July 2016

CFPB Targets Redlining and Other Fair Lending Issues

2 min

On June 29, 2016 the CFPB and the Department of Justice (DOJ) announced a joint action against BancorpSouth Bank for allegedly engaging in discriminatory lending practices. CFPB's complaint alleges that BancorpSouth violated both the Equal Credit Opportunity Act, which prohibits lenders from discriminating on the basis of race, and the Fair Housing Act, which prohibits discrimination in residential mortgage lending. The proposed consent order, filed simultaneously with the complaint and subject to court approval, would require BancorpSouth to pay a total of $10.6 million in remedial payments and penalties. Additionally, BancorpSouth would be required to open at least one new branch in a high-minority neighborhood, offer subsidized credit to African-American consumers who were denied mortgage loans, and implement policies to promote equal access to credit.

The complaint alleged that BancorpSouth:

  • Denied mortgage loan applications from African Americans more often than similarly situated white applicants;
  • Charged African American borrowers higher rates than white borrowers with similar loan qualifications; and
  • Implemented an explicit policy to reject African-American applicants more quickly than white applicants and not to provide credit assistance to "borderline" applicants.

To develop these claims, CFPB sent white and African-American "testers" to BancorpSouth branches to determine if the bank's employees treated individuals differently based on their race. This method of testing has been used by other federal agencies in the past, but this is CFPB's first such use.

BancorpSouth was also accused of redlining, which is the practice of preventing people living in certain areas from having equal access to credit on the basis of race, color, or other prohibited characteristics. CFPB alleged that BancorpSouth engaged in redlining in the Memphis area by locating its branches outside of minority neighborhoods and intentionally directing marketing away from minority areas. CFPB explained that, when investigating redlining, some of the factors it considers include:

  • Peer comparisons of applications and originations in minority areas;
  • Scope of Community Reinvestment Act assessment area;
  • Physical branch and office locations;
  • Marketing practices; and
  • Lender policies.

Fair lending is likely to remain a focus of the Bureau. Quoted in CFPB's press release, CFPB Director Richard Cordray offered assurance that CFPB will continue to work with the DOJ to "root out discrimination in the marketplace."