On June 29th, the Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ) announced a joint action against BancorpSouth Bank for discriminatory mortgage lending practices that harmed African Americans and other minorities. The complaint filed by the CFPB and DOJ alleges that BancorpSouth engaged in numerous discriminatory practices, including:
- Illegally redlining in Memphis;
- Denying certain African Americans mortgage loans more often than similarly situated non-Hispanic white applicants;
- Charging African-American customers for certain mortgage loans more than non-Hispanic white borrowers with similar loan qualifications; and
- Implementing an explicitly discriminatory loan denial policy.
The charges of redlining, illegal underwriting, discriminatory pricing have, unfortunately, become common. The discriminatory denial policy and the circumstances surrounding the practice are unique and, if true, disgusting. In this case it appears the smoking gun was really smoking.
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.
Use of Testers – As part of its investigation, the CFPB sent testers to several BancorpSouth branches to inquire about mortgages, and the results of that testing support the CFPB and DOJ allegations.
- 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. For example, BancorpSouth employees provided information that would restrict African-American consumers to smaller loans than white testers.
- This was the CFPB’s first use of testing, sometimes referred to as “mystery shopping,” to support an allegation of discrimination. We are certain this will not be the last time we see the CFPB use this tool.
Enforcement Action – The consent order, which is subject to court approval, requires BancorpSouth to take a number of remedial measures. Among other things, the order requires BancorpSouth to:
- Pay $4 million to a loan subsidy program.
- Pay $2.78 million to African-American consumers harmed by discrimination.
- Spend at least $300,000 on targeted advertising and outreach.
- Spend $500,000 on local partnerships.
- Expand its physical presence by opening one new branch or loan production office in a high-minority neighborhood in Memphis. This is in addition to a branch that BancorpSouthrecently opened in a majority-minority neighborhood in Memphis.
- Extend credit offers to 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.
- Implement revisions to its 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.
- The full text of the complaint is available at: http://files.consumerfinance.gov/f/documents/201606_cfpb_bancorpsouth-joint-complaint.pdf
- The full text of the proposed consent order is available at: http://files.consumerfinance.gov/f/documents/201606_cfpb_bancorpsouth-consent-order.pdf
- The maps from the complaint are available at: http://files.consumerfinance.gov/f/documents/201606_cfpb_bancorpsouth-maps.pdf