On January 13, 2017 the Department of Justice (DOJ) filed a lawsuit against KleinBank alleging that the bank engaged in unlawful “redlining” of majority-minority neighborhoods in the Minneapolis-St. Paul metropolitan area. The lawsuit, filed in the U.S. District Court for the District of Minnesota, alleges that KleinBank violated the Fair Housing Act and Equal Credit Opportunity Act, which prohibit financial institutions from discriminating on the basis of race and color in their mortgage lending practices. The complaint alleges that from 2010 to at least 2015, KleinBank structured its residential mortgage lending business in such a way as to avoid serving the credit needs of neighborhoods where a majority of residents are racial and ethnic minorities.
According to DOJ the bank’s alleged redlining practices include:
- Excluding majority-minority neighborhoods from the area it serves;
- Locating branch offices and mortgage loan officers in majority-white neighborhoods, but not in majority-minority neighborhoods; and
- Targeting marketing and advertising exclusively toward residents of majority-white neighborhoods.
From 2010 to 2015, comparable lenders generated applications in majority-minority neighborhoods at over five times the rate of KleinBank and made loans in majority-minority neighborhoods at over four times the rate of KleinBank.
KleinBank vigorously disputes the DOJ complaint that alleges the 110-year-old bank has engaged in “redlining,” asserting in this case that it has intentionally not served the mortgage credit needs of minority borrowers in Minneapolis and St. Paul.
“The government’s claim of ‘redlining’ has absolutely no basis in fact,” said Doug Hile, president and CEO. He added that the facts are that, “Minneapolis and St. Paul are not part of KleinBank’s market, and we have virtually no business there. These are highly competitive markets and they are comprehensively served by well-established financial institutions with numerous branches and many years of history.”
The complaint alleges, however, that KleinBank had a proactive duty to expand beyond its century-old roots in Carver County and western Minnesota to build branches in Minneapolis and St. Paul, which Hile termed “a baseless and unprecedented reach by the government.”
Like all banks, KleinBank is subject to extensive and rigorous examinations by federal and state regulators. “Year after year, the results of these examinations have found that KleinBank has well served all of its constituents’ needs. ” Hile said.
KleinBank fought DOJ and survived. The parties agreed to a settlement on May 8, 2018. KleinBank did not pay damages or penalties. They agreed to expand services in Minneapolis by establishing a $300,000 loan subsidy fund, and allocating $300,000 for advertising, outreach, financial education and credit repair.
KleinBank’s counterargument was compelling. They have always served the area west of Minneapolis and St. Paul. The bank never attempted to serve Minneapolis and St. Paul.
It is not clear if the result was based on the merits of KleinBank’s case or if DOJ refused to fight. In any event the settlement appears to be a victory for the bank.