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Community Bank Settles Discrimination Claim with DOJ

Lending Compliance

Community Bank Settles Discrimination Claim with DOJ

Posted by Andy Barksdale on Feb 6, 2013 10:30:00 AM
Andy Barksdale

In January, it was announced that Community State Bank of St. Charles, Michigan reached a settlement with The United States Department of Justice regarding allegations that it engaged in a pattern or practice of discrimination on the basis of race.

The original complaint alleged that Community State Bank violated the Fair Housing Act and Equal Credit Opportunity Act (ECOA) between 2006 and 2009 by serving the needs of the residents of predominantly white neighborhoods significantly greater extent than it served the credit needs of majority African-American neighborhoods. The lawsuit originated from a referral by the FDIC to the Justice Department’s Civil Rights Division.

State of Michigan

Community State Bank of St. Charles, Michigan is an eight branch, $201 million financial institution that serves two metropolitan areas (Saginaw MSA and Flint MSA). The complaint brought forward included the following details:

  • Complaint filed 1/15/13: The bank was accused of avoiding serving the needs of census tracts with substantial African-American populations. The complaint states that the bank discouraged generating applications from outside its assessment area. The bank’s loan policy and procedures document, which guided its employees’ lending practices, stated that loans outside the assessment “are considered undesirable and will normally be declined.” It further states that the bank’s assessment area excluded census tracts with majority-African-American populations. The complaint also stated that the bank used advertising mediums that served overwhelmingly white populations. Finally, the complaint states that Community State Bank’s HMDA data indicated low application flow for African-Americans including only one application from majority-African-American census tract.
  • Consent Order (Pending Approval): The consent order is not an admission or finding of any violation of the FHA or ECOA by Community State Bank. Community State Bank entered into the Order to resolve voluntarily the claims asserted in order to avoid the risks and burdens of litigation. The consent order states the bank will do the following:
    • Improve its performance in meeting the credit needs of residents located in majority-African-American census tracts.
    • Establish a presence and outreach effort in majority-African-American census tracts.
    • Aid in the revitalization and stabilization of the housing market in majority-African-American census tracts.
    • Ensure that its lending products and services are made available and marketed in majority-African-American census tracts on no less favorable a basis than in majority-white census tracts.
    • Increase the level of its residential lending in majority-African-American census tracts, with the ultimate objective of extending credit to qualified borrowers at a level comparable to its lending to qualified borrowers in majority-white census tracts. 
    • To achieve this objective, the bank will expand community outreach, investment in affected areas, and targeted advertising programs
    • Under the settlement, Community State Bank agreeed to invest:
      • $75,000 in a special financing program to increase the amount of credit the bank extends to majority-African-American neighborhoods in and around Saginaw, 
      • $75,000 in partnerships with organizations that provides credit, financial, homeownership, and/or foreclosure prevention services to the residents of these neighborhoods, and 
      • $15,000 in outreach that promotes its products and services to potential customers in these neighborhoods. 
Complimentary  Fair Lending Risk Review (click here)

The bottom line: This settlement reminds us of the following:

  1. Fair Lending and CRA are joined at the hip (a review of one triggers the other). 
  2. Smaller banks are drawing more scrutiny from the regulators than ever before. 
  3. The focus on Fair Lending appears to have increased since the election, if that is possible. 
  4. Bankers must continue to analyze their market footprint (Assessment Area), the products they make available, and the associated lending patterns in an effort to ensure they are serving their market equally. 

TRUPOINT Partners’ mission is to help its clients’ successfully comply and effectively manage regulatory compliance including Fair Lending, CRA, and HMDA.

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Topics: Lending Compliance, Lending Compliance Blog

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