Financial Regulatory Forum

U.S. Justice Department disputes charges it unfairly targeted community banks

By Guest Contributor
August 31, 2011

By Emmanuel Olaoye

NEW YORK, Aug. 31 (Thomson Reuters Accelus) - The U.S. Justice Department disputed charges by community bankers that it is unfairly targeting them with fair lending actions, and said the cases have been consistent with the criteria it has used to bring cases in the last 15 years.

Eric Halperin, special counsel for Fair Lending at the Department of Justice’s Civil Rights Division, told Thomson Reuters on Tuesday that the criteria used to bring enforcement actions is consistent with those used in the Bush and Clinton Administrations.

“The idea that this is a new thing and the department is out on new ground or is engaged in some sort of conduct that is not supported by the history of what we’ve done is baseless,” Halperin said. “The idea that financial institutions aren’t on notice that this is an area we would look (into) is also something that is baseless.”

The government’s response comes a day after the Independent Community Bankers of America said the government was unfairly accusing banks of racial discrimination. In a letter to Attorney General Eric H. Holder, Jr, the ICBA said banks were being targeted with enforcement actions for failing to expand their Community Reinvestment Act (CRA) assessment areas to include minority neighborhoods.

The act requires banks to lend to borrowers in low income neighborhoods where they are based if the borrowers are creditworthy. If a bank is found to have engaged in “redlining,” or limited its lending to low income neighborhoods, regulators can refer the bank to the Justice Department. The department also has separate powers to sue a bank if it believes the bank has manipulated its CRA assessment area during its examination.

The Justice Department has filed 2 complaints alleging fair lending violations in 2011. In March, Citizens Republic Bancorp, in Flint, Michigan, settled with the department for $3 million amid allegations that it served the credit needs of predominantly white neighborhoods in the Detroit metropolitan area to a greater extent than the needs of African-American neighborhoods. In June, Midwest BankCentre, which serves the St. Louis metropolitan area, agreed to pay the government $1.45 million to settle charges that it had also engaged in lending discrimination against minority neighborhoods.

Halperin said both cases were referred to the Justice Department by the banks’ regulators, who were concerned that the banks had redrawn their CRA assessment areas. “They are cases where there has been an allegation (by the ICBA), but again, if you look at the facts and what the department has done, the fact is we had two regulator referrals.”

Halperin said the department was willing to bring cases on its own even if the cases haven’t been referred by bank regulators. He pointed out that when Congress passed the Equal Credit Opportunity Act it authorized the Justice Department to bring cases against banks if there was reason to suspect a pattern of malpractice.

He rejected a charge that the department had failed to explain its legal criteria for bringing fair lending cases. “We’ve been quite transparent about the legal theories involved in these cases and we’re happy to keep discussing them because we think its important for the department to do, to get the message out so banks understand what they need to do to be in compliance.”

(This article was produced by the Compliance Complete service of Thomson Reuters Accelus.  Compliance Complete (http://accelus.thomsonreuters.com/solut ions/regulatory-intelligence/compliance- complete/) provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges.)

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