Redlining: The DOJ’s Initiative on Fair Lending

By Iris Zhang

Iris Zhang is a rising junior at University of Pennsylvania

The Fair Housing Act of 1968 guarantees “equal opportunity” for all citizens of the United States in accessing housing and prohibits discrimination on the basis of race, gender, disability, and other factors. [1] One of the ways in which access to housing is curtailed occurs when services relevant to acquiring housing, such as mortgages and loans, are made unavailable. 

In a landmark case in 1994, the Department of Justice (DOJ) settled with Chevy Chase Bank in the District of Columbia for redlining—a practice of denying banking services to residents in predominantly minority and low-income areas. [2] In line with the stipulations of the Federal Housing Administration (FHA), the DOJ argued that Chevy Chase engaged in unfair lending practices by deliberately avoiding majority African American neighborhoods in designating its service area. This discrepancy occurred mainly by refusal to open branches and the lack of advertisements of Chevy Chase’s services in majority African American neighborhoods.

The various methodologies used in establishing the DOJ’s case is particularly interesting. Through the use of mapping technology that shows the little to no overlap between Chevy Chase’s branches and the majority African American neighborhoods, the DOJ made a strong argument for the first component to the discrimination claim. [3] To establish the second component of its discrimination claim, the DOJ conducted statistically significant difference tests. Five percent of Chevy Chase’s total mortgage loan applications were from applicants in majority African American census tracts, which, when controlling for factors such as demand level and income level, revealed a statistically significant difference between Whites and African American applicants. This data was obtained from the mandatory information banks have to file each year pursuant to the Home Mortgage Disclosure Act (HMDA). The DOJ argued that this could only be a result of Chevy Chase’s policies that yielded disparate impact. [4]

Chevy Chase was required to open more branches in African American neighborhoods and invest a hefty sum in the African American community of D.C., among other remedial practices.

The impacts of this type of discrimination litigation are wide-reaching; including racial bias in advertising as a violation of the FHA is an innovative and important way of identifying discrimination. Traditionally, redlining cases have been focused on instances in which banks charge minority applicants a higher interest rate for their mortgage loans. In fact, Chevy had entered into a settlement with the DOJ over this more “classic” type of redlining lawsuit in 2013. [5] This innovative way of looking at redlining establishes that redlining is not just about the blatant denial of mortgage loans to African American applicants or applicants from majority African American census tracts. Other than the fact that saddling groups with more burdensome loans based on race is clearly unjust, redlining has other far-reaching effects.

One major effect is the entrenchment of housing segregation. The barrier towards obtaining mortgages and thus gaining housing that minorities face only ensures that certain areas of housing are off-limit to minorities. Difficulty in acquiring mortgages also means that minorities find it harder to purchase property, yielding vast disparity in property-ownership rates by race, a reason for the astounding racial wealth gap we have in this country. [6] 

Another effect is the entrenchment of employment segregation. Various studies have shown strong evidence of spatial discrimination in hiring, whereby people are discriminated against based on their geographic location. Part of this is also the tendency for employers to hire “in-network,” [7] so we see the persistent racial segregation of jobs by location. [8] Clearly, it is important to ensure equal access to housing, and it is exciting to see the various innovative ways these cases are being litigated.

Since the Chevy Chase case, the DOJ has strengthened its Fair Lending department, stepped up litigation on many more other types of unfair lending cases and continues to make it a priority. [9]


[1] “Fair Housing Act”. http://www.justice.gov/crt/about/hce/title8.php. Last accessed July 11, 2014.
[2] Consent Decree in USA v Chevy Chase Federal Savings Bank and B.F. Saul Mortgage Company, 1994. http://www.justice.gov/crt/about/hce/documents/chevychasesettle.php. Last accessed July 11, 2014.
[3] Exhibit A, Complaint in USA v Chevy Chase Federal Savings Bank and B.F. Saul Mortgage Company, 1994.  http://www.justice.gov/crt/about/hce/documents/ccex_a.gif. Last accessed July 11, 2014.
[4] Complaint in USA v Chevy Chase Federal Savings Bank and B.F. Saul Mortgage Company, 1994. http://www.justice.gov/crt/about/hce/documents/chevychasecomp.php. Last accessed July 11, 2014.
[5] Zapatosky, Matt and Danielle Douglas. “Chevy Chase Bank accused of overcharging minorities; Capital One to pay $2.85 million.” The Washington Post, October 1, 2013. http://www.washingtonpost.com/local/crime/chevy-chase-bank-accused-of-overcharging-minorities-capital-one-agrees-to-pay-285m/2013/10/01/267df08e-2ab4-11e3-97a3-ff2758228523_story.html. Last accessed July 11, 2014.
[6] Charles, Kerwin Kofi, and Erik Hurst. “The Transition to Home Ownership and the Black-White Wealth Gap.” The Review of Economics and Statistics 84.2 (2002): 281-297.
[7] Pager, Devah and Hana Shephard. “The Sociology of Discrimination: Racial Discrimination in Employment, Housing, Credit, and Consumer Markets.” Annual Review of Sociology 34 (2008): 181-209.
[8] Zenou, Yves and Nicolas Boccard. “Racial Discrimination and Redlining in Cities.” Journal of Urban Economics 48.2 (2000): 260-285.
[9] Assistant Attorney General Thomas E. Perez’s speech at the 15th Annual Community Reinvestment Act and Fair Lending Colloquium. http://www.justice.gov/crt/opa/pr/speeches/2011/crt-speech-111107.html. Last accessed July 11, 2014.


Photo Credit: Flickr user Joseph North