After U.S. probe, one of Pa.’s largest credit unions agrees to lend more to Philly’s Black, Latino homebuyers

Citadel Federal Credit Union, based in Exton, has agreed to expand its 24-branch suburban office network into Philadelphia and subsidize mortgage loans in the city’s poorer Black and Latino neighborhoods, to settle a U.S. Department of Justice discrimination complaint.

The Justice Department, announcing the settlement Thursday, said it was the first time it had accused a credit union of “redlining,” intentionally avoiding low-income Black and Hispanic neighborhoods in violation of U.S. banking laws, which require banks and credit unions to make loans they offer available to all in census tracts across their service area.

Bill Brown, who took over as the credit union’s chief executive last year, said it wasn’t intentional, but instead a long delay in executing Citadel’s 18-year-old plan to add offices and make more loans in the city.

A federal probe reviewing the credit union’s loans for 2017-2021 found that Citadel failed to follow through on its 2006 commitment to add branches in Philadelphia. The credit union had told regulators it planned to branch across the city and its northern suburbs, but after the plan was approved, Citadel built offices only in the suburbs.

“This settlement will expand investment in Black and Hispanic communities,” said Kristen Clark, assistant attorney general in the Justice Department’s Civil Rights division, in a statement. “The Justice Department will seek to hold all types of lenders accountable for their role in modern-day redlining.”

Adding offices in the city “represents a huge step for us,” Brown said in an interview. “As we go into Philadelphia, we intend to enlist the support of elected officials” and local groups, “to see what is the place to position our branches and our brand.”

The agreement fixes problems “arising from what we weren’t doing,” Brown added, noting the government didn’t allege discriminatory mortgage denials, or find a scarcity of loans in lower-income suburbs in communities such as Coatesville or those of eastern Delaware County.

Brown said Citadel “respectfully disagrees” with the government’s description of the credit union’s intentions. He said Citadel has agreed to be more “inclusive and equitable” by providing $6 million in “mortgage loan subsidies” to reduce the cost of mortgages in mostly Black and Latino neighborhoods over the next five years, $250,000 for “community development” projects, and $270,000 in financial education and marketing directed to underserved borrowers. The branches, at as-yet undetermined city locations, will open by 2027.

Despite the credit union’s rapid growth in members, loans and deposits (assets have nearly quadrupled, to over $6 billion, in the last 10 years), and despite its promise to add branches in Philadelphia, Citadel halted construction of new branches in 2019, after canceling work on its planned Feasterville, Bucks County, branch near the edge of Northeast Philadelphia.

Indeed, most large U.S. banks have been shutting instead of building branches in recent years, as customers moved online. The number of U.S. bank branches peaked at 100,000 in the late 2000s, and has since fallen below 80,000, according to FDIC data. Lenders have found it cheaper to exchange secure emails and texts with customers than to open and staff neighborhood offices, though those remain bases for neighborhood lenders and for businesses and consumers that prefer walk-in service.

Besides its native Chester County, where Citadel was founded for workers at the Lukens Steel complex in Coatesville (now operated by Cleveland-Cliffs), Citadel’s branch network includes branches in central Delaware, Montgomery, and Bucks Counties, but hasn’t reached older suburbs such as Abington and Cheltenham Townships, or the wealthy Main Line areas, along with Philadelphia.

Brown said mortgages are an important tool in building communities: “The key to wealth accumulation” and wealth transfer from older to younger generations “is home ownership. We help people own a home.”

Brown also promised more city small-business lending, for example in neighborhood business corridors, though that’s not part of the Justice Department settlement: “This is exactly where we were going anyway.”

The credit union in August hired a community lending officer to find more borrowers in Black and Latino city neighborhoods.

The government has reached similar “conciliation agreements” with other lenders accused of neglecting poor urban neighborhoods in the past few years, including Toms River, Ocean County-based OceanFirst Bank, and ESSA Bank & Trust, based in East Stroudsburg, both of which have branches in the Philadelphia area.

Loan-application data available under the federal Home Mortgage Disclosure Act (HMDA) makes it possible to trace lenders’ loan frequency, size, denial rates, and other terms by census tract and borrower demographics. Federal investigators and class-action lawyers have often cited this data in accusing lenders of failing to meet their legal responsibilities.

Credit unions have received more attention from fair-lending regulators as they have gained customers in recent decades, partly replacing community banks that formerly targeted individual towns and neighborhoods. Those traditional local lenders have vanished in mergers, after facing higher costs, and competition from digital loan companies.

With more than $6 billion in loans and other assets, Citadel is larger than most of the 4,500 credit unions in the U.S.; it’s roughly one-third the size of WSFS Corp., the largest bank still based in the Philadelphia area.

Only a handful of Pennsylvania credit unions are larger than Citadel, including Philadelphia Police & Fire, and Pennsylvania State Employees, each with around $9 billion. The largest U.S. credit union is $170 billion-asset Navy Federal, which serves members of all branches of the military and their family members, and has a local office in Cherry Hill. Navy Federal is almost as large as Citizens Financial Group, the 10th largest U.S. commercial branch bank.