Washington Trust agrees to $9M settlement of federal redlining allegations

THE WASHINGTON TRUST CO. has agreed to a $9 million settlement of allegations by the U.S. Justice Department that it engaged in discriminatory lending practices. The bank denies the allegations. / PBN FILE PHOTO/SCOTT KINGSLEY
THE WASHINGTON TRUST CO. has agreed to a $9 million settlement of allegations by the U.S. Justice Department that it engaged in discriminatory lending practices. The bank denies the allegations. / PBN FILE PHOTO/SCOTT KINGSLEY

PROVIDENCE – The Washington Trust Co. has agreed to a $9 million settlement to resolve allegations that the bank engaged in lending discrimination from 2016 to 2021 by redlining Black and Latino neighborhoods in Rhode Island, the U.S. Attorney’s Office in Rhode Island announced Wednesday.

Redlining is a discriminatory practice in which lenders avoid providing services to individuals living in communities of color based on race, ethnicity or national origin because of perceived economic risk.

In a statement Wednesday, the Westerly-based bank denied the U.S. Justice Department’s redlining allegations but said it entered into the agreement to avoid the “expense and distraction of potential litigation.”

A complaint filed Wednesday by U.S. Attorney Zachary A. Cunha in U.S. District Court alleges Washington Trust failed to provide mortgages to people in majority-Black and Latino neighborhoods or open a branch in those neighborhoods despite the bank’s expansion in recent years.

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Washington Trust, which is considered the oldest community bank in the country and is publicly traded under its parent Washington Trust Bancorp Inc., is the third-largest bank in Rhode Island with $5.24 billion in deposits as of July. Only Citizens Bank and Bank of America hold more deposits in Rhode Island.

The complaint alleges that Washington Trust relied on mortgage loan officers working out of majority-white areas as the primary source for generating loan applications, and the bank failed to train or incentivize its lending staff or conduct outreach, marketing and advertising of its mortgage services to compensate for its lack of branches and presence in majority-Black and- Hispanic areas.

Between 2016 and 2021, other banks operating in Rhode Island received nearly four times as many loan applications each year in majority-Black and- Latino neighborhoods in Rhode Island, the complaint says. And when loan applications were generated by Washington Trust from majority-Black and- Hispanic areas, the applicants were disproportionately white, according to the complaint.

On Wednesday, Washington Trust “vehemently” denied the allegations.

“We believe that through our focus on providing affordable loan programs and offering innovative lending solutions to potential homebuyers across all Rhode Island communities, we have been fully compliant with the letter and spirit of fair-lending laws,” the bank said in a statement. “We have agreed to do more of what we are already doing – delivering a consistently superior banking experience to each and every member of the Rhode Island community. We value our relationships with our employees, customers and communities.”

Under a proposed consent order, which needs court approval, Washington Trust has agreed to:

• Invest at least $7 million in a loan subsidy fund to increase access to home mortgage, home improvement, home refinance and home equity loans and lines of credit for residents of majority-Black and- Hispanic neighborhoods in Rhode Island.

• Spend $1 million on community partnerships to provide services that increase residential mortgage credit access for residents of those neighborhoods.

• Spend $1 million for advertising, outreach, consumer financial education and credit counseling focused on majority-Black and- Hispanic neighborhoods.

• Open two new branches in majority-Black and- Hispanic neighborhoods in Rhode Island; and ensure at least two mortgage loan officers are dedicated to serving these neighborhoods.

• Employ a director of community lending who will oversee the continued development of lending in communities of color.

“Everyone who pursues the American dream has the right to expect to be treated equally and with dignity, regardless of their race, their background or zip code. When communities are denied access to fair lending, families are denied the opportunity to build stability and financial success,” Cunha said. “I am pleased that, as a result of the hard work of attorneys in my office and the department’s Civil Rights Division, Washington Trust has agreed to take targeted and extensive measures to make meaningful lending services available for all Rhode Islanders, regardless of race or background.”

Assistant Attorney General Kristen Clarke of the Justice Department’s Civil Rights Division said the settlement should send a message to banks that the Justice Department is committed to fighting “modern-day redlining.”

“This resolution will provide critical relief to impacted Black and Hispanic communities, enabling them to buy a home, keep their home or access the equity in their home,” she said. “Ending redlining and providing relief to communities of color impacted by this unlawful practice is a necessary step in ongoing efforts to reduce racial wealth and homeownership gaps across our country.”

William Hamilton is PBN managing editor. He can reached at hamilton@pbn.com.

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