Community State Bank – Redlining

Community State Bank – Redlining

Background

Community State Bank is a $200 million institution in St. Charles, Mich., (near Saginaw and Flint) with eight branches.  Community consented to redlining allegations from the Department of Justice.  In the Complaint, DOJ alleged that Community had policies/practices to deny/discourage the residents of majority-minority neighborhoods from obtaining home loans.  The total settlement cost to Community was $165,000: $75,000 for a special financing program to increase the amount of credit in majority African-American areas, $75,000 for organizations in these neighborhoods that provide credit, financial, homeownership and/or foreclosure prevention services and $15,000 to promote its products and services to residents in these majority minority neighborhoods.

Key Terms of Consent Order

  • Terms in addition to the usual prohibitions against continued differential treatment and required fair lending training, Community must:
    • Establish a loan production office in a majority-minority census tract in Saginaw, MI with an eye towards converting the LPO into a full-service branch.
    • Assess the credit needs of majority African-American census tracts within six months and present a report that includes recommendations.
    •  Develop partnerships with one or more community organizations that provide credit, financial, homeownership, and/or foreclosure prevention services to the residents of majority African-American census tracts.
    • Present advertising/ marketing and outreach plans for majority African-American census tracts.
    • Serve a lending area no smaller than the assessment area recognized by the FDIC.  See the second bullet point below.

Takeaways

  • Redlining continues to be an important focus of the regulators.
  • Check your assessment area(s) especially given the new census tract realignment.  In this situation, the FDIC dictated what the bank’s assessment area must be; “…the FDIC exercised its authority… to expand the CRA assessment area delineated by Community to also include….”  Quoting the regulation the FDIC said “an assessment area should ordinarily consist of one or more metropolitan areas or contiguous political subdivisions, unless that area would be extremely large, of unusual configuration, or divided by significant geographic barriers. The regulations further provide that if a bank’s assessment area does not include entire political jurisdictions, its assessment area must consist of only ‘whole geographies’ and may not reflect discrimination.”
  • Smaller institutions are not immune to DOJ law suits.
  • Peer comparisons are important in establishing the credibility of your application/loan distribution.  Compared to peers, Community’s penetration in the relevant majority-minority census tracts was significantly lacking.

 

Email me at [email protected] and I will be happy to send you copies of the DOJ Press Release, the Complaint and the Consent Order.

 

 

Preiss&Associates has been doing custom fair lending analyses for more than 20 years.  If you have fair lending questions, want to talk about your fair lending issues or have need for us to assist you with your fair lending program give us a call at 847-295-6881 or drop us an email at [email protected].

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