COMMUNITY BANK INFERIORITY COMPLEX

In my seminars and webinars around the US I frequently refer to the community bank inferiority complex. Many community banks feel that their compliance programs are not as good as programs at larger banks. My response to these laments is to point out that the primary difference between a community bank compliance program and the compliance program at a larger bank is that the larger banks tend to make larger mistakes.

There is a never ending stream of proof that supports my claim. Just look at a couple of recent fair lending actions involving large banks and the Department of Justice (DOJ).

  • In December, Bank of America agreed to pay a record $335 million to compensate borrowers of Countrywide Financial Corp. who were charged more for home loans based on race and national origin.
  • Earlier today (May 31, 2012) SunTrust Mortgage Inc., the mortgage lending subsidiary of the nation’s 11th-largest commercial bank, agreed to pay $21 million to resolve a lawsuit by the Department of Justice that it engaged in a pattern or practice of discrimination that increased loan prices for many of the qualified African-American and Hispanic borrowers who obtained loans between 2005 and 2009 through SunTrust Mortgage’s regional retail offices and national network of mortgage brokers.

Both big banks were charged with engaging in the same form of discrimination. Could a community bank have the same problem? – Certainly. Would the amount of the settlement be as large? – Not in a million years.

Big banks and big mistakes is a combination that continues to reveal itself. Bigger isn’t necessarily better, it is just bigger.

So who is the next big bank in the sights of DOJ? Rumor has it that the largest mortgage lender in the US, Wells Fargo & Co., could be next.

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