By TED CARTER
Banking experts see the U.S. Consumer Financial Protection Bureau’s $10.6 million settlement with Tupelo’s BancorpSouth over alleged redlining as a sign financial services companies nationwide can expect the Bureau to more frequently use federal lending and housing laws to fight racial discrimination.
That fight is also likely to include more use of undercover operatives such as the “mystery shoppers” the bureau deployed in building a case against BancorpSouth, a $13.9 billion publicly traded regional bank with 239 locations in Mississippi, Alabama, Arkansas, Florida, Louisiana, Missouri, Tennessee and Texas.
bureau investigators uncovered audio recordings of an internal meeting in which managers for BancorpSouth detailed a BancorpSouth policy of rejecting loan applications from African-Americans within 21 days, a much shorter review period than ones given white loan applicants.
Meanwhile, look for the Equal Credit Opportunity Act and Fair Housing Act to be the main ammunition the Consumer Financial Protection Bureau, or CFPB, uses in its nationwide fight against redlining and other discriminatory practices, said the Miami banking and investment law firm of Strock & Strock & Levan in an advisory bulletin after the July1 announcement of the federal settlement with BancorpSouth.
“The BancorpSouth settlement serves as a valuable launching pad for the CFPB to advance its fair lending agenda, particularly its anti-redlining initiative, and is an instructive case study for institutions to strengthen their compliance and defense efforts,” the firm’s attorneys said.
Added Strock & Strock & Levan: “While the CFPB and DOJ had previously articulated their anti-redlining commitment (punctuated by the October 2015 mortgage redlining settlement with New York’s Hudson City Savings Bank, F.S.B.), the BancorpSouth case is a crucial step in the CFPB’s anti-redlining enforcement initiative under the Equal Credit Opportunity Act and Fair Housing Act.”
BancorpSouth is not admitting to violations in agreeing to the settlement and says by resolving the enforcement issues with the CFPB and Justice Department it can avoid protracted litigation with the DOJ and federal regulators. Further, with the settlement BancorpSouth can revive efforts to complete its two pending acquisition of Louisiana’s Ouachita Bancshares Corp. and Texas-based Central Community Corp.
The multi-state BancorpSouth’s takeover of the community banking companies has been stalled for more than two years. “With the settlement the bank will resume its efforts” to gain regulatory approval of the acquisitions, said Randy Burchfield, BancorpSouth spokesman.
In anticipation of the settlement, BancorpSouth allocated $13.6 million in the first quarter to cover the penalty, payments to loan applicants allegedly victimized by the bank’s lending practices and to increase outreach to under-served communities in Memphis, the market in which the fair-lending violation allegations originated.
This budgeting, according to the bank, frees BancorpSouth from damage to its present-day revenue picture. “Charges will be minimal to the bank’s financials,” Burchfield said Tuesday.
Also as a result of the enforcement action, BancorpSouth has added a new director of community lending to oversee outreach efforts in all markets, including minority neighborhoods. The bank also named a chief fair lending officer who is to develop, evaluate and implement its fair lending program. It also has added a community development lending manager to its mortgage operations and opened a new branch in Memphis.
In addition, according to Burchfield, the regional bank has hired 16 more community investment bankers.
The Department of Justice joined the CFPB investigation after the Bureau obtained audio of a 2012 internal meeting at which bank managers explicitly discussed a race-based denial policy. “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 CFPB said in a press release announcing the settlement.
“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,” the bureau said, adding the assistance may have improved their chances of getting a loan.
Burchfield said the managers recorded on the audio were not key executives and said in a written statement the banking company “has zero tolerance for this type of behavior by any employee and takes prompt and appropriate action.”
Burchfield said restrictions related to human-resource issues prevent the bank from discussing details of actions taken against the offending employees or disclosing their roles within BancorpSouth and their future employment with the bank.
“We are embarrassed and apologize for these offensive remarks,” he said. “We are fully committed to a culture of respect, diversity and inclusion in both our workplace and our communities.”
The probe of BancorpSouth also included the CFPB’s first use of white and black “mystery shoppers,” or so-called “testers,” who went to several branches to inquire about mortgages. “The results of that testing support the CFPB and DOJ allegations,” the Bureau said.
“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.
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, the CFPB said.
In addition to a $3 million fine to the CFPB’s Civil penalty Fund, 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.
» $2.78 million to African-American consumers harmed by discrimination. The money will go 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.
» At least $300,000 on targeted advertising and outreach 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.
» $500,000 to enhance local partnerships with community-based or governmental organizations that provide education, credit repair, and other assistance in minority neighborhoods in Memphis.
BancorpSouth also agreed to expand its physical presence in Memphis. In addition to the 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.
Further, the banking company must let African-American consumers who were denied mortgage loans through BancorpSouth’s allegedly discriminatory underwriting policy apply for a new loan at a subsidized interest rate.
The settlement must still gain federal court approval.
Meanwhile, BancorpSouth likely will soon pay out an additional $24.5 million in an unrelated class action lawsuit. A Florida federal judge is to decide July 16 whether to approve final settlement of a class action settlement over allegations BancorpSouth charged improper overdraft fees.
Lead plaintiff Shane Swift, an Arkansas resident, filed the overdraft suit in Florida federal court in May 2010, accusing BancorpSouth of improperly resequencing debit card transactions from a highest to lowest dollar amount, thus increasing the number of overdraft transactions and overdraft fees it charged account holders. Other customers of the bank later joined the suit and won class action status for it.
Shares of BancorpSouth (BXS) closed on the New York Stock Exchange Tuesday at $21.42 after opening at $21.93. Shares are down 10.71 percent year to date. Shares have traded in a 52-week range of $18.69 to $27.23.
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