Bank to pay $10.6M over loan discrimination charges

BancorpSouth(BXS)has agreed to pay a $10.6 million settlement of allegations the Mississippi-based regional bank used discriminatory mortgage lending practices that harmed African Americans and other minorities, federal officials said Wednesday.

A federal court complaint filed by the Department of Justice and Consumer Financial Protection Bureau alleged bank officials told loan officers to "turn [] down" minority mortgage applicants more quickly than whites, and avoid giving "borderline" applicants credit assistance that other mortgage seekers might receive.

BancorpSouth disagreed with the allegations and did not admit liability, but agreed to filing of the proposed consent order.

However, the court complaint charged that an audio recording of a internal BancorpSouth meeting around September 2012 "clearly articulates the bank's policy or practice to reject minority applicants more quickly than white applicants, as well as the bank's perception of African Americans."

During the session, a BancorpSouth manager instructed loan officers and processors that mortgage applications from minorities and others the bank viewed as "protected class" members should be "turned down" in 21 days, the complaint said. "Borderline" customers should also be turned down quickly, the manager said, while applications from whites were not subject to shorter reviews, the complaint alleged.

"In discussing the explicitly race-based denial policy, a loan officer commented that 'they need to get their credit up,' and "stop paying their damn bills late,' and then laughed," the complaint charged.

As meeting participants discussed the bank's hiring of an African American employee, the complaint said a loan processor cautioned, 'don't use the n-word,' the complaint alleged.

"A few moments later, a bank employee quipped, 'what's up, niggas!' the complaint alleged, saying meeting participants laughed at the racial remarks.

Federal officials and the complaint alleged BancorpSouth violated federal housing and equal credit opportunity acts by:

• Illegally redlining in Memphis, the market from which it receives the most applications, by structuring business to avoid and discourage mortgage applications from consumers in minority areas from at least 2011 to 2013.
• Improperly having one of the bank's lending units deny mortgage and other loan applications from African Americans at higher rates than whites.
• Discriminating against African American borrowers by charging them higher annual percentage rates than whites with similar loan qualifications.

"When banks discriminate on the basis of race, they violate our civil rights laws and threaten the foundation of a fair economy," said Vanita Gupta, the head of the Department of Justice's Civil Rights Division.

The CFPB found support for the allegations by sending testers to several BancorpSouth branches to ask about mortgages. CFPB Director Richard Cordray said the findings showed that the bank's mortgage lending process "harmed the people who were overcharged or denied their dream of ownership based on their race."

BancorpSouth operates branches in eight states and had total assets of $13.9 billion as of March 31. In a written statement, the bank called the proposed consent order, which requires federal court approval, "a positive development" that "is in the best long-term interest of our customers, employees, and shareholders."

BancorpSouth also said it has acted since 2012 to enhance its compliance management systems, reduce its fair lending risk, and increase lending in minority areas.

"The settlement is an opportunity for the Bank to avoid protracted litigation with the DOJ and CFPB, and to instead devote additional resources to continue serving the communities in which it operates, including helping meet the credit needs of all borrowers in those communities," the bank said.

BancorpSouth added that it reserved $13.8 million during the first quarter of 2016 for the settlement.

If the consent order wins approval, the bank will pay $4 million in direct loan subsidies to minority areas in Memphis, at least $800,000 to fund community programs, outreach and credit repair, $2.78 million to African Americans unlawfully denied or overcharged for loans, and a $3 million penalty.

Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc