Lending

BancorpSouth fined $10.6 million for discriminatory lending, redlining

CFPB, DOJ accuse bank of having "explicitly discriminatory denial policy"

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BancorpSouth will pay $10.6 million to settle charges against the bank by the Department of Justice and the Consumer Financial Protection Bureau, which accused the Mississippi-based bank of redlining and discriminatory lending practices.

According to a joint release from the CFPB and the DOJ, the agencies accused BancorpSouth of a number of discriminatory practices, including illegally redlining in Memphis; denying the mortgage loan applications of certain African-Americans more often than similarly situated non-Hispanic white applicants; charging African-American customers more for certain mortgage loans than non-Hispanic white borrowers with similar loan qualifications; and implementing an “explicitly discriminatory loan denial policy.”

The $10.6 million settlement stems from investigations into the bank’s lending practices that began in 2014.

According to the CFPB and DOJ, part of the CFPB’s investigation into BancorpSouth included sending testers to several BancorpSouth branches to inquire about mortgages. The agencies say that the results of those tests support the allegations against BancorpSouth.

“The agencies allege that, in several instances, a BancorpSouth loan officer treated the African-American tester less favorably than a white counterpart,” the CFPB and DOJ said in the release.

“Specifically, the complaint alleges that BancorpSouth employees treated African-American testers who sought information about mortgage loans worse than white testers with similar credit qualifications,” the agencies continued. “For example, BancorpSouth employees provided information that would restrict African-American consumers to smaller loans than white testers.”

According to the CFPB, this is its first use of testing, sometimes called “mystery shopping,” to support an allegation of discrimination.

If approved by the United States District Court for the Northern District of Mississippi, as part of the settlement, BancorpSouth will pay $4 million in direct loan subsidies in minority neighborhoods in Memphis; at least $800,000 for community programs, advertising, outreach, and credit repair; $2.78 million to African-American consumers who were unlawfully denied or overcharged for loans; and a $3 million penalty to the CFPB.

“BancorpSouth’s discrimination throughout the mortgage lending process harmed the people who were overcharged or denied their dream of homeownership based on their race, and it harmed the Memphis minority neighborhoods that were redlined and denied equal access to affordable credit,” said CFPB Director Richard Cordray.

“Today’s action is a reminder that redlining and overt discrimination are not yet remnants of the past, and that federal enforcement is needed to bring real relief to communities and individuals,” Cordray added. “The Consumer Bureau and the Department of Justice will continue working together to root out discrimination in the marketplace and ensure consumers receive fair and equal treatment under the law.”

According to the agencies, the charges against BancorpSouth included allegations that the bank:

  • Illegally redlined in Memphis: The complaint alleges that from at least 2011 to 2013, BancorpSouth illegally redlined in the Memphis area—the market from which the bank received the most applications—by structuring its business to avoid and discourage consumers in minority neighborhoods from accessing mortgages. Specifically, the agencies allege that the bank placed its branches outside of minority neighborhoods, excluded nearly all minority neighborhoods from the area it chose to serve under the Community Reinvestment Act, and directed nearly all of its marketing away from minority neighborhoods. As a result, BancorpSouth generated relatively few applications from minority neighborhoods as compared to its peers.
  • Discriminated in underwriting certain mortgages: The agencies also allege that one of BancorpSouth’s lending units discriminated against African-American applicants by denying them mortgage loans—including loans with consumer as well as business purposes—more often than similarly situated white applicants. Specifically, the agencies allege that BancorpSouth granted its employees wide discretion to make credit decisions on mortgage loans. This discretion resulted in African-American applicants being denied certain mortgages at rates more than two times higher than expected if they had been white.
  • Discriminated in pricing certain mortgage loans: The agencies also allege that one of BancorpSouth’s lending units discriminated against African-American borrowers that it did approve by charging them higher annual percentage rates than white borrowers with similar loan qualifications. Specifically, the agencies allege that BancorpSouth granted its employees wide discretion to set the prices of mortgage loans. This discretion resulted in African-American borrowers paying significantly higher annual percentage rates than similarly situated white borrowers, costing African-American consumers hundreds of dollars more each year they held the loan.
  • Implemented an explicitly discriminatory denial policy: The complaint alleges that BancorpSouth required its employees to deny applications from minorities and other “protected class” applicants more quickly than those from other applicants and not to provide credit assistance to “borderline” applicants, which may have improved their chances of getting a loan. The bank generally permitted loan officers to assist marginal applicants, but the explicitly race-based denial policy departed from that practice. An audio recording of a 2012 internal meeting at BancorpSouth clearly articulates this discriminatory policy, as well as negative and stereotyped perceptions of African Americans.

