On October 29, New Jersey Attorney General Matthew Platkin and the state’s Division on Civil Rights (DCR) released a report detailing the findings of a multi-year investigation into Republic First Bank (Republic) and its alleged mortgage redlining practices. According to the report, the investigation revealed that Republic engaged in a pattern or practice of redlining against Black, Hispanic, and Asian communities in New Jersey, in violation of the New Jersey Law Against Discrimination.
Republic entered the residential mortgage lending business in 2016 but was closed by the Pennsylvania Department of Banking and Securities in April 2024 due to the bank’s “unsafe and unsound condition.” Thereafter, the Federal Deposit Insurance Corporation (FDIC), which was appointed as receiver of the defunct bank, entered into an agreement with Fulton Bank wherein Fulton Bank assumed Republic’s loan portfolio. In August 2024, New Jersey filed a claim against Republic with the FDIC, which has assumed most of Republic’s liabilities, to obtain monetary relief for New Jersey residents harmed by Republic’s redlining practices.
New Jersey’s investigation found that Republic systematically avoided originating home loans in majority-Black, Hispanic, and Asian neighborhoods, and made a disproportionately small number of loans to borrowers of color in New Jersey. Specific findings alleged in the report include:
- Underperformance in Lending: Between 2018 and 2022, only 6% of Republic’s home loans were originated to residents of majority-Black, Asian, or Hispanic neighborhoods, while peer lenders were over three times as likely to originate loans in these neighborhoods. Republic’s peers originated loans to Black borrowers at over 1.5 times the rate Republic did, to Asian borrowers at about 2.5 times that rate, and to Hispanic borrowers at over 3 times that rate.
- Branch and Office Locations: Republic concentrated all of its storefront bank branches and mortgage offices in predominantly white areas, failing to locate even a single branch or office in a majority-Black, Hispanic, or Asian neighborhood. Between 2017 and 2023, Republic increased its total number of bank branches in New Jersey from 11 to 18 but all were located in majority-white census tracts.
- Marketing Practices: Republic failed to conduct meaningful advertising in neighborhoods of color. Republic conducted marketing events, including homebuying seminars, at its storefront bank branch locations to advertise its residential mortgage products and advertised in community newspapers in areas surrounding its stores’ locations. However, all of Republic’s storefront branch locations were located in majority-white census tracts, such that none of these marketing efforts were directed towards majority-Black, Hispanic, or Asian neighborhoods.
- Exceptions to Underwriting Policies: Republic made exceptions to underwriting policies, which favored white and high-income borrowers, while simultaneously denying applications from Black, Hispanic, and Asian applicants at higher rates.
- Failure to Take Corrective Action to Address Disparities: Republic was aware of its underperformance in generating mortgage applications from people of color and originating loans to people of color but took little corrective action to address the disparities. In fact, between 2018 and 2022, those disparities worsened.
Given Republic’s closure, New Jersey could not bring litigation directly against the bank. As a result, the state has taken the unusual approach of filing a report outlining its findings and filing a claim with the FDIC. New Jersey has also shared its findings with Fulton Bank and urged the bank to take proactive steps to mitigate any potential redlining risks associated with its acquisition of Republic’s assets.
Our Take:
The Attorney General’s report demonstrates that redlining continues to be a top priority for regulatory agencies, including at the state level. Prior to this action, we were aware of one other state attorney general bringing a redlining claim, but other than that, the activity had all occurred with the federal regulators. This matter demonstrates that the risk of redlining cases continues to exist with state regulators as well.
With regard to the risk factors for mortgage lenders, the allegations in the report follow the pattern of traditional redlining charges in numerous other enforcement actions undertaken by federal regulators. Financial institutions should take steps to mitigate the various risks outlined in the report, such as assessing whether their lending to minority borrowers and neighborhoods aligns with their peers and determining what, if any, corrective action they should take in response to their findings. Financial institutions should also review their marketing practices to ensure that they are not limited to predominantly white neighborhoods and update their policies and procedures to prevent the possibility of disproportionately unfavorable treatment towards minority borrowers.
Of note, the report highlights the redlining risks that financial institutions can encounter in relation to bank mergers and acquisitions. For example, the report explains that Republic entered the mortgage business by acquiring Oak Mortgage in 2016 and continued originating residential mortgage loans until 2023. In addition, the report cautions that Fulton Bank may be held liable for Republic’s redlining conduct if it does not take steps to address potential harms caused by that conduct. Financial institutions should carefully review any opportunities for growth to ensure that such growth will not increase their redlining risk.