have a Justice Department, which, since 2021 has really examined the issue of redlining and taken steps, not only against credit unions. Credit Union now, I should say, but also has prominently displayed that it's taken its first action against a non-depository lender. So, this is an initiative by the NCUA, excuse me, by the DOJ. And if you look at the other settlements, they really, they're very consistent. They all ask for, not so much a youth penalty, but they ask for the loan, the loan basically the fund to help offset the cost of loan applications, and in the lending process, they ask for more scrutiny by compliance teams. This itself is pretty consistent with what the DOJ has done, and it is a fairly short term towards redline. Now that means that tells me that if we get a new DOJ in there, okay, under a President Trump, I don't think you would have the same we can assume that you may not have the same emphasis, but who knows, but I would, I would strongly suggest that you don't have a strong emphasis placed on redlining in this this initiative. But one important thing to keep in mind, NCUA has signaled that it is going to continue putting a greater emphasis on these issues, consumer compliance in general, and fair lending. I think it's fair to say that increased emphasis will continue. We're going to have the two Democrats on the board for a while, so you're going to see these increased emphasis for years to come.

Sarah Cooke 

Yeah, because NCUA seems to be the last of the agencies where they start replacing the board members after their terms and when the next party comes in.

Henry Meier

Not only that, Kyle [Hauptman] the lone Republican left; he's the one whose term ends the soonest, right? The next replacement will be a Republican, but that majority you now have with the chairman and Board Member Otsuka is going to be a place for at least two or three more years, I think.

Sarah Cooke 

And so inside the credit union, I feel like this probably emphasizes the importance of having a compliance officer, having a chain of command specific to compliance.

Henry Meier

Yeah, it does. I don't want to mischaracterize what this situation was at this credit union. It's not entirely clear to me the way the complaints worded that they either had a compliance person, and if they did, what oversight that person exercised over fail lending. So, it does underscore, if you think you're saving money, by cutting back on compliance, you're not. It's penny wise and pound foolish. If you are get too certain size, where you're doing a lot of lending, and you could be susceptible to this type of thing. You need to make sure you have staff that has expertise specifically in this area. So that's that's all part of it. But then, even if you're a smaller credit union, you don't think this is going to impact you, but it won't impact you directly. Okay? It does underscore the need to have the resources to show you are in compliance with the most important regulations. And there's nothing more basic than demonstrating that you don't discriminate, and not only that you don't discriminate, but what steps you are taking to make sure that everyone is welcomed after credit union, regardless of skin color, that kind of thing. So that's one of the big takeaways. Now, I'm concerned, though, that with so much emphasis placed on mismanagement, and which is a fine paradigm and credit unions should use it, but it's reasonable. Don't say, Okay, well, what are the odds that I'm going to be subject to a fair lending audit? Therefore, I don't really have to put much money into this. There are some things I would argue that you have to make a commitment to, just because it that goes to the nature of who you are and what we are as an industry. That's really and that's, that's where I think the emphasis has to be.

Sarah Cooke

Credit unions are all about financial inclusion. I mean, that's why credit unions exist. Henry, you're an old pro at this, because you've been on with me before. As you know, I always give my guests the final thought, final words. What do you have to say to our credit union audience?

Henry Meier

So one thing we didn't get to, that I I think is worth addressing, is the potential political amplifications. Okay? There have been an effort. There has been efforts for years now to argue, for instance, that credit unions should be subject to the CRA okay, they were, I believe Illinois and Massachusetts have had it for more than generation. They'll stay all this. It's going to be interesting to see, for me to say, if this adds momentum to that, to that call, because the industry's basic argument has always been, we don't need to have those kind of equirements, because it's in who we are, okay? And like I said, we don't know the facts of this case, but based on the facts as alleged by the DoJ are accurate, this doesn't help that argument. So how are we as an industry ready to respond to in the event that concerns always and arguments all made based on these comments, I would argue that it's an outlier situation that as part of community expansion, we do emphasize an emphasis on fail lending and making sure we don't put ourselves in a position where we could be engaging in the activity that could be perceived as a discriminatory That being said, I would hope and think that there will be some ramifications in terms of what we have to answer for based on this activity. Now, I tend to say those things, and I'm always surprised by what falls away in the legislature. So that prediction, if you will, could end up being dead. Well, we’ll have to see what happens.

Sarah Cooke

Yes. Henry, thank you so much for your time and expertise today. I appreciate it, and you have a great rest of your day.

Henry Meier

Thank you very much, and you have a great weekend as well. Thanks.