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Government, Politics & Issues

Bank settles with Justice Department over allegations of discrimination

This article first appeared in the St. Louis Beacon, June 16, 2011 - Midwest BankCentre and the U.S. Department of Justice announced today that the bank has voluntarily agreed to resolve allegations that it had discriminated in its residential mortgage practices from 2006 to 2008.

Under the terms of the agreement -- in which the bank admits no wrongdoing -- Midwest will open a full-service branch in Pagedale and will invest about $1.45 million in St. Louis neighborhoods that are predominantly African-American.

The settlement awaits approval by the U.S. District Court for the Eastern District of Missouri, where the complaint by the Justice Department was filed. The Justice Department had alleged that Midwest BankCentre violated the Fair Housing Act and the Equal Credit Opportunity Act, which prohibit financial institutions from discriminating on the basis of race and color. The suit also alleged that the bank had better served residents of predominantly white neighborhoods than African-American neighborhoods.

In its statement, Midwest BankCentre said the bank has worked with the Justice Department for several months to resolve the allegations and that the parties had voluntarily reached the agreement to avoid the costs and burdens of litigation. Midwest noted that the agreement contains language in which the bank "emphatically denies" the alleged violations.

"We are pleased to be moving forward," bank chairman Ronald T. Barnes said in the news release. "Midwest BankCentre will continue to advance constructive banking, lending and educational programs that will make a meaningful difference in our community. The St. Louis region has been good to Midwest BankCentre for 105 years, and we look forward to continuing our efforts to help address the economic challenges so many in our community are facing today."

In March, Federal Reserve regulators had given Midwest BankCentre an overall "needs to improve" rating in its Community Reinvestment Act (CRA) performance evaluation, citing gaps in the bank's lending to low- and moderate-income borrowers.

The bank scored a "low satisfactory" rating in two of three areas of its fair lending review -- the investment test and the service test -- and a "needs to improve" in the lending test, which is weighted more heavily by regulators.

An overall "needs to improve" rating is seldom given. A search of the Fed's CRA database turned up four such ratings to Missouri banks since 1990; the three previous were given to banks in 1990 and 1991.

In March, Barnes said the bank had taken steps to make it easier for potential customers to access branch locations and was working to forge community partnerships, support neighborhood improvement programs and broaden credit assistance in underserved communities. Those steps include a new full-service branch in Pagedale in partnership with Beyond Housing, a nonprofit agency that provides housing and support services to low-income families.

In October 2009, housing and community advocates with the St. Louis Equal Housing and Community Reinvestment Alliance (SLEHCRA) accused Midwest BankCentre of failing to provide equal access to African-Americans in a public comment letter filed with the St. Louis Federal Reserve in advance of its CRA review.

The Justice Department's announcement of the settlement said its lawsuit had originated from information gathered by the Metropolitan St. Louis Equal Housing Opportunities Council (EHOC) in 2009 and a referral to its civil rights division made in 2010 by the board of governors of the Federal Reserve. EHOC is a member of the SLEHCRA alliance. As part of the settlement, Midwest will pay $25,000 to compensate EHOC for resources diverted to its lending investigation.

In addition to opening the Pagedale branch, the Justice Department said the bank has agreed to:

  • invest $900,000 in a special financing program to increase the amount of credit the bank extends to areas of the Missouri portion of the St. Louis metropolitan area that are predominantly African-American
  • spend $300,000 for consumer education and credit repair programs
  • spend $250,000 for outreach to potential customers and promotion of products and services
  • conduct fair lending training for its employees

The agreement also notes Midwest BankCentre's active participation in an effort by a local task force to address issues regarding the large number of unbanked and underbanked St. Louisans -- an initiative started by the Federal Deposit Insurance Corporation.
Barnes' statement said the bank's mission includes improving the communities it serves. "We've done so throughout our history by offering traditional banking services and creating free community programs offering financial advice and education,'' he said. "Our newest initiatives are the next steps in our ongoing commitment to do all we can to support the people and communities of our region."

In the Justice Department statement, Thomas E. Perez, assistant attorney general for the department's civil rights division, noted that lending discrimination deprives communities of access to credit and leaves the residents of minority neighborhoods vulnerable to predatory lenders.

"This type of discrimination is part of the web of intolerable practices that stripped vast amounts of wealth from communities of color in the last decade," Perez said. "We are pleased that Midwest BankCentre has begun working with community groups and agreed to invest and take creative steps to build credit in an area that has been long been neglected by the banking community."

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