Building a fairer future starts with understanding redlining risks
In a recent webinar, Building a fairer future: The continuing importance of redlining risk management, experts explored the current state of redlining enforcement, shared learnings from recent regulatory actions, and outlined best practices for mitigating risk – ultimately supporting equal access to credit for all.
Redlining risk mitigation remains a vital part of fair lending compliance, but it’s more than avoiding penalties. Financial institutions must be vigilant of redlining enforcement, where service gaps can lead to costly settlements and reputational damage.
With increasing scrutiny from state and private entities, plus uncertainty at the federal level, a defined redlining risk strategy is crucial. Proactive compliance efforts not only protect institutions but also drive growth and build trust.
“We need to remain focused on ensuring fair and reasonable access to credit for all,” Jason Keller, Director of Market Strategy and Compliance Analytics, opened. “We believe at Wolters Kluwer, the time to act is now.”
The current redlining risk environment
Since launching in 2021, the Department of Justice’s Combating Redlining Initiative has resolved 16 cases and secured over $153 million in restitution. However, the risk landscape extends beyond federal enforcement, especially under the current administration.
“Administrations change priorities,” said Ken Scott, Partner at Relman Colfax. “For this administration […] the redlining initiative will not likely be moving forward. We’re going to see a lot of folks step in to fill that gap.”
While the initiative’s future is uncertain, Scott emphasized that redlining cases rely on long-term, pattern-or-practice evidence. Institutions could face enforcement based on historical lending data, even if federal attention shifts in the near term.
On another front, state-level and private enforcement are growing in both volume and sophistication.
“The federal government is also shedding some of its most talented and experienced attorneys, economists, and fair lending personnel,” added Maureen Yap, Vice President of Fair Lending at the National Fair Housing Alliance.
“States with resources will use this opportunity to scoop up this talent and build the civil rights departments that can ensure robust housing and lending opportunities in their state.”
Fair housing organizations, private plaintiff groups, and several state attorneys general are using publicly available HMDA data and community partnerships to initiate investigations.
A shift in federal focus does not eliminate institutional risk. Regulators and private parties alike are focusing on whether lenders are reaching historically excluded areas.
Even if unintentional, institutions’ failure to reach minority neighborhoods and communities of color may expose institutions to scrutiny. Geographic mapping of originations, applications, and service footprints against demographic data is now a basic expectation.
A weak compliance management system (CMS) is another major risk factor. Examiners expect institutions to identify and address service gaps but many lack the internal tools or awareness to do so effectively. That perception can be as damaging as actual disparate treatment.
Redlining risk mitigation is more than compliance, it’s a business imperative
Building a resilient fair lending program is essential for long-term success in a changing market.
As the US population becomes more diverse, inclusive lending helps institutions meet compliance expectations while also future-proofing their business.
“The business imperative is to serve the broadest communities,” said Scott. “And if you do that, you don’t have to worry about private enforcement…. You’ll be able to focus on what you need to do, which is do good business and generate profits for your shareholders.”
To manage redlining risk effectively, institutions should can follow these best practices:
- Benchmark with purpose: Use the 50 to 200 percent peer application volume range to compare your performance and be prepared to justify your peer selections
- Analyze your footprint: Geographic analyses help identify whether majority-minority census tracts are underserved
- Evaluate internal operations: Assess how loan officers, marketing resources, and referral sources are distributed
- Serve Limited English Proficiency (LEP) borrowers: Offer multilingual marketing, translated disclosures, and borrower support
- Coordinate across business lines: Ensure mortgage and commercial teams align on fair lending goals and share outreach strategies
Compliance management systems should evolve
Institutions should regularly review and strengthen their CMS to reflect the evolving risk landscape. That includes integrating statistical tools, documenting market assessments, training staff across departments, and establishing clear accountability for remediation plans.
By embedding redlining risk mitigation into business strategy lenders can foster trust, improve performance, and reduce long-term exposure
“Strong lenders understand that, regardless of the administration, serving the whole community is good business,” said Yap.