“When banks discriminate on the basis of race, they violate our civil rights laws and threaten the foundation of a fair economy,” said Principal Deputy Assistant Attorney General Vanita Gupta, head of the Justice Department’s Civil Rights Division. “The Civil Rights Division will continue to enforce our nation’s fair lending laws to ensure that qualified applicants and borrowers can access credit and invest in their financial future without facing unlawful barriers.”

According to a release from the bank, it chose to settle the charges against it to “avoid protracted litigation” with the DOJ and CFPB. Instead of engaging in a lengthy legal fight over the charges, the bank said it would rather devote additional resources to “continue serving the communities in which it operates, including helping meet the credit needs of all borrowers in those communities.”

In a statement, James Rollins, the chairman and CEO of BancorpSouth, said that the bank views the settlement as a positive.

“We believe this settlement is a positive development for the Bank, and is in the best long-term interest of our customers, employees, and shareholders,” Rollins said.

“BancorpSouth is fully committed to fair and responsible lending practices in all communities throughout our footprint. Our settlement is a testament to that commitment,” Rollins continued. “We will continue to focus on what we do best – serving the needs of all our customers where they live and work.”

In a separate statement, a bank spokesperson said that despite the bank agreeing to the consent order with the agencies, it feels the allegations are without merit.

“The bank disagrees with these allegations. The decision to settle was made to avoid prolong and distracting litigation and to put the matter behind the bank,” bank spokesperson John Lovallo said. “And in agreeing to the consent order, the bank has not admitted to any of these allegations or to any liability.”

If the court accepts the settlement agreement, BancorpSouth will:

  • Pay $4 million to a loan subsidy program: To increase access to affordable credit, the loan subsidy program will offer qualified applicants in majority-minority neighborhoods in Memphis mortgage loans on a more affordable basis than otherwise available from BancorpSouth. The loan subsidies can include interest rate reductions, closing cost assistance, and down payment assistance.
  • Pay $2.78 million to African-American consumers harmed by discrimination: BancorpSouth will provide $2.78 million to African-American consumers who were improperly denied mortgage loans or overcharged for their loans because of BancorpSouth’s allegedly discriminatory pricing and underwriting policies.
  • Spend at least $300,000 on targeted advertising and outreach: BancorpSouth will fund a targeted advertising and outreach campaign to generate applications for mortgage loans from qualified consumers in majority-minority neighborhoods in Memphis. The bank will be required to spend $100,000 annually on the campaign during the term of the order, which will be in effect for a minimum of three years.
  • Spend $500,000 on local partnerships: BancorpSouth will spend $500,000 to partner with community-based or governmental organizations that provide education, credit repair, and other assistance in minority neighborhoods in Memphis.
  • Extend credit offers: BancorpSouth will offer African-American consumers who were denied mortgage loans while BancorpSouth’s allegedly discriminatory underwriting policy was in place the opportunity to apply for a new loan at a subsidized interest rate.
  • Expand its physical presence: In addition to a branch that BancorpSouth recently opened in a majority-minority neighborhood in Memphis, BancorpSouth must open one new branch or loan production office in a high-minority neighborhood in Memphis.
  • Treat applicants fairly regardless of race: Among other revisions to its policies, BancorpSouth will implement policies that require its employees to provide equal levels of information and assistance to individuals who inquire about mortgage loans, regardless of race or any other prohibited characteristic.
  • Pay a $3 million penalty: BancorpSouth will pay a $3 million penalty to the CFPB’s Civil Penalty Fund.

In its release, BancorpSouth stated that it has already announced “numerous enhancements” to its operations to “further strengthen its commitment to promote affordable lending products in low to moderate income and minority areas.”

Included among those changes are: naming a new director of community lending to oversee ongoing outreach efforts in all markets, including the Bank’s continued lending efforts in minority neighborhoods; naming a chief fair lending officer who is responsible for developing, evaluating, and implementing its fair lending program; adding a community development lending manager within the BancorpSouth mortgage team; and opening a new branch in Memphis.

“These enhancements, combined with the Bank’s centralized underwriting process and pricing, further strengthen the Bank’s commitment to develop and promote affordable lending products, in low and moderate income areas and minority areas,” the bank said in statement.

“We will continue to examine the most effective approaches to advance customer outreach and provide solutions to help customers reach their goals and communities become stronger,” Rollins said.

“BancorpSouth is dedicated to a culture of respect, diversity and inclusion in both our workplace and communities,” Rollins concluded. “We have a longstanding commitment to equal treatment and any form of discrimination will not be tolerated.”

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