When a bank redlines and then fails, who is responsible?

When Republic First Bank failed last spring, the New Jersey attorney general’s office was already more than a year into an investigation into the Philadelphia bank’s loans to minority borrowers.

The Garden State investigation concluded this week with the release of a report alleging that the bank, known as Republic Bank, engaged in illegal mortgage foreclosure practices between 2018 and 2022. Now the question is: What, if anything, should be done , to help the victims of his alleged discrimination?

When the Republic failed in April 2024nearly all of its $6 billion in assets were acquired by Fulton Bank of Lancaster, Pennsylvania. Federal Deposit Insurance Corp. estimated the cost to the Deposit Insurance Fund to be $667 million.

The New Jersey AG’s office is now demanding that both the FDIC and Fulton take some responsibility for fixing past mistakes.

As for the FDIC, the AG’s office said it has filed a request for financial relief for New Jersey residents who were injured. David Barr, a spokesman for the FDIC, said in an email that the agency does not discuss individual claims or creditors of failed banks.

Todd Phillips, a former FDIC attorney who is now a professor at Georgia State University, said the state of New Jersey would have to prove to the FDIC’s satisfaction that it has a claim against the Republic and could try to do so at a hearing.

“But because I don’t think there’s any money left, I doubt this will actually happen,” Phillips said in an email.

Fulton says he has a good track record

The New Jersey AG’s office also said it shared the findings of its investigations with Fulton and urged the bank to take “proactive steps” to mitigate any potential redlining risks arising from the acquisition of Republic’s assets.

“At this time, Fulton has not identified any additional steps it plans to take,” the AG’s office said in its report.

A Fulton The spokesman said in an email that the $31.6 billion bank was not involved in the activities mentioned in the AG’s report. Fulton Bank, a subsidiary of Fulton Financial, has operations in Pennsylvania, Maryland, Delaware, New Jersey and Virginia.

“At Fulton Bank, we have a long history of supporting all communities, including majority minority neighborhoods, and we believe that transitioning former Republic assets and team members to our operating model is the best course of action to ensure that the American dream is reached for all customers. in New Jersey and across our five-state footprint,” the bank’s spokesperson said.

The AG’s office said it will monitor Fulton’s mortgage loan performance to ensure there is no continued harm to the state’s black, Asian and Hispanic communities.

Advocates say the acquirer should do more

Leila Amirhamzeh, director of community reinvestment for New Jersey Citizen Action, a statewide advocacy organization, expressed hope that Fulton will work with her group to address the needs of New Jersey residents.

“By taking these assets, we hope that really means that they will increase their commitment to the communities of New Jersey, and especially the communities that have been impacted,” Amirhamzeh said, noting that New Jersey Citizen Action partnered with Fulton in the past.

Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition, argued that Fulton has a responsibility to fix the mistakes of the predecessor bank.

“I think they should have a stronger approach than just ‘We’re a better bank, don’t worry,’ which is essentially what they’re saying,” Van Tol said.

He argued that Fulton, which in April assumed responsibility for nearly all of Republic’s deposits, should be considered to have assumed not only the failed bank’s financial obligations, but also its legal and reputational obligations.

Van Tol pointed out that Fulton now operates Republic branches in New Jersey, which the attorney general’s office said are concentrated in predominantly white areas.

“It’s a question of what branches you have and where, and what employees you have and where,” Van Tol said.

Attorney General Says Lending Disparities Were ‘Severe’

In its 18-page report, the New Jersey attorney general’s office used Home Mortgage Disclosure Act data to calculate that peer-to-peer lenders in the Republic made loans to black borrowers at more than 1.5 times the rate that Republic.

Peer lenders were about 2.5 times more likely than the Republic to make loans to Asian borrowers. And the discrepancy was more than three times greater for Hispanic borrowers, according to the report.

“The disparities in Republic’s lending to borrowers of color were severe—so severe that Republic should have known that its practices systematically resulted in the exclusion of borrowers of color. However, the Republic continued to maintain these practices,” the AG report said. “In fact, between 2018 and 2022, the disparities resulting from these practices continued to worsen.”

The AG’s report found that Republic failed to locate any of its 20 branches or mortgage offices in New Jersey in a majority-minority neighborhood.

“It is shameful that the Republic has engaged in practices that red flag neighborhoods based on the race or national origin of the neighborhood’s residents,” New Jersey Attorney General Matthew Platkin said in a news release.

Republic’s case is the third instance in recent years of alleged embezzlement by a bank operating in New Jersey. In September 2022, the Justice Department arrived a $13 million settlement with Lakeland Bank regarding alleged lending discrimination in the Newark area.

And last month, OceanFirst Bank agreed a $15 million settlement with the Department of Justice and the Department of Housing and Urban Development regarding alleged apparitions in three New Jersey counties.