WASHINGTON, D.C. – Today, 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. If the 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.
“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. “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. The Consumer Bureau and the Department of Justice will continue working together to root out discrimination in the marketplace and ensure consumers receive fair and equal treatment under the law.”
“When banks discriminate on the basis of race, they violate our civil rights laws and threaten the foundation of a fair economy,” said Principal Deputy Assistant Attorney General Vanita Gupta, head of the Justice Department’s Civil Rights Division. “The Civil Rights Division will continue to enforce our nation’s fair lending laws to ensure that qualified applicants and borrowers can access credit and invest in their financial future without facing unlawful barriers.”
BancorpSouth is a regional bank headquartered in Tupelo, Miss. The bank operates branches in eight states and as of March 31, 2016, had total assets of $13.9 billion. BancorpSouth is a wholly-owned subsidiary of BancorpSouth, Inc., a financial holding company.
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. Similarly, the Fair Housing Act prohibits discrimination in residential mortgage lending. In the complaint, the CFPB and DOJ allege that BancorpSouth:
- Illegally redlined in Memphis: The complaint alleges that from at least 2011 to 2013, BancorpSouth illegally redlined in the Memphis area—the market from which the bank received the most applications—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 of 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: The agencies also allege that one of BancorpSouth’s lending units discriminated against African-American applicants by denying them mortgage loans—including loans with consumer as well as business purposes—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: The agencies also allege that 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 they held the loan.
- Implemented an 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.
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 is the CFPB’s first use of testing, sometimes referred to as “mystery shopping,” to support an allegation of discrimination. Other government agencies, including the DOJ and the Department of Housing and Urban Development, as well as fair housing organizations, have used testers for decades as a method of identifying discrimination. Courts have long recognized testing as a reliable investigative tool.
The Dodd-Frank Wall Street Reform and Consumer Protection Act authorizes the CFPB to take action against creditors engaging in discrimination. 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: To increase access to affordable credit, the loan subsidy program will offer qualified applicants in majority-minority neighborhoods in Memphis mortgage loans on a more affordable basis than otherwise available from BancorpSouth. The loan subsidies can include interest rate reductions, closing cost assistance, and down payment assistance.
- Pay $2.78 million to African-American consumers harmed by discrimination: BancorpSouth will provide $2.78 million to African-American consumers who were improperly denied mortgage loans or overcharged for their loans because of BancorpSouth’s allegedly discriminatory pricing and underwriting policies.
- Spend at least $300,000 on targeted advertising and outreach: BancorpSouth will fund a targeted advertising and outreach campaign to generate applications for mortgage loans from qualified consumers in majority-minority neighborhoods in Memphis. The bank will be required to spend $100,000 annually on the campaign during the term of the order, which will be in effect for a minimum of three years.
- Spend $500,000 on local partnerships: BancorpSouth will spend $500,000 to partner with community-based or governmental organizations that provide education, credit repair, and other assistance in minority neighborhoods in Memphis.
- Expand its physical presence: In addition to a branch that BancorpSouth recently opened in a majority-minority neighborhood in Memphis, BancorpSouth must open one new branch or loan production office in a high-minority neighborhood in Memphis.
- Extend credit offers: BancorpSouth will offer 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.
- Treat applicants fairly regardless of race: Among other revisions to its policies, BancorpSouth will implement 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: BancorpSouth will pay a $3 million penalty to the CFPB’s Civil Penalty Fund.
The complaint and the proposed consent order resolving the complaint have been simultaneously filed with the United States District Court for the Northern District of Mississippi. The complaint is not a finding or ruling that the defendant has actually violated the law. The proposed federal court order will have the full force of law only when signed by the presiding judge.
When investigating identified redlining risks, the Bureau’s approach is consistent with that of other federal agencies, including other federal law enforcement agencies and bank regulators. For example, the Bureau looks to risk indicators described in the Interagency Fair Lending Examination Procedures, which were initially issued by the prudential regulators and later adopted by the Bureau. The Bureau also looks to the types of evidence that the Department of Justice has cited in support of its complaints alleging redlining. These sources identify multiple factors that the Bureau considers during a redlining investigation, including: applications received, and originations in, minority areas as compared with a lender’s peers; the scope of the lender’s Community Reinvestment Act assessment area; the lender’s physical branch and office locations; the lender’s marketing practices; the lender’s policies; employee statements and conduct; and other evidence.
The Consumer Financial Protection Bureau (CFPB) is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov.