With changes in leadership eminent and changes in regulatory priorities likely to follow, the Department of Justice (DOJ) and the CFPB kicked off 2025 with a pair of significant fair lending actions. On January 7, 2025, the United States filed a complaint against The Mortgage Firm, Inc., alleging violations of the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA) due to unlawful redlining in predominantly Black and Hispanic neighborhoods in the Miami-Fort Lauderdale-Pompano Beach area from 2016 through 2021.

Ten days later, the CFPB filed a complaint and announced a proposed consent order involving Draper & Kramer Mortgage Corporation. The charges were brought under ECOA and the Consumer Financial Protection Act (CFPA) and include allegations of redlining majority- and high Black and Hispanic neighborhoods in the Chicago and Boston Metropolitan Statistical Areas from 2019 through 2021.

Many similarities exist between the two cases. Both involve allegations of redlining practices, including receiving a disproportionately low number of residential mortgage applications and approving a disproportionately low number of home loans in underserved communities. The claims are supported by extensive Home Mortgage Disclosure Act (HMDA) data analysis for each company. Additionally, each of the lenders is accused of locating its offices in predominantly white areas, failing to ensure that its loan officers served majority-Black and Hispanic communities, and targeting its marketing efforts primarily at predominantly white neighborhoods. Similarly, it is alleged that each of the lenders’ fair lending policies and procedures were insufficient to ensure equal access to credit. And both lenders are accused of failing to analyze mortgage lending data in real time. In The Mortgage Firm’s case, it is alleged that the company failed to sufficiently track HMDA data until it received notice of a fair lending examination from the CFPB, and that it took no action to address redlining risks until after the CFPB delivered its findings. For Draper & Kramer, the complaint alleges that it failed to make needed course corrections for fair lending deficiencies, such as its marketing practices nearly two years after the CFPB identified the problems.

Internal emails were problematic to say the least for the lenders in each case. The DOJ referenced several internal communications to support the claims against The Mortgage Firm. These communications included derogatory references to majority-Black and Hispanic neighborhoods, with employees using terms like “ghetto” or “in the ‘hood.’” The DOJ also highlighted that one loan originator who made these remarks remained employed and was not disciplined promptly or effectively. Instead, the individual only received a written warning over nine months after the emails were reported to The Mortgage Firm. The complaint further notes that another non-Hispanic white loan officer, one of the top producers in the Miami area, sent emails containing a racial slur and similarly received just a written warning nine months after the incident was brought to the company’s attention.

Similarly, the CFPB referenced internal communications from Draper & Kramer’s loan officers that included deeply inappropriate and discriminatory language. These emails contained offensive remarks that perpetuated harmful stereotypes and racial biases. The complaint does not indicate what, if any, disciplinary penalties may have been applied to the authors of the emails.

Also of note in the Draper & Kramer case are allegations by the CFPB that the company’s recruiting and hiring practices, which were based on “prior relationships with the company’s Regional Sales Manager, referrals from its existing mostly white loan officers, and word of mouth,” created a fair lending closed loop. The complaint alleges that the company failed to adequately monitor or document its marketing or outreach materials “to ensure that such distribution occurred in all neighborhoods…” and that “[n]early all of the most frequently used preapproved advertisements contained images of exclusively white-appearing loan officers.” These practices, according to the CFPB, discouraged residents in the underserved communities from making or pursuing applications for credit.

Uptick in Referrals

The complaint against The Mortgage Firm was referred to the DOJ by the CFPB. Agencies with enforcement authority under section 704 of ECOA, including the CFPB, Comptroller of the Currency, Board of Governors of the Federal Reserve System, Board of Directors of the Federal Deposit Insurance Corporation and National Credit Union Administration, must refer cases to the DOJ if they suspect a creditor of engaging in a pattern of lending discrimination (see § 1002.16 (b)(3) [15 U.S.C. § 1691e(g)]). They can also refer other potential ECOA violations to the DOJ.

According to the CFPB’s 2023 Fair Lending Report (the 2024 fair lending data is not yet available as of the date of this publication), in 2023, the FDIC, NCUA, FRB, OCC, and CFPB referred 33 cases to the DOJ, up from 22 such referrals in 2022, setting a high-water mark for Section 704 fair lending referrals to the DOJ in a calendar year.

The jump in 2023 follows a period of fluctuating referrals, with the CFPB’s numbers having steadily declined from 24 in 2013 to a dramatic low of just two referrals in 2018. This sharp drop in 2018 stands out as an anomaly in the data and suggests a year where fewer cases were escalated to the DOJ for action. However, the trend began to shift after 2018, with referrals picking up again in the following years. By 2022, referrals had rebounded to 23, and in 2023, they surged to 33, nearly doubling the previous year’s total and reflecting a notable change in the volume of cases referred for DOJ involvement.

Of the 33 cases referred in 2023, the CFPB contributed 18. These referrals involved a range of discriminatory practices, including redlining in mortgage lending based on race and national origin; underwriting discrimination against those receiving public assistance; predatory targeting based on race and national origin; pricing exceptions discrimination based on race, national origin, sex, and age; and credit card discrimination based on national origin and race.

The significant increase in 2023, following years of relative decline, highlights the growing recognition of fair lending violations and the CFPB’s increasing focus on addressing these discriminatory practices.

Implications

When viewed through the lens of DOJ referral trends, The Mortgage Firm and Draper & Kramer complaints serve to highlight several key areas of focus for financial institutions’ fair lending efforts:

• Regularly analyze mortgage lending data in real time, including HMDA data, to identify and address any potential disparities in lending practices — do not wait until a fair lending examination to take action. Corrective actions are difficult if not impossible to take in an information vacuum.
• Ensure that fair lending policies and procedures are robust and effectively promote equal access to credit across all communities, particularly in historically marginalized areas. The CFPB specifically noted that Draper & Kramer’s fair lending policies and procedures did not adequately address redlining and contained only general prohibitions against discrimination.
• Both The Mortgage Firm and Draper & Kramer were cited for inadequate fair lending training. The CFPB noted that “Certain relevant training materials did not even contain a definition of redlining.” Financial institutions should ensure that training materials are accurate, relevant and enforced, particularly for its loan officers, who are often positioned as “the primary public-facing points of contact of applicants and prospective applicants.”
• Take immediate, meaningful action when discriminatory behavior or derogatory remarks are known or reported, including timely and consistent discipline for violations of company conduct standards.
• Investigate and address any disparities in office location and marketing practices to ensure that outreach efforts are inclusive and not concentrated in predominantly white neighborhoods. The two cases serve as a reminder that marketing approval should include a critical fair lending review. The DOJ noted that The Mortgage Firm failed to translate its website into Spanish or indicate which offices could assist Spanish-speaking clients. Lenders should view similar missteps as regulatory low-hanging fruit.
• Lenders may also wish to consider the consequences of marketing to past customers. The CFPB cited Draper & Kramer’s reliance on marketing to past customers, who were predominantly white, as exacerbating the consequences of its failure to advertise, assign loan officers, and place offices in historically underserved neighborhoods. 
• Foster an inclusive company culture by conducting regular training on cultural competency and the implications of discriminatory language and behavior in the workplace.
• Develop a comprehensive plan to proactively identify and mitigate redlining risks, especially in communities that have been historically underserved or targeted by discriminatory practices.
• Hold all employees, including top producers, accountable for adhering to fair lending standards, ensuring that no one is above the rules, regardless of their performance.

Regulatory priorities may change as a new attorney general and CFPB director assume their roles. But these cases provide live guidance for lenders to develop compliance programs with respect to redlining, including policies and procedures, employee training, and internal monitoring, that will comply with regulatory guidelines under any administration.

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