By Andrew A. Turner, J.D.
The Consumer Financial Protection Bureau and the Justice Department have settled claims against BancorpSouth Bank to resolve allegations that discriminatory mortgage lending practices harmed African Americans and other minorities. The settlement, which is subject to court approval, provides over $10 million in monetary relief including loan subsidies and compensation for alleged victims. The investigation was the CFPB’s first use of testing, sometimes referred to as “mystery shopping,” to support an allegation of discrimination.
The joint complaint filed by the CPFB and DOJ alleges that BancorpSouth engaged in numerous discriminatory practices, including: illegally redlining in Memphis; denying certain African Americans mortgage loans more often than similarly situated non-Hispanic white applicants; charging African-American customers for certain mortgage loans more than non-Hispanic white borrowers with similar loan qualifications; and implementing an explicitly discriminatory loan denial policy.
“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. The director stated that the action against BancorpSouth 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.”
The CFPB said that it sent “undercover testers” to several BancorpSouth branches to ask about getting a mortgage loan. The testers found that BancorpSouth employees treated African-American testers worse than they treated white testers with similar credit qualifications.
Under the terms of the proposed settlement, BancorpSouth will invest $4 million in a loan subsidy fund to increase the amount of credit the bank extends to majority minority neighborhoods in the Memphis Metropolitan Statistical Area. In order to make residential mortgage loans available to residents of minority neighborhoods that were not adequately served by BancorpSouth, the bank will further invest at least $800,000 in advertising, outreach and community partnership efforts and open a new full-service branch or loan processing office in a predominantly minority neighborhood.
To compensate borrowers harmed by its discriminatory pricing and underwriting policies and practices, BancorpSouth will establish a $2.78 million settlement fund and extend credit offers to unlawfully denied applicants. The settlement will also require BancorpSouth to amend its pricing and underwriting policies; further develop strong internal standards to ensure compliance with fair lending obligations; and provide fair lending training to its employees, senior management and board of directors. The bank must also pay a $3 million civil money penalty to the CFPB.
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