A coalition of 54 national and local nonprofit organizations penned a 13-page letter to the Federal Deposit Insurance Corp. last week, formally opposing Washington Federal Bank’s $654 million deal to acquire Luther Burbank Savings over concerns with fair housing, systemic risk and managerial resources.
The organizations, led by the California Reinvestment Coalition, said the banks have thus far “failed to demonstrate that they have met community credit needs, [that] the merger will provide a clear public benefit or that they will meet the convenience and needs of affected communities.”
The organizations are asking the FDIC to extend the comment period and hold a public hearing on the deal, which was originally announced in November. Public hearings have become a milestone in regulators’ consideration of potential tie-ups since President Joe Biden issued an executive order in 2021 requiring agencies including the FDIC “to provide more robust scrutiny” of bank mergers.
“We urge the FDIC to deny this merger application,” the organizations wrote. “In the alternative, we believe the FDIC must impose substantial conditions to ensure that fair housing, community reinvestment, displacement, climate and managerial concerns are addressed.”
Top of mind for the organizations are concerns around discrimination, noting that WaFd CEO Brent Beardall is on the board of directors at the American Bankers Association, which is one of seven trade groups that sued the Consumer Financial Protection Bureau and its director, Rohit Chopra, in September for updating its procedure on unfair, deceptive or abusive acts or practices without requesting comment.
In Friday’s letter to the FDIC, the nonprofits questioned WaFd’s practices under Beardall, asking, “Is it the position of Washington Federal that discrimination is not an unfair and deceptive practice?” The organizations noted two separate penalties WaFd faced, totaling $234,000, in connection with mortgage data errors the CFPB said might hinder efforts to combat discrimination.
Luther Burbank’s lending performance raises concerns, the coalition said, pertaining to fair housing. In 2012, Luther Burbank settled discriminatory mortgage lending allegations with the Justice Department. Now, a decade later, Luther Burbank is “less than half as likely to originate loans in neighborhoods of color in its [Los Angeles-Long Beach-Anaheim Metropolitan Statistical Area] as its peers,” the letter alleged.
The groups also noted concerns that Luther Burbank “does not have in place sufficient due diligence policies and procedures to ensure that it is not financing displacement or problematic landlords.” The letter cited a news report from Capital & Main detailing conditions that landlords who hold Luther Burbank-financed mortgages have allegedly imposed on their tenants, including “attempts to push them out of rent stabilized apartments, harassing them, and coercing them to sign documents written in English agreeing to buyouts or rent increases.”
The CRC and other nonprofits also expressed concerns about WaFd’s oil and gas funding and Luther Burbank’s physical California footprint, associating them to greater climate risk.
“We can think of no greater threat to our financial system and quality of life than climate change. Bank financing of climate change poses serious physical and transition risks to financial institutions,” the letter said. “With California bombarded by atmospheric river induced flooding, just as it recovers from unforgiving wildfires, the Luther Burbank footprint is nestled in the heart of significant climate hot spots that pose grave physical risks to the Luther Burbank portfolio and its customers.”
In laying out their concerns over job loss and consumer access, the CRC and other nonprofits “urge the banks and the regulators to commit and require that no California workers will lose their jobs or have their hours reduced as a result of this transaction, [and] that no bank customer will be vulnerable to” higher or new fees.
“In 2022, after years of blatant rubber-stamping of mergers and acquisitions, federal banking regulators held two public hearings for merging banks with footprints in California,” CRC CEO Paulina Gonzalez-Brito said in a statement, referring to U.S. Bank’s $8 billion acquisition of MUFG Union Bank, and Bank of Montreal’s $16.3 billion deal for Bank of the West. “We hope the FDIC will continue this streak of gathering input from the public on bank merger applications, and either reject this merger or impose substantial conditions. Not doing so would mean the FDIC is turning its backs on vulnerable communities.”
WaFd and Luther Burbank released a joint statement Thursday in response to the CRC’s letter.
“Both Washington Federal and Luther Burbank became aware today of the community groups’ opposition to our proposed transaction and their letters to the FDIC,” the banks said. “We respect the process of soliciting input from impacted stakeholders and look forward to discussions with the groups to understand their perspectives.
“Ultimately, our objective will be to work together to find a path forward, whereby the combined organization can and will do more good in our communities than has previously been accomplished,” the banks said.
A representative for the ABA did not return a request for comment by press time.