The U.S. Justice Department announced yesterday that Chevy Chase Federal Savings Bank and its mortgage subsidiary agreed to an $11 million settlement of the nation's first discrimination suit brought against a lender for refusing to serve minority neighborhoods.
Under the settlement, the privately owned Chevy Chase and its B. F. Saul Mortgage Co. subsidiary agreed to offer low-cost mortgages to residents of majority-black areas in the District of Columbia and Prince George's County, expand its presence in those neighborhoods and try to hire more blacks for lending positions.
"To shun an entire community because of its racial makeup is just as wrong as to reject an applicant because they are African-American," Attorney General Janet Reno said in a statement.
"Some neighborhood banks may turn away blacks because of their race, but other neighborhoods may not even have banks to which blacks can turn."
The case differs from previous Justice Department lender lawsuits, which have centered on charges of denying loans to minorities, rather than avoiding entire neighborhoods.
Chevy Chase, Maryland's largest thrift, denied the allegations in the lawsuit, which was filed with the settlement in the U.S. District Court in Washington.
From 1988 to 1993, 71 percent of its more than 1,600 mortgage loans in Washington were in the allegedly redlined neighborhoods, the company's chairman and chief executive officer, B. F. Saul II, said in a statement.
The court approved the settlement yesterday as well.
The company settled the case to avoid defense costs, and because the settlement mirrors Chevy Chase's own programs, Mr. Saul said.
The settlement "calls for the kind of investment in the community that the bank has been engaged in and believes will best enable it to deliver necessary products and services to the entire community," added Andrew Sandler, an attorney for Chevy Chase.
The Justice Department charged Chevy Chase with violating the federal Fair Housing Act and the Equal Credit Opportunity Act by redlining black areas, or declaring them off-limits for mortgage lending.
From 1976 to 1992, the banking company made about 97 percent of its mortgage loans in predominantly white areas, the Justice Department said, and from 1988 to 1992 it received less than 6 percent of its home mortgage applications from blacks.
Before the department's investigation, which it said was prompted by a 1993 Washington Post series, Chevy Chase had "virtually all of its branches and mortgage offices in majority-white areas," the department said in a statement.
It said the bank since has opened three branches and two mortgage offices in black areas of Washington and Prince George's County.
The settlement "is one of the clearest messages I think the administration has sent that it is serious about community reinvestment and serious about fair lending," said Tom Chalkley, director of the Baltimore-based Maryland Alliance for Responsible Investment, which encourages lenders to abide by community reinvestment laws.
The settlement requires Chevy Chase to:
* Open three mortgage offices and one bank branch in majority-black neighborhoods in Washington.
* Evaluate other sites for bank branches in allegedly redlined communities.
* Take steps to obtain a market share of mortgage loans in black neighborhoods comparable to its market share in white neighborhoods.
* Extensively advertise its services and make sales calls to real estate agents active in black areas.
* Continue efforts to recruit blacks for loan production jobs.
The company also has agreed to set aside $7 million toward a program of below-market-rate mortgage loans for residents of majority-black areas. The program is estimated to generate $140 million in financing for those areas.