On January 13, 2017 the Department of Justice (DOJ) filed a lawsuit against KleinBank alleging that the bank engaged in unlawful “redlining” of majority-minority neighborhoods in the Minneapolis-St. Paul metropolitan area. The lawsuit, filed in the U.S. District Court for the District of Minnesota, alleges that KleinBank violated the Fair Housing Act and Equal Credit Opportunity Act, which prohibit financial institutions from discriminating on the basis of race and color in their mortgage lending practices. The complaint alleges that from 2010 to at least 2015, KleinBank structured its residential mortgage lending business in such a way as to avoid serving the credit needs of neighborhoods where a majority of residents are racial and ethnic minorities.
DOJ’s Allegations
According to DOJ the bank’s alleged redlining practices include: excluding majority-minority neighborhoods from the area it serves; locating branch offices and mortgage loan officers in majority-white neighborhoods, but not in majority-minority neighborhoods; and targeting marketing and advertising exclusively toward residents of majority-white neighborhoods. From 2010 to 2015, comparable lenders generated applications in majority-minority neighborhoods at over five times the rate of KleinBank and made loans in majority-minority neighborhoods at over four times the rate of KleinBank.
KleinBank’s Counterargument
KleinBank vigorously disputes the DOJ complaint that alleges the 110-year-old bank has engaged in “redlining,” asserting in this case that it has intentionally not served the mortgage credit needs of minority borrowers in Minneapolis and St. Paul.
“The government’s claim of ‘redlining’ has absolutely no basis in fact,” said Doug Hile, president and CEO. He added that the facts are that, “Minneapolis and St. Paul are not part of KleinBank’s market, and we have virtually no business there. These are highly competitive markets and they are comprehensively served by well-established financial institutions with numerous branches and many years of history.”
The complaint alleges, however, that KleinBank had a proactive duty to expand beyond its century-old roots in Carver County and western Minnesota to build branches in Minneapolis and St. Paul, which Hile termed “a baseless and unprecedented reach by the government.”
Like all banks, KleinBank is subject to extensive and rigorous examinations by federal and state regulators. “Year after year, the results of these examinations have found that KleinBank has well served all of its constituents’ needs. ” Hile said.
Worth Watching?
Apparently KleinBank plans to fight DOJ. Everyone wants to fight DOJ until the reality of taking on DOJ in Federal court sets in. Will they fight or will they settle?
KleinBank’s counterargument is compelling. They have always served the area west of Minneapolis and St. Paul. DOJ and the CFPB have been chewing up banks in redlining cases where a bank takes sections of the market, but excludes majority-minority census tracks. Klein Bank has not attempted to serve Minneapolis and St. Paul. If the case gets litigated will the District Court be sympathetic to KleinBank’s position?
A win in this case would be really good news for a substantial number of banks around the US.
A copy of the DOJ complaint is available at https://www.justice.gov/opa/press-release/file/926566/download. Copies of the maps used by DOJ are available at https://www.justice.gov/opa/press-release/file/926571/download and https://www.justice.gov/opa/press-release/file/926576/download.