Fair-housing group sues Old National over alleged redlining ahead of merger

Dive Brief:

An Indianapolis-based fair-housing advocacy group sued Evansville, Indiana-based Old National Bank on Wednesday, alleging the $23.6 billion-asset bank is discriminating against Black borrowers trying to obtain mortgages.
Only 37, or 1.6%, of the more than 2,250 mortgage loans the bank made in the Indianapolis metropolitan area in 2019 and 2020 were to Black borrowers, the Fair Housing Center of Central Indiana (FHCCI) alleged in a complaint filed in the U.S. District Court for the Southern District of Indiana. Bank data identifies the borrower's race on more than 91% of the loans, the FHCCI said.
Old National Bank "strongly and categorically denies the claims" in the lawsuit, it said in a statement to The Indianapolis Star and American Banker, adding that it is "committed to engaging in fair and equal lending practices." Old National in June announced a plan to merge with Chicago-based First Midwest Bank — an all-stock deal worth $2.5 billion that was slated to close late this year or in early 2022.

Dive Insight:

The FHCCI wants the court to order Old National to pay damages and "remedy the effects" of its alleged redlining, according to its complaint.

The fair-housing group met with representatives of Old National in October and November 2019, and again in July 2021, according to the complaint. The bank did not dispute its lending record among Black borrowers, telling the fair-housing group it was "working to improve" in 2019, the FHCCI said in its complaint.

In the court filing, the FHCCI said Black customers make up nearly four times the proportion of mortgage borrowers at Old National’s four closest peer lenders. Additionally, the bank’s brick-and-mortar footprint is leaving more diverse areas underserved, the group said. Old National had six branches in census tracts that were at least 25% Black in 2010, compared with two branches now, the FHCCI said in its complaint, adding that all seven of the mortgage loan originators the bank employs in central Indiana are white.

"They are not reaching Blacks [and] African Americans or Black neighborhoods," Amy Nelson, the FHCCI’s executive director, told The Indianapolis Star, "and we allege they are not trying to."

The FHCCI and two dozen other housing advocacy groups wrote the Federal Reserve and the Office of the Comptroller of the Currency (OCC) in late July, asking the regulators to hold public hearings, according to American Banker.

The OCC signed off on the Old National-First Midwest merger in August. The FHCCI invited Old National to meet with it and federal regulators last month, but Old National did not respond, the complaint said.

"We are calling on the Federal Reserve to do what it is required to do," Nelson told The Indianapolis Star, "and conduct a thorough analysis and to address any disparities ... to make sure that Old National’s lending practices are fair to everybody."

The Fed was in touch with the FHCCI on Wednesday, Nelson told American Banker.

If the Fed gets involved, the Old National-First Midwest merger could become the third recent deal the central bank has had a hand in delaying or otherwise affecting.

First Citizens Bank and CIT Group announced last week they extended the timeline to complete their $2.2 billion merger after the Fed failed to give its approval or non-objection in the time frame they expected.

Green Dot this week terminated its proposed $165 million acquisition of Republic Bank’s tax processing unit after it said it was unable to get the Fed's approval or non-objection to the deal. Republic has sued.

This wouldn’t be the first Old National merger with which the FHCCI had an issue. Wednesday’s complaint cites concerns about Old National’s merger with KleinBank, which was accused of redlining in 2018.

Houston-based Cadence Bank — another bank involved in a merger — agreed in August to pay $8.5 million and hire more loan officers to serve majority-Black and Hispanic areas to settle OCC and Justice Department allegations that it avoided mortgage lending in such neighborhoods in Houston between 2013 and 2017. Tupelo, Mississippi-based BancorpSouth Bank agreed in April to purchase Cadence in a $2.8 billion, all-stock deal.