The Consumer Financial Protection Bureau (CFPB) and the Department of Justice on Wednesday (June 29) announced a joint action against Tupelo, Miss.-based BancorpSouth Bank for discriminatory mortgage lending practices that harmed African Americans and other minorities.
The complaint filed by the CFPB 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.
If the proposed consent order is approved by the court, 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.
“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.”
As part of its investigation, the CFPB sent testers to several BancorpSouth branches to inquire about mortgages, and the results of that testing support the CFPB and DOJ allegations. The agencies allege that, in several instances, a BancorpSouth loan officer treated the African-American tester less favorably than a white counterpart. 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. For example, BancorpSouth employees provided information that would restrict African-American consumers to smaller loans than white testers.
This is the CFPB’s first use of testing, sometimes referred to as “mystery shopping,” to support an allegation of discrimination. Other government agencies, including the DOJ and the Department of Housing and Urban Development, as well as fair housing organizations, have used testers for decades as a method of identifying discrimination. Courts have long recognized testing as a reliable investigative tool.
The Equal Credit Opportunity Act prohibits creditors from discriminating against applicants in any aspect of a credit transaction on the basis of characteristics such as race, color, and national origin. Similarly, the Fair Housing Act prohibits discrimination in residential mortgage lending.
Specifics in the complaint filed by the CFPB and DOJ include:
• 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.
• 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.
• 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.
The Dodd-Frank Wall Street Reform and Consumer Protection Act authorizes the CFPB to take action against creditors engaging in discrimination. The consent order, which is subject to court approval, requires BancorpSouth to take a number of remedial measures.
The bank issued a statement late Wednesday confirming its agreement with the consent order.
“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,” James Rollins III, chairman and CEO of BancorpSouth, said in a statement. “BancorpSouth is fully committed to fair and responsible lending practices in all communities throughout our footprint. Our settlement is a testament to that commitment. We will continue to focus on what we do best – serving the needs of all our customers where they live and work.”
The company also noted that is doing more to “promote affordable lending products” to low-income and minority areas. Also, the company said it has hired a new director of community lending and has named a chief fair lending officer, and a community development lending manager within the BancorpSouth mortgage division. BancorpSouth also opened a new branch in Memphis.
“BancorpSouth is dedicated to a culture of respect, diversity and inclusion in both our workplace and communities. We have a longstanding commitment to equal treatment and any form of discrimination will not be tolerated,” Rollins said.
The statement also noted that bank officials will push again to seek regulatory approval on acquisitions the company first pursued more than two years ago. In January 2014 the company announced it would buy Ouachita Independent Bancorp of Monroe, La., for $115 million in stock and cash. In the same month BancorpSouth also sought to buy Central Community Corp., the parent company of Austin, Texas-based First State Bank Central Texas. The deal pushed BancorpSouth much deeper into the competitive Texas banking market. BancorpSouth anted up $182.3 million in stock and $28.5 million in cash for this Texas deal.
“While the terms of the consent order do not prevent the closing of these transactions or any other expansionary activity, the Company can provide no assurance that the mergers will close timely or at all,” the company noted in its statement.
BancorpSouth operates branches in Mississippi, Arkansas, Tennessee and five other southern states. As of March 31, 2016, the regional banking group had total assets of $13.9 billion. Company shares (NYSE: BXS) closed Wednesday at $21.69, up 56 cents. The share price has in the past 52 weeks ranged from a $27.23 high to an $18.69 low.