Settlement of Michigan Lending Discrimination Lawsuit Underscores Regulatory Focus on Equal Access to Credit

The U.S. Department of Justice (DOJ) has reached a settlement with Community Bank of St. Charles, Michigan, in a federal lending discrimination lawsuit filed by DOJ against the bank. The settlement, announced on January 15, 2013, serves as a reminder that the Consumer Financial Protection Bureau and other regulators view the concept of "fair lending" as not only prohibiting discrimination, but also ensuring equal access to credit.

The DOJ had alleged in its lawsuit that the bank violated the Fair Housing Act and the Equal Credit Opportunity Act, which prohibit lending practices that discriminate against consumers on the basis of race. DOJ alleged that the bank served the credit needs of residents of predominantly white neighborhoods in the Saginaw and Flint metropolitan areas, but ignored the needs of African-American neighborhoods in those same areas. The DOJ's lawsuit, filed in the U.S. District Court for the Eastern District of Michigan, originated from a referral by the Federal Deposit Insurance Corporation, Community State Bank's prudential regulator.

Under the terms of the settlement, detailed in a DOJ press release, Community State Bank agreed to invest:

  • $75,000 in special financing programs aimed at increasing the amount of credit the bank extends to predominantly African-American neighborhoods in and around Saginaw
  • $75,000 in partnerships with organizations that provide credit, financial, homeownership, and/or foreclosure prevention services to residents of these same neighborhoods
  • $15,000 in outreach programs that promote the bank's products and services to potential customers in these neighborhoods

The bank also agreed to open a loan production office in a predominantly African-American neighborhood in Saginaw and to conduct fair lending training for its employees. The agreement prohibits the bank from discriminating on the basis of race in any credit transaction.

Although the settlement is not the first of its kind, it is significant because it reflects a regulatory view that effectively blends fair lending protections with those provided by the Community Reinvestment Act (CRA) in such a way that lenders should evaluate whether they are taking any actions that may result in their products not being equally available to consumers from diverse backgrounds. Accordingly, when assessing fair lending compliance, lenders must examine the markets they serve, how they define and serve those markets, and how they may increase diversity in the loan applications they receive.

To help consumer credit providers prepare for examinations and to prevent, manage, and defend against the increasing number of fair lending challenges, Ballard Spahr has created a Fair Lending Task Force. The task force brings together regulatory attorneys who deal with fair lending law compliance (including the preparation of fair lending assessments in advance of Consumer Financial Protection Bureau examinations), litigators who defend against claims of fair lending violations, and attorneys who understand the statistical analyses that underlie fair lending assessments and discrimination claims.

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance. The group includes the firm's Mortgage Banking Group, which combines broad regulatory experience assisting clients in both the residential and commercial mortgage industries with formidable skill in litigation and depth in enforcement actions and transactions.

The group also produces CFPB Monitor, a blog that focuses exclusively on important CFPB developments. To subscribe, use the link provided to the right.

For more information, please contact Consumer Financial Services Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, Mortgage Banking Practice Leader Richard J. Andreano, Jr., at 202.661.2271 or andreanor@ballardspahr.com, Fair Lending Task Force Leader Christopher J. Willis at 678.420.9436 or willisc@ballardspahr.com, John L. Culhane, Jr., at 215.864.8535 or culhane@ballardspahr.com, or Stefanie H. Jackman at 678.420.9490 or jackmans@ballardspahr.com.

Topics:  CFPB, Discrimination, DOJ, ECOA, Equal Access to Credit, Fair Lending, FHA, Mortgages, Settlement

Published In: Civil Rights Updates, General Business Updates, Consumer Protection Updates, Finance & Banking Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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