City National Bank (CNB), a prominent financial institution headquartered in Los Angeles and a subsidiary of the Royal Bank of Canada, has faced significant legal challenges in recent years. Two major lawsuits have brought attention to the bank’s practices: a $31 million settlement over allegations of redlining and a class-action lawsuit concerning overdraft and non-sufficient funds (NSF) fees.
Redlining Settlement: Addressing Discriminatory Lending Practices
In January 2023, the U.S. Department of Justice (DOJ) announced a historic $31 million settlement with City National Bank to resolve allegations of redlining—a discriminatory practice where banks avoid providing services to residents of certain areas based on race or ethnicity.
The DOJ’s investigation revealed that between 2017 and 2020, CNB failed to provide mortgage lending services in majority-Black and Hispanic neighborhoods in Los Angeles County. Despite being the largest bank headquartered in Los Angeles, CNB had only one branch in these communities over a 20-year period and did not employ any mortgage loan officers dedicated to serving these areas.
As part of the settlement, CNB agreed to:
- Invest $29.5 million in a loan subsidy fund to increase credit access in impacted communities.
- Allocate $1.75 million for outreach, advertising, and community partnerships to promote lending services in underserved areas.
- Conduct a Community Credit Needs Assessment to identify financial service needs in majority-Black and Hispanic census tracts within Los Angeles County.
- Implement a residential mortgage special purpose credit program and a small business lending program aimed at assisting underserved business owners.
This settlement is the largest redlining resolution in DOJ history and underscores the federal government’s commitment to combating discriminatory lending practices.
Overdraft Fee Class-Action Lawsuit: Allegations of Unfair Banking Practices
Separately, City National Bank faced a class-action lawsuit filed by plaintiff Lisa Carter in the U.S. District Court for the Western District of Oklahoma. The lawsuit alleged that CNB engaged in unfair and deceptive practices related to overdraft and NSF fees charged to customers.
Key allegations included:
- Charging overdraft fees on one-time debit card and ATM transactions without properly obtaining customers’ consent, as required by Regulation E of the Electronic Fund Transfer Act.
- Imposing multiple NSF fees or an NSF fee followed by an overdraft fee for the same transaction item, contrary to the bank’s contractual agreements with customers.
The class-action settlement, preliminarily approved in September 2023 and finalized in January 2024, provided relief to affected customers who incurred such fees between January 14, 2016, and September 5, 2023.
Eligible class members were entitled to:
- Submit claims for up to ten overdraft fees paid on one-time debit card or ATM transactions between January 14, 2020, and September 5, 2023.
- Receive payments for multiple NSF fees or an NSF fee followed by an overdraft fee for the same transaction item incurred during the specified period.
This lawsuit highlighted the importance of transparency and fairness in banking practices, particularly concerning fee disclosures and customer consent.
Conclusion
The legal challenges faced by City National Bank over redlining and overdraft fee practices underscore the critical need for financial institutions to adhere to fair lending standards and transparent customer interactions. These cases serve as a reminder of the ongoing efforts by regulatory bodies and consumers to hold banks accountable and promote equitable access to financial services.
As the financial industry continues to evolve, it is imperative for banks to implement inclusive policies and ensure compliance with consumer protection laws to foster trust and equity within the communities they serve.
