Citadel Credit Union’s Settlement with the DOJ - A Turning Point for Credit Union Lending
Credit unions have long held a reputation for being community-focused nonprofits, prioritizing their members' needs over profits. But even credit unions, as Citadel Federal Credit Union recently discovered, must ensure their practices align with fair lending laws. Citadel’s recent settlement with the U.S. Department of Justice (DOJ) over allegations of redlining underscores the need for lenders of all kinds to employ data-driven strategies to serve all communities equally.
While Citadel’s case is the first time a credit union has faced federal redlining charges, it’s also an opportunity for reflection and improvement—not just for Citadel, but for the entire credit union industry.
The Role of Data in Fair Lending
Data is a powerful tool in ensuring fair lending, offering insights that help financial institutions better serve all communities. Citadel Federal Credit Union’s recent experience is a reminder of this. Data showed that 23 of its 24 branches were located in Majority White neighborhoods, leaving gaps in access to mortgage services in Majority Black (MBCT) and Majority Hispanic (MHCT) census tracts. Citadel’s President & CEO, Bill Brown, acknowledged this, explaining, "This is a situation arising from what we weren’t doing, rather than one of intentional acts." As Citadel focused on digital expansion, the shift away from brick-and-mortar branches impacted their ability to serve the broader region as planned. While Philadelphia remains part of their growth strategy, the digital evolution caused them to fall short of opening branches there as originally intended. This highlights how data can help institutions identify gaps and refine their strategies to meet the needs of all communities.
Citadel’s case emphasizes the power of HMDA data to reveal patterns in lending. When modeled transparently, such as through HMDAVision, this data becomes a powerful tool for credit unions to make informed decisions. In Citadel’s case, the data highlighted that the expansion of branches into predominantly white areas left a critical gap in Philadelphia County, home to 76% of the MBCT and MHCT in their market area. This unintentional gap in service might have been addressed sooner had Citadel aligned their strategies with the data at hand.
Understanding the Story in Your Lending Patterns
Citadel’s situation demonstrates the importance of not just collecting and reporting data, but truly understanding and acting on it. The data tells a story, and for Citadel, it was one of an unintentional service gap in minority communities. HMDA data pointed out a significant gap in mortgage applications from majority-Black and Hispanic areas, and this insight could have been used to adjust strategies much earlier. This is where tools like HMDAVision come into play. With such tools, credit unions can visualize lending patterns and market demographics, making it easier to see whether all communities are being served equitably. With tools like HMDAVision from Polygon Research, credit unions can gain a clear understanding of how their lending compares to specific peers in an actionable way, i.e. meaning that credit unions can study the best practices of those lenders (including credit unions) who were successful serving MBCT and MHCT. It helps bring transparency and focus to the areas that require more attention, allowing credit unions to base decisions on hard data rather than assumptions.
Moving Forward: Fair Lending as a Strategic Imperative
Citadel’s response to the settlement shows their commitment to learning from this experience and strengthening their community engagement. As part of the settlement, Citadel is dedicating $6 million to mortgage loan subsidies for MBCT and MHCT census tracts in Philadelphia, in addition to opening three branches in these neighborhoods. They are also investing in marketing, outreach, and borrower education efforts to better serve underserved communities.
This moment marks a turning point for Citadel and other credit unions. Nonprofit status and a community focus are crucial, but they must be backed by data-driven strategies to ensure equitable service. Fair lending isn’t just a regulatory requirement—it’s an opportunity to reflect on how well your institution is meeting the needs of all members of your community. As part of their journey to improve fair lending practices, Citadel can use data-driven insights to track and understand their performance relative to peers.
The table below, derived from 2023 HMDA data and visualized through HMDAVision, offers a snapshot of Citadel’s mortgage originations across different minority census tracts and predominantly white census tracts (<50% Minority) in its field of membership (Bucks, Chester, Delaware, Montgomery, Philadelphia, and Lancaster counties) compared to peer lenders:
This data shows that a clear opportunity for growth in Majority Minority Census Tracts (MMCT) for Citadel in Philadelphia. But drilling down in the data and looking at comparisons in MMCT, one uncovers that perhaps Citadel could review their loan product offerings to match the demand in these neighborhoods. For example, Citadel's loan pipeline consists predominantly of second lien "Other Purpose" loans, while the demand in these neighborhoods has been mostly for home purchase loans. 55.9% of the market loans were for Home Purchase in MMCT as the table from HMDAVision shows below.
With this tool designed to highlight such gaps, credit unions can instantly access the information they need to take actionable steps. HMDAVision allows for precise, accurate comparisons against any single peer or group of competitors, giving institutions the clarity to address disparities and improve service where it's needed most. Using this data to its full potential, Citadel can refine its strategy and deepen its impact, ensuring it serves all communities more effectively.
Path Forward with Data as a Guiding Star for Credit Unions
Citadel’s case is a reminder that no financial institution can afford to overlook the power of data in shaping business and lending decisions. Every decision, from branch placement to marketing strategies, should be driven by data to ensure all communities are served equally. This proactive approach not only helps mitigate compliance risks but also builds trust and loyalty within the communities credit unions aim to serve. At Polygon Research, we believe that fair lending should be central to every credit union’s strategy. Our HMDAVision tool helps credit unions turn HMDA data into actionable insights, enabling them to identify service gaps, enhance member experience, and stay compliant with regulations. Using data to understand and respond to market needs ensures that institutions like Citadel can stay true to their mission of serving all members equally.
Citadel’s response to this challenge underscores an important strategic lesson for all credit unions: data-driven insights should guide every decision. By adapting their approach, credit unions can embrace a more inclusive lending strategy that better serves all communities. This proactive shift not only addresses compliance risks but also strengthens trust, loyalty, and long-term growth. The key takeaway for the entire industry is clear—understand your data, act on the insights, and always keep the community at the heart of your mission.
(Modified 10/21/2024)
