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Mississippi based banking business fined over 10 million

WASHINGTON— BancorpSouth, based in Tupelo, has been fined $10.6 million after allegations of redlining, the Department of Justice (DOJ) and the Consumer Financial Protection Bureau (CFPB) announced. 

Redlining is defined by the CFPB as “structuring its business to avoid and discourage consumers in minority neighborhoods from accessing mortgages.”

The allegations were aimed at Memphis-area branches.

A joint investigation by the DOJ and the CFPB revealed the company denied African-Americans more loans than white consumers seeking loans, and if an African-American was granted a loan, he or she was given a higher-than-usual interest rate.

This is a move of blatant discrimination, said officials with the DOJ.

“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.”

In a report, the DOJ and CFPB alleged the following:

  • 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.

BancorpSouth is ordered to pay the following fines:

  • 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.
  • 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.
  • 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.
  • 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.

Read the full text of the complaint at:http://files.consumerfinance.gov/f/documents/201606_cfpb_bancorpsouth-joint-complaint.pdf

The full text of the proposed order is available at:http://files.consumerfinance.gov/f/documents/201606_cfpb_bancorpsouth-consent-order.pdf

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