Redlining, Discriminatory Lending by BancorpSouth Bank Prompts CFPB, DOJ Action

The Mississippi-based bank is facing a $10.6 million penalty

Redlining, Discriminatory Lending by BancorpSouth Bank Prompts CFPB, DOJ Action
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June 30, 2016

Discriminatory mortgage lending practices utilized by BancorpSouth Bank have caught the eye of federal authorities.

The Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Justice (USDOJ) have announced a joint action against the Tupelo, MS-based bank for its actions that harmed African Americans and other minorities.

The complaint alleges that BancorpSouth engaged in numerous discriminatory lending practices, including:

  • Illegally redlining in Memphis, TN: From at least 2011 to 2013, BancorpSouth illegally redlined in the Memphis area (its most popular market) 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 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: One of BancorpSouth's lending units discriminated against African-American applicants by denying them mortgage loans 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: 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.
  • Implemented an explicitly discriminatory denial policy: 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 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. The Fair Housing Act prohibits discrimination in residential mortgage lending.

As part of its investigation, the CFPB sent testers to several of the bank's branches to inquire about mortgages. The agencies allege that, in several instances, a BancorpSouth loan officer treated the African-American tester less favorably than a white counterpart. For example, employees provided information that would restrict African-American consumers to smaller loans than white testers.

"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, in a written statement. "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."

If a 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.

The bank operates branches in eight states and as of March 31, 2016, had total assets of $13.9 billion.