First-Ever Redlining Case Puts Fair Lending on Collections’ Radar

In a landmark enforcement action, the U.S. Justice Department announced its first redlining consent order involving a credit union, ordering Citadel Federal Credit Union (PA) to pay over $6.5 million over discriminatory lending practices. Federal investigators found that Citadel avoided serving majority-Black and Hispanic neighborhoods around Philadelphia – failing to open promised branches and generating disproportionately few home loans in those areas.

The October 2024 settlement requires Citadel to invest $6 million in minority community loan subsidies, spend hundreds of thousands on outreach, and finally open branches in long-underserved neighborhoods. NCUA Chairman Todd Harper called the settlement “significant… it signals that federal credit unions must follow fair lending laws” and that redlining “will not be tolerated”. For collections managers, this case is a wake-up call that compliance and fair lending impact the entire credit cycle.

While redlining is about loan originations, the reputational and regulatory risks extend to all operations. Credit unions pride themselves on serving communities, so this public rebuke shook the industry. Collections and lending departments alike are now collaborating to ensure equitable treatment – from marketing to modification offers – so that no group is unfairly denied credit or pressured in servicing.

Takeaway: A credit union facing DOJ action was unprecedented; now every CU is reminded that upholding fairness is non-negotiable, with hefty penalties and oversight if they fall short.